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Wiretap Wednesday: Frax Finance AMA
Frax Finance is a suite of DeFi products built around the stablecoin FRAX. Find out how FRAX combines a collateral and algorithmic approach to stability.
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The crypto metasphere proves its resilience once again.
Despite the market turbulence, DeFi and NFT projects continue to ship tools for a fast and efficient digital economy.
A critical piece to this digital economy is stability.
Frax Finance is a stablecoin with a robust framework to preserve stability. Frax delivers “a cryptocurrency being partially backed by collateral and partially stabilized algorithmically.”
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Wiretap Wednesday: Frax Finance AMA
Tell us about discovering blockchain at UCLA, and the Dogecoin mining days?
In late 2013, I heard about Bitcoin from a friend in my fraternity in passing. I didn’t really think too much of it other than telling myself I’d read up on it. It turns out that out of everyone that was talking about it that day, I was the person that went deep into the rabbit hole, never to leave. After reading about mining, I thought it would be a great hobby to take up. I used to also work in a few labs that did data modeling so they had a lot of computers they threw out when they upgraded their hardware. I would salvage the power supplies and motherboards on these computers and source GPUs myself and stack up a large frankenstein-like series of rigs in my dorm. It also helped that electricity was flat rate. The rest is kind of history because I was pretty much hooked since then. I started keeping up with Ethereum as soon as it was announced. Even when I started Everipedia and it didn’t have a cryptocurrency component, one of the first pivots we did was to build the infrastructure on blockchain technology.
When was the first time you conceived of FRAX, and how long was it from that moment until you executed the first bit of code?
Even though the very first nascent ideas for FRAX started in late 2017, we didn’t actually start formally starting the project until early 2019. Building an algorithmic stablecoin that actually works and holds the peg is arguably one of the most difficult things to build in all of crypto. It took many months of work to land on a final design that we were confident would be superior to all other previously proposed algostables. FRAX’s overall mission is now even arguably bigger than before because in addition to the dollar pegged stablecoin, we are building the first crypto native CPI called the Frax Price Index ($FPI) which will define a new unit of account that can succeed the dollar. The goal with the $FPI is to provide inflation protection and new CPI improvements while creating a new stable currency unit.
Where do you see FRAX fitting into the crypto ecosystem and how has that vision changed over the last 4 years?
I truly believe algorithmic stablecoins are the 3rd and only other trillion dollar crypto narrative other than Bitcoin and Ethereum. I’m bullish on both Bitcoin and Ethereum as well as algostables because I think they each solve very clear problems individually. I don’t buy into the maximalist view of Bitcoin or Ethereum that they both are price stable money, very scarce, and that everything will be denominated in them in the future. I think those uses are so different that it is economically irrational to hold such views. I want to position FRAX and our Frax Price Index to be the final piece of the puzzle that fulfills the Bitcoin and Ethereum vision of having stable and decentralized currency onchain.
Can you explain what a fractional stablecoin is, and what makes it different from collateral (and other type) backed stablecoins?
FRAX is the first stablecoin that introduced the concept to the world. The goal was to explore what a stablecoin would look like in the middle spectrum between the 150% overcollateralized model of Maker DAO and 0% models like Basis. Essentially, FRAX’s collateral ratio changes as a function of its market price and settles on the equilibrium that the market is comfortable with pricing the stablecoin at $1.
What’s your experience playing in the algo stablecoin world (ESD, DSD, ZAI)?
I actually was actively participating in the early algo stablecoin communities like Basis Cash, ESD, and some others. I even wrote the first Basis Cash Improvement Proposal. I always liked helping out where I could. I don’t think algo stablecoins are a zero sum game because there is so much value to create. I’m a big proponent of inter-project partnerships in the stablecoin space.
Why are algorithmic backed stablecoins crucial for the decentralization ethos of DeFi?
FRAX’s goals, especially with the $FPI, is to provide a decentralized digital asset that is price stable. In that sense, it is essentially fulfilling Bitcoin’s original mission of peer-to-peer cash (which was abandoned after the block size wars). Truly censorship resistant, onchain stablecoins are the endgame of crypto in my opinion. That’s why this is the most exciting sector of the industry to work in.
Do you have any integrations or partnerships on the horizon?
Yes! FRAX is entirely multi-chain and we are quickly expanding to many networks. We recently launched on Saber on Solana, on mStable on Polygon, and we’ve launched our Lending AMO with Rari Capital’s Fuse pools. We have integrations with new protocols and partners almost every other day. It’s a very exciting time to build an algostable.
Additionally, we have some big things planned for the Frax Price Index with other stablecoin protocols in the next 1-2 months.
Do you have any comments on the Tether/regulation conversation?
Contrary to what most people might think, I actually don’t believe that fiatcoins will get banned or require KYC for everyone. I think they will relatively stay the same accessibility for all. If this were to happen, that means the $FPI would be incredibly bullish and more important than before. If fiatcoins do not get banned, the only stablecoin that will have a direct purpose to exist are ones that are creating their own stable unit of account to replace the dollar.
At this point, what does the DeFi ecosystem most critically need to push adoption?
A new peg and new unit of account that has multiple stablecoins tracking it so that it becomes a legitimate peg and coordinating mechanism. I’d like to see Curve stableswap pools with stablecoins pegged to the $FPI (or some crypto native CPI), Uniswap range order liquidity at the $FPI peg, and various farms that foster a new stable unit.
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⚠️ DISCLAIMER: Investing into cryptocurrency and DeFi platforms comes with inherent risk including technical risk, human error, platform failure and more. At certain points throughout this post, we might get commission for promoting certain projects, if this is the case we will always make sure it is clear. We are strictly an educational content platform, nothing we offer is financial advice. We are not professionals or licensed advisors.
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