FRAX & the 4pool Curve Takeover | Sam Kazemian

Sam Kazemian is the founder of Frax, the fractional-algorithmic stablecoin protocol. After co-founding the decentralized Wikipedia startup Everipedia, Sam set out to pioneer the algorithmic stablecoin space. The FRAX stablecoin now has a market cap of over $2.6 billion, and the protocol’s FXS governance token is up 300% in the last year. In this episode, we explore the Stablecoin Wars, in which different protocols compete for liquidity and composability in DeFi. Sam brings a 1st-person perspective into the developments surrounding UST and the recently launched 4pool on Curve, which consists of stablecoins UST, FRAX, USDT, and USDC. A highlight of this conversation is Sam’s parable of an archetypal central bank, in which he cruises through a number of salient takes on money markets and macroeconomics. There is a lot to learn about this Cambrian explosion of financial technology, and Sam is a great teacher. Stick around to find out why walked away from this conversation bullish on Frax. ------ 📣 M·A·C: NFT | Keith Haring Collection for a Good Cause https://bankless.cc/MAC ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALED ETHEREUM https://bankless.cc/Arbitrum ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across 🏦 ALTO IRA | TAX-FREE CRYPTO https://bankless.cc/AltoIRA 👻 AAVE V3 | LEND & BORROW CRYPTO https://bankless.cc/aave ⚡️ MAKER DAO | THE DAI STABLECOIN https://bankless.cc/MakerDAO 🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave ------ Topics Covered: 0:00 Intro 3:30 Sam from Frax 7:50 The Stablecoin Narrative 13:45 The Central Bank Parable 24:45 Backing an Exchange Rate 28:10 Frax Analytics | What is Frax? 37:34 Frax Analytics | The Peg 42:30 Frax Analytics | Comparing 45:03 RSA Gets Frax-Pilled 49:42 MIM vs UST 53:16 The LUNA Token 56:41 Frax Roadmap | FPI 1:04:36 The 4pool 1:14:00 The Stablecoin Wars 1:18:35 What Happens Next? 1:23:20 Closing & Disclaimers ------ Resources: Sam on Twitter https://twitter.com/samkazemian Frax Finance https://app.frax.finance/ Decentralized Finance and the Debt Cycles https://academy.blue-swan.io/blog/decentralized-finance-and-the-debt-cycles Market Share Chart https://www.theblockcrypto.com/data/decentralized-finance/stablecoins/total-crypto-backed-and-algorithmic-stablecoin-supply Do Kwon’s 4pool Tweet https://twitter.com/stablekwon/status/1510021707377287170 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Stablecoins are one of the three trillion-dollar narratives of crypto. And I think that three trillion-dollar narratives are Bitcoin, ETH, and stablecoins.

• 0:12Ryan Sean Adams?

  Hey, Bankless Nation, we've got a fantastic episode for you today. This is the Stablecoin Wars. We're talking to Sam from Frax, who is deep in the Stablecoin Wars. He's one of them, actually. And you know, his framing is maybe not so much wars, but we're going to talk all about algo-stablecoins. We're going to talk about UST, the four pool, Curve Pool that was just launched, what all this means, how it turns into. Actually, we are pre-recording this entire episode, so we've already had our conversation with Sam, and it's a fantastic conversation. David, what were some of your takeaways?

• 0:48David Hoffman?

  Well, first off, Sam starts the conversation with a story about central banking, kind of a made-up story, a parable, but really grounds... We like to say a number of times before in Bankless that crypto is just speedrunning the history of money and finance. And so Sam speedruns through the history of central bank management, right? In a very fantastic story that really frames the whole rest of the conversation. And I had a fantastic time just sitting and listening to that story and had so much to learn just in that one story. And I kind of understood exactly how the rest of the conversation was going to unfold because of that story. So I'm excited for listeners to be able to... Because that's where this conversation starts first, but then we even get to lean into,

• 1:30David Hoffman?

  again, the four pool, the UST, the Doquan spiciness, and how Frax has gotten caught up in the middle of this to Frax's benefit.

• 1:38Ryan Sean Adams?

  Yeah. I'm going to be honest, David, I walked away from this conversation really bullish on Frax.

• 1:43David Hoffman?

  Yeah.

• 1:44Ryan Sean Adams?

  Like, really actually excited. It's been a while since the project was just like, wow, this is really neat. And so we were in education, though, that entire time, actually, like, on the receiving end, learning. Guys, we're going to get to that conversation. One quick announcement, though. We've been telling you for the last week or so about these MAC NFTs from Consensus, Keith Haring NFTs. We're telling you that that was released, would be released on April the 10th, which is National HIV Youth Awareness, HIV and AIDS Awareness Day. Those NFTs have been released, okay? A whole bunch of them are sold out. I managed to get my Keith Haring red just now because I think the yellows are sold out, but the reds, there are still some reds left, at least right now. I minted this baby.

• 2:29Ryan Sean Adams?

  I actually, you could pay in credit card, David, so I didn't have to spend any ETH on this.

• 2:33David Hoffman?

  What?

• 2:33Ryan Sean Adams?

  No gas fees, paid with a credit card.

• 2:36David Hoffman?

  No wonder you paid, you bought one, you didn't have to spend any ETH.

• 2:38Ryan Sean Adams?

  Yeah, dude, so I, no gas fees, I just like, and it's minted on Polygon, so this is it. This is my OpenSea account. It says the floor price is 179, okay? But there's, I'm sure there's no liquidity on this. These red, you pay $25 for. And of course, all of the proceeds go to, 100% of the revenue, I should say, go to support national, go to support AIDS and HIV youth affected by, by that disease. So, super cool there, and there's still time.

• 3:09David Hoffman?

  There's 195 owners of it, and there's, and there's 250 total left. So that is 55 of these ones left. And you say there's no liquidity on it, but that's because no one's buying a $180 NFT that they can go and buy for $150, right?

• 3:22Ryan Sean Adams?

  Yeah, yeah.

• 3:23David Hoffman?

  That's no liquidity.

• 3:24Ryan Sean Adams?

  Well, there you go. So, anyway, there's still an opportunity to do that. And just enter your email address, again, no gas fees. So, quick PSA there, that's the status. David, I want to ask you the question I ask you before all of these episodes, which is, what is the state of the nation today?

• 3:39David Hoffman?

  Oh, the state of the nation today, Ryan, is learning. We are learning. We're learning every single Bankless episode, but we're learning a lot. Sam had a lot to teach us. He's a great teacher, he's a great orator. And so, I just felt like I was in the middle of like, it's both a history lesson and a lesson in, in finance and economics. And it's my favorite type of show. When, I, I am not only learning, but also being entertained at the same time. And so, the state of the nation today, Ryan, is learning.

• 4:04Ryan Sean Adams?

  All right, great episode. Learn with us, guys, on the state of the nation. We'll be right back with Sam. But before we do, we want to thank the sponsors that made this episode possible.

• 4:13David Hoffman?

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• 4:57David Hoffman?

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• 5:41David Hoffman?

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• 6:23David Hoffman?

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• 6:39Ryan Sean Adams?

  Bankless Nation, we are super excited to introduce our next guest, Sam Kasman. He's the founder of Frax Finance. A lot of Fs there. He previously got into crypto, same way David Hoffman, my co-host, did via GPU mining. He also worked on the decentralized Wikipedia project, Everpedia, but in 2019, he started this really interesting algorithmic/hybrid stablecoin project called Frax Finance, which is the topic of today's show because we're going to talk about stablecoins, maybe some of the stablecoin wars that are going on and what Sam thinks of the situation. Sam, welcome to Bankless. How are you doing?

• 7:17Speaker 00

  I'm doing great. Thanks for having me. This is awesome. I'm a huge listener and, you know, excited to be on, discuss everything, stablecoins, cryptoeconomics.

• 7:28Ryan Sean Adams?

  Awesome. Well, we're going to get, I think, in the back half of this conversation to some of what people are calling the stablecoin wars with the introduction of this four pool on Curve and sort of what that means. But I think we should start with maybe, maybe the top, explaining Frax a little bit. But before we do, I want to talk, maybe get some context on why the stablecoins are in the focus of all of crypto right now. So there seems to be like this narrative of stablecoin wars and a lot of conversation around UST these days and algorithmic stablecoins. This wasn't the case in 2019 when you started Frax, right?

• 8:13Ryan Sean Adams?

  Like, stablecoins weren't as talked about and certainly algorithmic stablecoins weren't in the limelight. Why do you think everyone is having this conversation now, Sam?

• 8:23Speaker 00

  Yeah, definitely. That's a great question. So like you said, I've been in the crypto space for a while, kind of like how David got into it. It got in around 2013, 2014-ish. I was at UCLA, a college student, and I started kind of just mining cryptocurrencies. Dogecoin was actually the first one I started mining. I still remember, you know, being like one of the first people to sign up for the ETH newsletter when it was announced in like 2014, when, you know, Vitalik started talking about ETH. And back then it was counterparty and colored coins were the thing, right? As you guys probably remember.

• 9:06Speaker 00

  And stablecoins were not even in the conceptual like framework back then, right? The earliest thing that's kind of, I think, I like to call the stablecoin white paper is Robert Sam's Is Cineridge Shares white paper, which some people might have read. I actually like to call it like it's one of the most kind of like important pieces in like stablecoin design because it introduced the two-token system of, you know, you have a stablecoin on a blockchain and then you have a share token or like, you know, the volatile token that represents, you know, future cash flow or signage or whatever, and you could try to stabilize these things. And that was even before, you know, smart contracts came out.

• 9:49Speaker 00

  His thing, his white paper was about proof-of-work blockchain. You just have a proof-of-work blockchain and, you know, you have two tokens in it instead of, you know, one, one volatile one. And so the industry's come a really, really long way, right? And just like how there's really important trends that, you know, grow exponentially, like DeFi summer 2020, right? Like all of the yield farming, DeFi primitives and all these things, and then NFTs. I think the next big thing is, is, uh, stablecoins. And the reason for that is I think the, the infrastructure and the ability to launch your own, you know, uh, stable asset is finally mature enough to have that kind of came.

• 10:33Speaker 00

  Cambrian explosion, right? Like, I actually like to kind of say, there's, you can now, uh, there's like a WordPress of stablecoins now, right? You can, you can create your, you just, you need like a deep curve pool, or you need to be three pool or something, some really concentrated liquidity. You have to make sure to give enough yield, uh, there. And it's like a cookie cutter playbook now, right? The infrastructure is there, just like how the infrastructure for NFTs with OpenSea and minting and generative art and stuff, uh, was there. And then you have this kind of curve, right? We're, we're at the point where you have the infrastructure to kind of cookie cutter, uh, stablecoins. So there's going to be a Cambrian explosion of, uh, these kinds of things, I think, in the next, you know, from now until the next, like, 12 months, basically.

• 11:16Ryan Sean Adams?

  Do you, do you think, um, we had a guest recently who said, uh, stablecoin is crypto's killer app? Would you go as far as to say that? Like, stablecoin is the big thing that, um, you know, crypto is meant to deliver?

• 11:28Speaker 00

  I think stablecoins are one of the three, uh, trillion dollar narratives of crypto. And I think that three trillion dollar narratives are Bitcoin, ETH, and stablecoins. That, that's my, that's my, uh, view. And so that's why I got really interested in stablecoins. That's why I've like, kind of, uh, I look at it from a historical point of view, like, you know, the first, you know, stablecoin white paper, you know, this, and where Frax falls in line and Maker and all these things. I try to actually almost study it like a, like a, uh, evolution, right? And, um, I think it is a trillion dollar narrative. And so, uh, I actually am, uh, of the belief, like, for example, Bitcoin is, is a different kind of asset,

• 12:13Speaker 00

  and ETH is a different kind of asset, and stablecoins are a different kind of asset. And all three have such large, uh, potential that they're the three, in my opinion, multi-trillion dollar, you know, narratives. The T, the T, uh, size, uh, narratives of crypto.

• 12:31David Hoffman?

  People have spent their entire careers focusing in on stablecoins. When there's so much to pay attention to in the crypto industry, sometimes people just get compelled by stablecoins and that's just the thing that they are interested in. And inside of that, algorithmic stablecoins have had their own very rich history in the crypto industry. There's plenty, plenty of history lessons to learn as algo stablecoins have tried to get out the door. There's, there's the story of basis. Then there's like the exploding stablecoins of MT Set Dollar and Dynamics Set Dollar. And it really took a while for the algo stablecoins to really get their engine revving.

• 13:10David Hoffman?

  I think Frax being one of the first models of the stablecoins, the kind of algorithmic stablecoins that really started to work. And then U S T being the second one, but correct me if I'm wrong, Sam, but we've never seen a pure algo stablecoin actually work. Frax has algorithmic components, U S T has algorithmic components, but they all step away from the purely algorithmic stablecoin model. And I'm wondering if you think that the algo stablecoin model is actually impossible? Just based on perhaps some of the design decisions that goes into algo stablecoins. Like, do you think it's at all possible to produce a purely algorithmic stablecoin?

• 13:48Speaker 00

  That's a good question. In fact, I think a short story about central banking is like a good way to frame this conversation. And I actually got this short story from J P Coning's blog, who's like a money blogger. But basically, this should kind of answer your question. This is like a short story about a central bank. So it goes like this. At the beginning, there's a central bank and they issue pieces of paper that say one ounce of gold on them, right? And everyone's familiar with this, right? And every single day, there's a redemption window at the central bank physically, right? And people are able to come and give their pieces of paper to the central bank and get an ounce of gold for each one. Okay?

• 14:31Speaker 00

  And the next part of the story goes that the central bank says that, hey, there's a two-month renovation at the central bank. So we have to close the redemption window. But the gold is all there for every one piece of paper that says an ounce of gold. There's an ounce of gold at the central bank. But we're closing redemptions for two months because the central bank has renovations and it's going to open after two months. Okay, after two months, the central bank officials come and say, "Okay, actually renovations are taking much longer than we thought. It's going to take six months more and the central bank is still closed. But we can't just have these pieces of paper that say they have one ounce of gold written on them not trade for

• 15:16Speaker 00

  an ounce of gold, right? Especially because, you know, there haven't been redemptions for two months. So what we're going to do is every day the central bank officials are going to go in the central bank, grab some of the gold, go out into the trading markets and buy and sell the pieces of paper for an ounce of gold from the gold that they take out of the central bank. AKA they're going to provide liquidity at the exchange rate of these pieces of paper. And every day they're going to go back and get more gold if they need to, or they're going to buy more of the piece of paper for an ounce of gold to make sure that the exchange rate of the pieces of paper that say an ounce of gold stay there. But no redemptions, right? The central bank is under construction, no redemptions, no one to one getting from the central bank.

• 16:01Speaker 00

  But the gold is still there. It's all one to one backed by gold.

• 16:06Speaker 00

  Okay, so after the six months of the renovation turnaround and six months later, the central bank comes out and says, "Okay, look,

• 16:17Speaker 00

  there's actually not one to one gold in the central bank. We actually lent it out during construction and sold some of it. But we have assets, we've sold it out for loans, bonds and these things. We have some gold, which is what we were continuing to go every day and market make the pieces of paper so that they are always worth an ounce of gold per piece of paper. But we don't have one ounce of gold for every single piece of paper in the open market. So construction is done, but no more redemptions. There's no more redemption window. No one can come to the central bank and actually ask to be redeemed for. But we will keep doing the thing we're doing. Whereas we take some of the gold we have in.

• 17:01Speaker 00

  We're gonna go buy and sell pieces of paper for an ounce of gold. We have a commitment or a central bank. We're the largest market player in the entire economy. We will make sure those pieces of paper trade at an exchange rate of an ounce of gold per piece of paper. And so after a while, right? The final part of this story. And, and one, one thing I actually wanna say here is, is uh, the, the gold standard that everyone talks about, right? Like nineteen seventy-two, when Nixon took the dollar off the gold standard. The gold standard everyone really likes is this part of the story right now. Where there's, you can't redeem dollars for, for the, the actual backing.

• 17:45Speaker 00

  Because there isn't one-to-one at Fort Knox. There isn't enough gold ever, right? But the government has a complete, uh, you know, duty to maintain the exchange rate of, of the piece of paper as best they can, right? So where does our story end, right? The, the final part is after a while, right? The central bank says, okay, look, it's really hard to keep these pieces of paper that say an ounce of gold pegged at an exchange rate of an ounce of gold with very little gold. We, we sold most of the gold. We have a bunch of loans that are making money, but, but that's not gold, right?

• 18:28Speaker 00

  The, the prices of those things change and stuff. So what we're gonna do is forget that one ounce of gold per piece of paper. We were no longer gonna market make at that price and guarantee that. What we're gonna do is that we realize that in industrialized economy, the most important thing is not that our pieces of paper are, you know, pegged to an ounce of gold. What we have to make sure to do is the people that are getting paid in these pieces of paper. To make sure what is the most important thing in an industrialized economy that people need? Such as food, such as rent, medical care, cars, electronics, you know, just good consumer items, right?

• 19:14Speaker 00

  Things that keep your standard of living the same, you need to be able to afford medical care, rent, all of this stuff. And what we're gonna actually do is we're gonna compile all the prices of those things against this piece of paper. And if the price of those things are going up, right? Then what we're gonna have to do is we're gonna have to buy some of the pieces of paper back with the assets that we have, which is very little gold, but a bunch of other stuff, right? And if the economy is becoming more and more productive, so more food is being produced and more cars and all these things. And the and the prices of those things are going down, actually. What we'll do is we'll just print more pieces of paper, right?

• 19:57Speaker 00

  To make sure the price actually stays the same, right? And so we'll buy more balance sheet assets. Forget the the gold exchange rate, right? And that's what happened after nineteen seventy-two, right? And I wanted to tell this the story to actually frame this this full conversation about stable coins because obviously, this is actually the full true story of central banking evolution, right? You you start with one-to-one redemption and then you you stop the redemption. You say you can't actually come to the central bank and get stuff from us. And then that's when the central bank can be like, we can sell some of it, right? There's no longer need one-to-one.

• 20:42Speaker 00

  We can invest it in stuff and make money. But we have to make sure we have some to market make and make sure the exchange rate is always the same thing we want. And then you start realizing, or the the government starts realizing like, holy crap, it's really hard to keep the peg of something when you don't have a lot of that thing, right? And then they're like, it's actually much better to just peg to a consumer basket of items. And that does actually have obviously certain advantages, right? But Back to the stablecoin question. The reason I wanted to say this is that every financial thing, including stablecoins, evolves somewhat similarly and has properties of these things.

• 21:27Speaker 00

  You look at, for example, Tether, right? Tether started out as saying, "Look, we have pieces of paper, they're called USDT tokens, and each of them have $1 behind them," right? After a while, Tether was like, "Okay, actually, you can't redeem them anymore, because like, you just promised that we will keep the exchange rate the same, but you can't redeem them from us, only some people can," or whatever. And then after a while, they're like, "Actually, we don't have one-to-one, like, dollars for the pieces of, you know, paper or USDT tokens," right? It all looks the same, and obviously, like, there's, there's like, laws that are passed as a society where people are like, "Look, if you issue a piece of paper that say, like,

• 22:11Speaker 00

  there's something behind them, right, you need at least 10% of that thing, at least, right? Otherwise, you're committing a crime," right? That's called reserve requirements, right? And so, back to your question, I think it's interesting because at first, people thought that you could have algorithmic stablecoins with absolutely no anything, right? Like, like, the equivalent of this would be the, the central bank with zero gold, with them saying, "The, the pieces of paper have to have 1 ounce of gold, you know, exchange rate." That's, that's not gonna happen, right? Like, that, so the answer to that, I think, is, is no, unless there's, you know, a, a

• 22:54Speaker 00

  lot of market making going on, so someone's gotta pay for it, right? And so, that's actually where Frax falls in line here, is like, we like to call ourselves the inventor of the fractional stablecoin, right? And the, the thing is, Frax is named after that, the name is a portmanteau of the word fractional and algorithmic, right? And the idea behind it is, it actually sits right in the, the kind of second-to-last point, which is... You can have a fractional banking system that works pretty well. Obviously, there's constraints, right? If you don't have enough of the thing, things start to fall apart, right? But most of our financial system revolves around the fact that if you keep a currency

• 23:36Speaker 00

  stable, you need some of it, right? You need some of the gold if you're pegging to gold. You need something very, very, very, very similar to dollar equivalents if you are pegging to a dollar. But you can have an algorithmic supplier, expansion, contraction kind of thing. And that's what Frax did. Frax actually invented that. Before Frax, no one else was talking about that. And, you know, I think if there's one thing in terms of crypto economic design that, you know, we're hopefully going to be known for is that we invented the fractional, you know, algorithmic design. And one thing is that we've never broken our peg. And our definition of the peg is one cent of, one cent on each side. So one dollar and one

• 24:20Speaker 00

  and ninety-nine zero cents. And we only look at like on-chain stuff because all of our liquidity is on-chain. So like centralized exchanges can trade whatever they want. But on Uniswap, on Curve, which we're the largest pool on, Uniswap were number five or six, we have never broken our peg. And we have billions of dollars of liquidity on-chain. So like, that's one thing we're very proud of that we've designed. So that's kind of where Frax falls along.

• 24:46Ryan Sean Adams?

  Sam, I think we want to get into the design of Frax a little bit more. But that was a really, really interesting story. And I think for a lot of people, yeah.

• 24:55David Hoffman?

  I thoroughly enjoyed that. That was lovely.

• 24:58Ryan Sean Adams?

  JP Koning, by the way, is really fantastic on this space. Interesting, sometimes JP Koning is crypto skeptical, which I actually enjoy as well. But, you know, the story also reminded me of this chart from Ray Dalio. I don't know, Sam, if you've ever seen this, right? It's like, he's like the macro cycles of money, where you start with the hard money, like metal coins, and then society inevitably goes to claims on hard money. So from type one, hard money, to type two, claims on hard money, which is banknotes. And then you get to type Three, which is fiat money, which is the US dollar today, where it's not really backed by any claim on hard money. It's certainly not hard money. And it strikes me in crypto, we have all three of these experiments kind of brewing at the same time.

• 25:42Ryan Sean Adams?

  We have the hard money, which would be, you know, the first two pillars of trillion dollar use cases, you might say, which is the Bitcoin and ETH, and there are maybe some other examples in crypto of hard money. And then you've got the claims on hard money. And then you've got like fiat money. And I'm wondering, like, what FRAX is in this? Is it sort of a type two claim on hard money, would you say? It's certainly not full type three fiat money, where it's, you know, more kind of algorithmic. Is it something more like, you know, a claim on hard money?

• 26:15Speaker 00

  Yeah, so this is actually a great thing as well. The cool part about the story, like you're saying, is we can actually ask that question, right? Like, where in the story that we just talked about, does this fiat money come into play? Is it where you can no longer redeem the pieces of paper that say, you know, an ounce of gold for gold from the issuing entity? Or is it when, you know, the issuing entity says that they no longer have one to one behind it, but they'll do everything they can with the assets that they have to maintain the exchange rate in the open market? Is that where fiat money is?

• 26:55Speaker 00

  Or I think personally, so from the question, I think it's when you, as like a government, say, okay, we're no longer maintaining even an exchange rate to something that's hard, right? Something that is, you know, something like gold and doing something like the basket of consumer goods. Because that, like, when people talk about the gold standard, right? When Nixon took us off and stuff. The US government did not have enough gold for the circulating supply of like the money stock, right, the monetary base. And so the way they were doing it is they're just stabilizing the exchange rate, right? And I think that right now, most people would think that fiat

• 27:39Speaker 00

  money is when you just completely float against an exchange rate of like any hard asset, right? And so that's interesting because as you guys probably know, and we'll talk about, we had, Frax is a two-stablecoin system, right? There's the Frax price index that we actually released last week. But I think that Frax, basically, right now is partial hard claims on like hard money, right? Because we have hard assets, right? And we try to keep an exchange rate to the dollar.

• 28:10Ryan Sean Adams?

  Can we actually look at this? I know David wants to get to like more talk about stablecoins in general. More triangles, more trilemmas ahead of us. But just really quick, so we understand. So I'm pulling up app.frax.finance. This is sort of a chart of Frax and FXS and a few other things. Wondering if you could just kind of decompose us a little bit. So we see here Frax. We see this number, market cap of $2.6 billion. We see this other number over here, 85% collateralization ratio. We also see this other asset called FXS, which is a $1.8 billion market cap. Can you explain some of the things that we're seeing on the

• 28:55Ryan Sean Adams?

  dashboard so that folks can understand Frax with the numbers and what it's actually composed of?

• 29:00Speaker 00

  Yeah, definitely. So Frax launched with just two tokens, Frax and FXS, all the way until last week, actually, when we launched the Frax price index stablecoin. So Frax is just the dollar stablecoin. Each Frax is $1, super simple. Price is great. Frax shares is the governance token of the Frax ecosystem. And it's actually named after the Robert Sam's white paper that I think is his historical one because it's called Signor Shares. Named as frac shares. And so that's just the governance token. The collateral ratio there is actually the hard assets that are in the reserve

• 29:42Speaker 00

  or in the smart contracts in the series of, you know, system smart contracts. Uh, we started out 100% as you can see, and then quickly kind of stabilized or kind of moved around between 90 to 80. Uh, and those are the hard assets that the protocol can can lay claims to. A lot of them are curve LP tokens, as you could see right on under the uh, value there. A lot of them are collateral from lending operations, which we call uh, AMOs, algorithmic marketed operations. Those are just very similar to MakerDAO, right? You, you have a bunch of fracs that you can uh, borrow, right? And, and you collateralize it with uh, over collateralize it with Ether or everything else, right? So that's kind of like the, the MakerDAO die kind of system.

• 30:27Speaker 00

  The algorithmic section is the section that is kind of, the supply is expanded and contracted based on minting uh, or burning uh, frac share tokens, right? Like the, the actual governance token. Some people like to call it um, fracs is 100% collateralized, but there's just some of it that's collateralized by its own governance token. These are, it, it's, it's not just uh, semantic, but I think it's important to think about like, I would never say like, something is necessarily backed by itself. Because like, you can't say like, the dollar is collateralized by other dollars at the Federal Reserve.

• 31:11Speaker 00

  I don't know, it's just, it seems a little nonsensical.

• 31:13Ryan Sean Adams?

  Help us understand that again. So these curve AMOs, these are curve LP tokens, right? So these would be composed of other stablecoins, basically.

• 31:22David Hoffman?

  Basically, it's a yield-bearing stablecoin position, right?

• 31:25Speaker 00

  Yes, exactly.

• 31:26Ryan Sean Adams?

  So, DAI, USDC, US, like, Tether, that sort of thing?

• 31:31David Hoffman?

  Plus trading fees in Curve.

• 31:33Speaker 00

  Exactly, and CRV emissions and CVX emissions.

• 31:37Ryan Sean Adams?

  Got it. And this liquidity AMOs, you said that was more like Maker Dow collaterals?

• 31:42Speaker 00

  Those are like protocol and liquidity. So like, we have like, you know, some ETH as collateral that we don't keep idle in a smart contract. We actually like deploy in like a, you know, Uniswap pair or other places.

• 31:54David Hoffman?

  ETH, DAI, Uniswap V3 LP positions?

• 31:57Speaker 00

  Exactly, exactly. So there's a lot of protocol and liquidity just outside of Curve. And we're on many chains. So a lot of these are actually on different chains that are like natively protocol-owned liquidity, Fraxes, mintable and issued on 12 different chains. A lot of them EVM and L2s, like Arbitrum, Optimism, Polygon, Moonbeam, you know, Phantom, all of these things. So a lot of that is on those other chains as well.

• 32:22Ryan Sean Adams?

  Cool. And this algorithmic section, which is about like, I don't know, 15% or so? Is that about right?

• 32:27David Hoffman?

  That's the unbacked side.

• 32:29Ryan Sean Adams?

  That's the unbacked side, or it's backed by the value of FXS, which is basically the Frax governance token. Now, if you were to contrast this with like, UST, for example, UST would be like, almost entirely this algorithmic type section, which is like, all kind of Luna tokens, aside from, maybe you might start to count the reserves, the Bitcoin reserves that the LFG group purchased recently.

• 32:56David Hoffman?

  The centralized off-chain LFG group.

• 32:59Ryan Sean Adams?

  Yes.

• 33:00Speaker 00

  Yeah, I would say that that's, that's correct. Like, in fact, you know, I think a lot of stablecoin projects, especially Terra, which is like the largest decentralized one currently, are seeing there's a lot of, you know, important strengths to the fractional model, right? So yeah, I think that basically before the Bitcoin announcement, this, if you were to make this chart with Terra, most of it would be black, right? Most of it would be algorithmic, right? And now there would be a big slice, I'm not actually exactly sure I think. Is like anywhere between 10 to 30% or something like that would be Bitcoin, right? It would basically, uh, there would be a slice of Bitcoin.

• 33:40Ryan Sean Adams?

  It's funny because we see U S T moving in your direction. They're moving more in the, the like fractionalized direction and less algorithmic. So it's almost like, I, I don't know if Frax is moving more algorithmic, but they're certainly coming more towards your design.

• 33:54Speaker 00

  Yeah, I mean, so we, so like I said, what our, our name is literally after the fractional stuff we, we invented. But I don't really even think we, we like own the idea or anything. I think what's interesting is, like I said, financial evolution has the same kind of, uh, evolutionary pressures, it's just economic, right? So I like as, as things progress, right? And like in economy, they start looking the same in terms of what the, the kind of right answer is in terms of efficiency and, and kind of like how everything will work. I think, I think most things will look a lot like this. The only difference is like what collateral ratio they'll, they'll keep stuff at, right?

• 34:34Speaker 00

  And in fact, you know, you, you could argue that, you know, Maker Dao, for example, is, is not algorithmic, it's, it's over collateralized. But the other way that I like to compare, you know, Maker Dao actually is that, going back to our kind of central bank story, right? Maker Dao started with a very fundamentally sound thing, right? They were like, we're going to issue pieces of paper that, uh, say a dollar, but like we can't actually hold dollars, right? So what we're going to do is we're going to back the pieces of paper with like $2 worth of other stuff. For every one, one dollar that we have, a piece of paper that needs to be a dollar, we're going to have $2 of other things, right? Or like a loan on $2 basically.

• 35:18Speaker 00

  After a while, again, everyone, whether you come from the algorithmic side of like 0% or the Maker Dao side of like over collateralized, the theme here is you start realizing it's extremely difficult to issue pieces of paper that have an exchange rate for something without holding a substantial amount of that thing, right? And so that is Part of the reason why, you know, the closest thing to, you know, dollars, uh, USDC is, is both Maker has exposure to it and as, as do we, right? Like you can, you can look and there's, there's Curvel P tokens in this stat. And so for example, even Terra, right? Like Terra works with, uh,

• 36:03Speaker 00

  Jump and all of the largest market makers, right? If you don't have the, you know, the actual asset in your central bank, you know, inside of the building or whatever, right? You have to at least pay someone that does to go out into the market, right? And, and like, you know, make sure that the unit is, is trading at, uh, that amount, right? And so it's like, like Jump is absolutely massive, right? They're absolutely huge. Like if you recall the, the wormhole, like, uh, the unfortunate, which was really, really unfortunate. I was saddened to see that, but the wormhole hack of like, what was it? 300 million or something ETH? Uh, Jump was like, I had no problem. Here's 300 million. Uh, let's, let's, you know, uh, let's make everyone whole, which was great and respectable. The same place where all that

• 36:48Speaker 00

  money comes from is also the same place that, you know, market makes the, the biggest of, uh, stablecoin markets, right? And so the thing is, if you want to actually autonomously and internally be a central bank, which I think Terra is going to be the biggest and most impressive one with Frax and probably Maker, right? And, and us, you know, these are the big three right now. You need to actually have, uh, stuff to, to go out and do that, right? You need to have the, the actual assets, the hard assets rather than, uh, having other people kind of do it. And I think that's where the evolution of this stuff is going, right? Where that's what we're seeing both, honestly, both with Maker, right? With, with Frax, with Terra, with, with everyone, right? And that's, that's the honest truth.

• 37:35David Hoffman?

  Sam, so there's a bunch of different collaterals in the Frax reserves, right? And this is the ammo that Frax has to defend the peg, right? Going back to your story about the credit window, right? Where I've got my Frax tokens and I go to the Frax Decentral Bank on Ethereum and I say, "Hey, I would like some assets." Do I get to pick which of the assets I redeem for? Or how does the peg get defended when I come with my stablecoins of Frax tokens and I would like to redeem them? How does that work?

• 38:06Speaker 00

  Yeah, when the redemption window is open, which is like if the peg is even one-third of a cent off, so like literally .33 of one cent, right? You can actually go and redeem them on the redemption tab. And what it is, is that you get a mixture of assets. Like you could see here, if it was open, you get USDC and FXX minted to you at the ratio of the collateral ratio. So that there's never actually, there's never like no reserves, even if you're the last 5% to redeem. Obviously, you know, the thing is everyone gets a piece of the FXX, which they sell, right? Which might have like negative price action and things like that. But the idea behind the way we've done redemptions is

• 38:51Speaker 00

  everyone gets a ratio of the balance sheet, right? And so it actually is an anti kind of bank run mechanism in the sense that it's not that the first redeemers get, you know, one USDC per Frax or one dollar worth of assets and then the last get all of the governance token that's like plummeting. It's actually equal, you know, it's egalitarian. And so the collateral ratio also, as you could see, is dynamic, right? So the collateral ratio has moved up and down across, you know, all the times that we've launched. And the collateral ratio will go up during times of, you know,

• 39:33Speaker 00

  market turbulence and like volatility, so that we give back a higher ratio of assets and it'll actually sell FXX to stabilize.

• 39:44Speaker 00

  At that collateral ratio, even if there's no redemption, even if no one's actually, I mean, to make sure there's actually like that much assets if the collateral ratio is at, you know, 90%, right? So it's actually been a very good at dampening the, you know, the, what people like to call the reflexive, you know, bank run spiral since we've never had one.

• 40:06David Hoffman?

  Right, yeah, that was one of my questions is, is like, is there a risk of people running for the door, right? And this was a conversation that we had in our U S T episode where people are fearful that if there ever is a lack of confidence in U S T, there would be a rush for the door. And if you are unfortunately later to get through the door, you end up holding these tokens that don't have any collateral in the reserves. But what you're doing with with Frax is saying, well, it doesn't matter if you're first through the door, you get a pro rata share of what you are owed, which disincentivizes going in through the door in the first place. So kind of instilling confidence in the, in this, in the value that you would get in the first place, kind of disincentivizing the actual run on the bank.

• 40:50Speaker 00

  That's exactly correct. And not only that, but if there's times where there's a lot of redemptions happening, or if the peg is even off by a third of one cent, the collateral ratio will go up, right? And so like the actual amount of hard assets and, and, you know, the share token you're getting is actually going up. You're getting more hard assets. So it's like an anti bank run mechanism.

• 41:14Ryan Sean Adams?

  And all of these assets here, are these all like sort of on chain? Or does, does some entity have to, some off-chain entity have to maintain custody of some of these assets, right? It's like we were, we're talking about U S T and L F G group actually has to maintain custody of Bitcoin. It's not like on-chain, it's not kind of smart contract back. Is this all on-chain or is there a portion that's not?

• 41:39Speaker 00

  Entirely on-chain. In fact, we take an extremely decentralized and like autonomous kind of approach. And there's no actual legal entity, right? Because, because there's no off-chain, yeah, there's no off-chain assets. Everything you see here is not only on-chain, but also readily available, right? It's not like, oh, there is a, there is some assets here, they're on-chain, but like, they're over there and like, you know, we'll, you know, we'll, we'll go get them or something. It's entirely on the system, smart contracts, it's entirely readily available in terms of you can actually go see exactly in real time, literally per block, where everything is, where, you know, you can.

• 42:19Ryan Sean Adams?

  It's amazing.

• 42:20Speaker 00

  Yeah.

• 42:21David Hoffman?

  It's crazy you even have to ask that question, Ryan.

• 42:23Ryan Sean Adams?

  Why? I mean, the reason I have to ask it is because.

• 42:27David Hoffman?

  Because UST doesn't have it on-chain.

• 42:30Ryan Sean Adams?

  Well, so what's interesting about this, so Dave and I just finished up last week, we did a, you know, UST episode, just unpacking that and learning all about it. It was, it was a pretty good episode, but like, there's kind of the contrast point of sort of the dichotomy behind like a Maker DAO type design, a Maker design and a, and a UST design. I guess I walked out of that episode seeing the trade-offs on both sides, right? So, one of the strengths of Maker is it's far less prone to like these, these tail risk type of events and like de-pegging in a catastrophe, a run on the bank because it's collateralized, right? So it's more safe.

• 43:09David Hoffman?

  For illustration, the collateralization ratio that we see, the 85%, which is very strong for an algo-stablecoin, Maker DAO is something like 250%, so very, very safe.

• 43:20Ryan Sean Adams?

  Right. And so it's got, you know, safety, but the, you know, the Maker bear, and I guess the UST bull was saying, yeah, cool, it's safe, good, nice, good job, bro, but it's not scalable. It's not scalable at all, right? And so they're saying the UST design, look how fast this thing got to $16 billion, and it's because of this kind of memetic utility demand sort of aspect. And, and the bear, the UST bear was saying, yeah, cool, but hold on, that's not safe and it hasn't actually been tested. What's interesting about the Frax design is it sort of maybe takes the best of both worlds, or takes a little bit of column A, a little bit of column B, and it says, hey, we want to bring some of the scalability of an algo-stablecoin design model without having

• 44:05Ryan Sean Adams?

  the tail risk event of like it being fully uncollateralized and there being a run on the bank that could absolutely wreck this thing. I'm wondering if that is sort of the trade-off space. So is Frax more scalable than something like Maker?

• 44:20Ryan Sean Adams?

  Likely a little less safe, but maybe, you know, like acceptable risk parameters. But tell me about the scalability profile of something like Frax. Is it, can it scale in the way that a U S T can?

• 44:31Speaker 00

  Yeah, I thought that episode was great, by the way. I think that everyone was too polite against each other. I was like, well, I think that, you know, this is a great point. But I was like, where's the animosity you see on?

• 44:46Ryan Sean Adams?

  Oh, my God, people thought we were like, we were terrible, like ETH maxies, asking even the questions we asked.

• 44:52David Hoffman?

  That was just the.

• 44:53Speaker 00

  No, it was, it was actually so, it was actually very polite, in my opinion, for everyone.

• 44:58Ryan Sean Adams?

  I thought so, too.

• 45:00Ryan Sean Adams?

  I thought it was great. But yeah, so what about the scalability?

• 45:05Speaker 00

  Yeah, so I think, like, like you said earlier, I think a lot of these stablecoins will probably look something like fractional, algorithmic, like Frax's model. The question will be like, what collateral ratio, right? Like, well, is it something that's very conservative fractional, like Frax, like 85, 86%? Or like, right now, Terra is moving upwards a little bit. I think there's 10 to 20% BTC. I don't know, they're increasing it, that's for sure, right? But I think it just depends on the, the actual protocol's aggressive, like, growth strategy, right?

• 45:43Speaker 00

  Now, one thing I will say is that people focus too much on the actual collateral ratio and less on the actual ability to keep the exchange rate of the thing at the, the actual desired, you know, PEC, right? Going back to our, like, story about the, the one ounce of gold per piece of paper, it's really hard, you know? It's really, really hard. And let's be real, like, both Frax right now and Maker, Frax has less, but, but still, they have exposure to U S D C, right?

• 46:23Speaker 00

  And so Maker has like, what, 60 something, 60%, 57 or something like that? It depends on how much. leverage for ETH there is uh and in terms of that but the reason that's there is because it's really hard to keep an exchange rate to a dollar even if you have you know two dollars of of other stuff uh or two dollars worth of loans and you can't actually still keep an exchange rate without having some of of that thing and no one's been able to fully exactly figure it out now I will give really big props to to Terra's guys and and like they're they're really smart and they're really, really, really uh good at

• 47:06Speaker 00

  strategy and and getting uh Terra adoption. The thing is they obviously have a lot of market making activity from people that have a huge say like interest in in U S T working out, right? They have billions of the the people have like billions of dollars of Luna, right? Luna is like the number seven largest uh cryptocurrency, right? It's it's absolutely massive, right? And so when you have a lot of other people that have billions of dollars of of of dollars, right? And they have as you know, a huge interest in making sure to buy and sell the the stablecoin at that at that peg, right? Then it becomes a little bit easier, right? But but when uh for example, Frax and and Maker,

• 47:51Speaker 00

  what you see on the chain is what you get. We there's we have like no uh there there's no market maker uh none that we've ever talked to or that I'm aware of that for the goodness of their heart is is like you know, deciding to uh keep uh Frax at at a dollar peg. And so what you notice is the two stablecoins that have every single thing on chain,

• 48:16Speaker 00

  they do have some U S D C exposure, right? Like like again, it's very, very, very, very difficult to keep a piece of paper that says one ounce of gold, trading at an ounce of gold if you don't have a bunch of gold, like a lot of the gold itself, right? But we actually uh are doing a lot of stuff to lower U S D C uh exposure. In fact, don't quote me on it right now on the spot, but I'm I'm pretty sure If you actually do the calculation going down underneath, again, don't quote me on it now. But I think we have significantly less USDC exposure than DAI currently does. I think we have like forty something or low forties in terms of like actually USDC and Tether exposure.

• 48:58Speaker 00

  When you when you check the actual lending amounts, the algorithmic amounts, the curve pool, which some of it is DAI itself as well, right? So like DAI underneath it is half or fifty, sixty percent USDC. But when you go through it, we've actually done a fairly good job of being entirely decentralized and consistently weaning off as much as we can fiat coins, right? USDC and Tether while making sure everything is on-chain. Everything is what you see is what you get, which is an extremely difficult thing to do.

• 49:34Ryan Sean Adams?

  This is really cool.

• 49:34David Hoffman?

  Decentralization, Maxi and me likes the on-chain words.

• 49:37Ryan Sean Adams?

  Yeah, same here. I might be getting Fraxpilled right now. It's really cool. I want to just draw our attention to this chart really quick because you said there are three, you know, Elgo Stablecoin designs and we're looking at them here for people we're seeing on YouTube. This is UST in proportion, looks like a market cap of about eighteen billion dollars. So the largest now and DAI is kind of second. If you if you sort of count DAI as an algorithmic Stablecoin, right? Maybe it's a DeFi Stablecoin, as some people would say, nine billion DAI. And then Frax up here is about two point seven billion dollars worth. But there's also MIM here, which I didn't realize that has gone up as well. This is two point seven billion. Can you tell us a little bit about MIM?

• 50:22Ryan Sean Adams?

  That's is that Danny Sesta's project?

• 50:26Speaker 00

  Yeah.

• 50:28Speaker 00

  MIM, MIM, I think it's an over-collateralized model. Actually, we we and this kind of goes back to, you know, what we might talk about with like stablecoin drama or news and stuff, but we love everyone. And so we tried to work with MIM a while ago and they weren't really that interested. And then they, I don't know, they had the weird seafood episode or whatever. And I think that their liquidity is kind of a little bit weird these days. But it is an over-collateralized model. It is fairly large. I think that part of the thing is like. It's used for a lot of DGEN leverage, right? And so this is actually a good example of like, you can be over collateralized.

• 51:11Speaker 00

  I believe MIM is significantly over a hundred percent at least, right? But it doesn't mean that it's not risky, right? So that's actually a really good counter example of, of like, just looking at the CR, right? Of like, how much of this thing is immediately redeemable for hard assets? Like, if there was like a redemption window or something. Doesn't actually give you a very good, uh, picture of, of like, the, the full risk. Because the risk is, is an entirely, uh, summation of all of the possible market activity, right? And so, for example, uh, I think actually, to be honest, obviously, like, I think FRAX is as, as safe as, as DAI, right? Um, I, I really do.

• 51:55Speaker 00

  In fact, um, I think it, you know, DAI is extremely safe. I actually think that, to be honest, I think USD is way more safe than people think. Um, and, and hopefully, you know, this is, uh, not, you know, people don't think I am saying that because we had the Forpool partnership and stuff. Because there's a lot of people that have a very strong interest in the USD peg, right? And so even though that's a very difficult thing to measure, right? Like, it's, it's difficult to model because it's, it's, you know, it's, it's hard to actually quantify. It's, it's much safer than what people think about, uh, like, there's nothing here other than, uh, the governance tokens volatility.

• 52:40Speaker 00

  If that were the actual truth, right? If that was the entire picture, there would be way more times that the USD peg, something that they would have collapsed in, in all of these like, you know, these crazy, uh, downturn, you know, markets like, right? When, when like, whenever we wake up one of those days, like, and then crypto market's like negative thirty, right? And everyone's like, oh my god, right? Uh, it would have happened way more than that, right? So I actually think the big three, uh, and I like to call the big three is like USD, FRAX and DAI. They are much safer, uh, than, than people. Actually think that's my personal opinion.

• 53:16Ryan Sean Adams?

  One last piece, Sam, because we talked about this in our U S T episode. Of course, like part of the backing of U S T is a big part of the backing is the Luna token itself, which is driven by like utility value, right? Which is, of course, we've talked about this in Layer One chains. But presumably, aside from kind of the meme monetary store of value potential behind the Luna token, there's also some utility of Luna being used in the Luna ecosystem, right? What are the drivers of F X S price? Like, why would that go up or down in terms of value? Is it purely sort of like meme value, monetary premium value?

• 53:59Ryan Sean Adams?

  Are there some fees that F X X holders get? Can you tell us about the drivers behind this?

• 54:06Speaker 00

  Yeah, definitely. So the F X S token can be staked as V E F X S. So a lot of people that are familiar with Curve know that this is a model that's fairly popular. And what that is, is you come and you can, yes, exactly. You come in, you can stake your F X S tokens for anywhere between one week to four years. Once you stake them, you can't transfer them, right? You actually, they're staked, they're not tokenized. And then you have a V E F X S balance proportional to, you know, how long you've staked your F X S tokens. And you actually get cash flow from the profit of the market operations of Frax. We call them algorithmic market operations.

• 54:49Speaker 00

  And you could see right now, the A P R is 4.74% down there. It goes anywhere between, you know, three to like 20% depending on how profitable things are and yield opportunities that the protocol is actually conducting stabilizing market operations in. And this is entirely self sufficient, actual profit, not token emissions, not inflation. And like one statistic that I put out is like, so Frax is about 2.7 billion supply. The protocol makes about right around $200 million of annual revenue.

• 55:29Ryan Sean Adams?

  Oh, my God.

• 55:31David Hoffman?

  That's a strong ratio.

• 55:32Ryan Sean Adams?

  Well, in our USC conversation, apologies to keep going back to that, but I think it's useful context. So just let me say to everyone's listening, if you haven't listened to our bull and bear case of UST, go listen to that because I think that's also helpful to understand this entire sector. But one conversation we had, it's a big driver of UST value and market cap, I think, has been the 20% yields that are being distributed from the anchor protocol on the Terra network. And the conversation there is that's basically marketing spend, right? So like the Jump Capitals of the world, we're not sure exactly who the sources are,

• 56:11Ryan Sean Adams?

  but those who are incented to push out UST into the world are subsidizing that and heavily subsidizing that at the 20% rate. It's not necessarily long-term sustainable to do that, but maybe it's worth it for now. This 4.7%, that's not coming from the like marketing spend large.

• 56:33Speaker 00

  Yeah, that is entirely cash flow.

• 56:35Ryan Sean Adams?

  Wow, all on-chain cash flow then.

• 56:37David Hoffman?

  Economic sustainability, you love to see it.

• 56:40Ryan Sean Adams?

  Love to see it. Very good.

• 56:42David Hoffman?

  Sam, just a last few set of questions before we get into the spicy side, the four pool, the stablecoin wars and why you think Doquan has it out against Dai? We'll talk about that. But first, just the remaining roadmap that's on the roadmap for Frax. Let's talk about that. Can you explain what the FPI is and what it is, how it works and how it helps increase the adoption for Frax?

• 57:05Speaker 00

  Yeah, definitely. The FPI is the second stablecoin in the Frax ecosystem. It's the first ever stablecoin pegged to the CPI, Consumer Price Index, which is the prices of a basket of consumer items. In fact, we started working on this last year and last week, coincidentally, we launched and it was a very successful launch and it was highly anticipated. Again, going back to kind of the grand vision, right? Like the thing I said, stablecoins are... The third trillion dollar narrative of crypto. The evolution of stablecoins will probably look like the evolution of of central banking, right?

• 57:50Speaker 00

  And remember the last part of the story of the the central bank was that after a while, they said, okay. Uh, let's not actually peg to some external exchange rate that that we can't control. Let's peg to a exchange rate that is our definition as like a society and a government of of like a a standard of living of like items that we we want this, you know, piece of paper to be able to afford, right? Um, and that's where the FBI is like the FBI is basically, uh, in my opinion, like the final evolution of stablecoins on chain. Uh, we'll probably see a lot of uh, stablecoin projects kind of taking inspiration from like the FBI design.

• 58:35Speaker 00

  In fact, we are uh, working with Volt uh, protocol, which is uh, um, led by Kirk and and a few other guys uh, close to Faye, um, which is another project. And I think there will be a lot more of of these, and that's a great thing, right? And again, like, I think evolution, no matter, you know, what you think about it, it's going to evolve in in that direction, right? And I think it's really powerful because we're going to basically be able to be kind of the the Bitcoin of a self sovereign PEC, right? And so the idea is at the beginning, we're going to have the CPI uh, of the federal government, right? And that's, a lot of people have a problem with that. They think it understates inflation or all this stuff.

• 59:21Speaker 00

  Uh, eventually, the idea is having the weights of the the basket of goods be entirely uh, governed on chain, right? Like basically a a self sovereign economy with a self sovereign definition of standard of living and and inflation, right? Inflation is defined as uh, the actual price divergence of the currency you use against the basket of items, right? Against the the thing that you need. That's exactly what the Fed actually. Defines inflation to be, right? And coincidentally, today was the, you know, Fed and BLS dot gov report on CPI, right? Which is every month, the US government releases

• 1:00:04Speaker 00

  the prices of the basket of consumer goods, right? In dollars. And the inflation rate is defined as, what are the prices of those things in dollars compared to what were the prices of those things last month in dollars, right? If the prices of those things went up, if you need more dollars to afford the same things as you did last month, there is inflation of the dollar, right? It's value is going down. You need more dollars for the same consumer goods. And coincidentally, you know, today is, I think, the highest CPI reading of in like forty-five, fifty years in the United States, which is very concerning, obviously.

• 1:00:48Speaker 00

  But that basically means that in the past thirty days, the value of those pieces of paper to what they were supposed to track is not doing very well, right?

• 1:01:00Ryan Sean Adams?

  Can I just break this down for people, right? So it's like crypto has just produced something really cool and new in the FBI and in fracs, right? So everyone saw the headline. It was a headline around the world this week. CPI now eight point five percent. So, and that's a lower bound estimate, as Sam just said, but your dollar is worth eight and a half percent less than it was a year ago at this time. So did you get an eight point five percent raise in your paycheck? And the answer for just about everyone is probably no, I didn't. Maybe I got a two or three percent if I'm lucky. Well, you lost money. You lost five percent as a result.

• 1:01:36Speaker 00

  Making less money every single year.

• 1:01:37Ryan Sean Adams?

  You're making less money.

• 1:01:38Speaker 00

  Going forward, yeah.

• 1:01:39Ryan Sean Adams?

  By holding it in the dollar, you're making less money. And by getting your paycheck denominated in the dollar, you're actually making less unless you got a raise to compensate. So what does crypto produce? This thing called FBI, which doesn't actually track the dollar. It attract, it tracks CPI inflation. So that eight point five percent that everyone's like, oh shit, I just lost eight point five percent. If you held an FBI, you would have actually been neutral. You wouldn't have lost that 8.5%. If you got paid in FBI, you would still preserve your purchasing power versus getting paid in the dollar. That's something new that crypto is producing that no other system on the planet is producing.

• 1:02:20Ryan Sean Adams?

  Because central banks don't produce that. Like, they're not in tune with what consumers actually want and demand. And this is what's so neat about this project.

• 1:02:30Speaker 00

  Yeah, and that's exactly correct. And so like, you said it better than me, actually. And so the thing is, that's exactly what it is. We actually just launched it last week. And we see a lot of people minting FBI. You can mint it with Frax at the actual peg price. So like, obviously, the growth of the FBI stablecoin will be going higher and higher as the actual peg tracks CPI itself, right? In fact, it's kind of interesting because it's almost like, currently, it's almost like a dollar stablecoin that is growing at the inflation rate. Because we use the exact same CPI basket as the Fed uses for the dollar, right?

• 1:03:15Speaker 00

  Now, obviously, right, the trillion-dollar vision here, again, is like, eventually crypto is this self-sovereign digital global economy. We can vote on the weights of those things, right? And then at that point, the FBI could float against the dollar. It could grow higher than what the Fed defines as inflation, or lower. It depends on what they vote on.

• 1:03:35Ryan Sean Adams?

  I think we'll take it. I mean, protection from even the 8.5% in this climate. This is like back to the 1970s. That's definitely worth it. And I guess the one dependency that this is introducing as well is this connected to like a chain link oracle or something like that to get the CPI data on-chain?

• 1:03:53Speaker 00

  Yeah, so they actually use a custom Chainlink Oracle that we designed with Chainlink and Volt projects. And the good news there is like, there's usually two issues with Oracles, right? One is the actual publisher, right, that needs to be honest, and then two is the place they're getting the actual data correct, right? And so since we're using the government currently, right? It's unlikely the government is going to lie about what the government actually says. It's more about like, is what the government is saying, is it, you know, unbiased or non-political? That is obviously just going to be fixed when there's on-chain, you know, ability to have governance on the CPI gauge.

• 1:04:36David Hoffman?

  Alright guys, so that was the deep dive into the Frax. Got way deeper than I thought we were going and

• 1:04:42Ryan Sean Adams?

  Because we got excited.

• 1:04:43David Hoffman?

  Because we got excited and like we always say, we haven't said it recently, so I'll say it here. Crypto is always speedrunning the history of money and finance. And Frax really seems to be like skipping right to the, right to the end, like right to the point of the frontier. So that's really what gets me excited about this story. In the second half of the show, we got to talk about some of the current events going on because DoKwon's recent proposal for the Curve For Pool is to cause eventually the FXX token, the Frax token, to go from $22 to over $40 inside of a day. And so now there's a bunch of just like clamor about what's going on in the For Pool. So we're going to get to those subjects and also just the long-term equilibrium of the stablecoin wars, or what Sam thinks that the long-term equilibrium is going to be,

• 1:05:28David Hoffman?

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• 1:07:39David Hoffman?

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• 1:08:19David Hoffman?

  And he's introducing the 4pool, a new Curve stablecoin liquidity pool between UST, Frax, USDC, and Tether. And he says, "The Curve wars are over, all emissions are going to the 4pool." And so, this is, one of the spicier tweets that's come out lately, because it's, what it's doing is it's removing a lot of liquidity from DAI, and it's redirecting the liquidity from the former dominant 3pool out of Curve, and pointing, and saying it's going to be pointed towards this 4pool, which instead of DAI, the dominant decentralized stablecoin inside of Ethereum is pointing it towards UST, a decentralized stablecoin that is non-native to Ethereum,

• 1:09:00David Hoffman?

  Frax, another decentralized stablecoin that's on Ethereum, and then USDC and Tether. And so, first off, Sam, did this surprise you? This proposal surprise you?

• 1:09:13Speaker 00

  Well, so first, yeah, I think some background. No, it didn't surprise me, because I've been talking with with Doe for a while. Doe, as I think everyone knows, is one of the smartest and most ambitious guys in the entire space. I mean, Luna is, like I said before, literally one of the largest cryptocurrencies in the entire space, in the entire industry, right? I've known Doe since like 2018-ish, right, when they like started Terra. We briefly talked about stablecoins and stuff, and then, you know, we went off and worked on our own things. And one of the things that's really impressive about Doe, that I think a lot of people

• 1:09:55Speaker 00

  might not get, is like, he's a very, very good strategist, but also, you know, taking everything literally, and I think Jose said this too, right? Like, I don't think he straight up means the, you know, the classic meme of, "It's not like I should succeed," but it's everyone else should die or fail, you know? I don't think you should take that super seriously in that literal way. But, the...

• 1:10:23Speaker 00

  The backstory here with the four pool is that we are Frax and Terra are very methodical and aggressive about how we want to grow and actually permeate, right? If you're a currency issuer, which is what Terra is and Frax is and Maker is, right? You want to get your currency out where there's economic activity. So people can take debts denominated in your currency. They can trade in your currency, they can hold your currency, they can save in your currency, they can do all of these things, right? And there's multiple ways to do that, but at the end of the day, the success of how big a currency is, is how much of economic activity and people are actually using your thing, right? And a good mixture of it, right?

• 1:11:08Speaker 00

  Like everyone's using USD right now to save and anchor, again, like it's great. But we need to get like, if you're a currency issuer, you need to get your currency everywhere else. We're willing to do really big things with the four pool, like basically giving a lot of yield, working with other projects to actually use four pool as their meta pool of choice and curve. Like I said, Curve is kind of like the WordPress of stablecoins or making pegged assets, whether it's stablecoins or ETH and STEETH or whatever, right? And like correlated assets. Curve is a really important piece of infrastructure because it's basically allowed this kind of Cambrian explosion of these projects to evolve. We want to support that.

• 1:11:53Speaker 00

  We want to actually give incentives and actually spend part of the money that Frax makes, right? Or part of the money that, you know, Terra's foundation and they all have access to, right? And there's, there's nothing wrong with Maker not wanting to do the same thing with DAI. There's, you know, and so, for example, I'm not going to come up here and be like, I hate Maker and stuff. And actually, I think I tweeted like, if Maker does want to actually do a DAI four pool, we will give Maker the same thing we're willing to spend on every other project. And I actually, I know the Maker guys, you know, I talked to Nick at Maker. Talked to Seb, I've talked to a bunch of them. They're all great guys. They have different execution opinions.

• 1:12:39Speaker 00

  I've tried before to see if there's like appetite for like a Frax PSM or just kind of a lot of different things. And I think they take a very thorough, slow, methodical, and I don't want to really say like bureaucratic, but sometimes it might feel that way, approach to governance and things like that. And it never really went anywhere because I think there was just kind of lukewarm, you know, desire for it. And but Do and I have a really good relationship and like we like to strategize, we like to move fast. Yes, our kind of like risk to growth tolerance is higher.

• 1:13:17Speaker 00

  I don't think that means we're in any case like enemies or not, at least I'll come up here and say like Frax is not. But but it's just something that Dai is not interested in. And if they are, at least from Frax, the, you know, we're always willing to outstretch the hand. And I think, I think so is Do. I mean, obviously I can't, I can't like put words in his mouth. But I think the, knowing him and knowing both how strategic and smart he is, I think that's, that was his way of saying the same thing I'm saying, just, just in his personality. And I think that's what Jose said on the show as well. I think this kind of lines up.

• 1:13:58David Hoffman?

  Okay, so there is like this one piece of real estate, which is Curve, which is really, really important for liquidity with stablecoins. And Curve is designed to be fought over, right? It's called the Curve Wars for a reason. And so like, do you think we, this stablecoin wars, the, where do you think the equilibrium of the stablecoin wars ends up? Is the stable, is the war word even appropriate? Or is that just like the, like the clickbaity headline that people like to talk about? So where do you think the, the long-term like equilibrium of the stablecoin fight for liquidity in DeFi ends up at?

• 1:14:34Speaker 00

  Yeah, I think Curve is more important than some people think. In fact, part of the reason maybe that Maker is not that interested in like working with us is like, I think their opinion of like how important Curve actually is is different. They're like, okay, this is just like a DEX. It's like losing money on all the CRV emissions and stuff. It's just a funny game people can play. We're doing real world assets and our, you know, our focus is over there and stuff. And that's fine. That's actually fantastic, you know, the difference of opinion. But we want to focus on this because, like I said, we do think Curve is more than just a DEX. At least I do. I think it's an algorithmic savings account where people can deposit the ratio of stuff that's, you know, in the Curve pool.

• 1:15:18Speaker 00

  And they get a yield on that in CRV and CVX, which is a convex governance token. And then anything else, right? Like, you know, if you, if you do the bribing system or whatever, like you're saying. But like, some people don't think that's actually interesting. Some people think that it's just a Ponzi game of like a DEX that's not profitable or something like that. I think it's an incorrect assumption because Curve is not just a DEX.

• 1:15:48Speaker 00

  And, you know, we could have an entire podcast just describing like mechanisms that look like something but are entirely different. And I think Curve is one of those. But that's the thing. Frax has the largest CVX holdings, which is the convex token, which does control parts of Curve. Terra also has a very large amount. Maker does not. They could purchase it if they want to, but I doubt they will based on their strategic opinions. They could also, you know, work directly with us in terms of that, but I don't think they will and there's nothing wrong with it. I think though that... The four pool is going to be absolutely massive when, once things get going.

• 1:16:29Speaker 00

  We just actually launched the four pool on Arbitrum and the gauge for that, which is the thing that earns the CRV emissions, should be going up any hour now, literally. And then the one on Phantom is already out. This, this period, there will be emissions to it. The one on, I believe on Polygon is actually also already out and then the emissions will start soon. So I think this will take the entire stablecoin world by storm. I think it's actually going to be bigger than what the headlines say, once everything is rolled out. It's, it's going to take slightly longer than people think to roll everything out like this week and then the next week and the week after that.

• 1:17:12Speaker 00

  But once it all comes together, I think it's going to be the savings account of a very, very large part of the crypto industry.

• 1:17:21Ryan Sean Adams?

  That is cool. And yeah, thanks for explaining that. I guess one thing to impress upon our, our listeners is we call it the stablecoin wars, but that can be the focus, but there's also a massive amount of stablecoin synergy here. So even like Frax itself is backed partially based on, on DAI that's in these LP tokens and Curve. And what is DAI backed by? Well, increasingly these other real world assets. So at some level Frax wins when DAI makes a deal with Tesla as they did like two weeks ago to use, to, to provide lending, lending protocol services to Tesla.

• 1:18:01Ryan Sean Adams?

  So all of these real world assets coming into DeFi actually strengthen Frax as well. And I do think this, this lattice approach of all of these different experiments and different strategies to address stablecoin actually makes the DeFi space more resilient and stronger because we don't just have one strategy. We have like five different strategies, right? And they're all happening at once and yeah, some, some will win, some will lose, some will prove more successful over time, but there's strength in having this, this plurality of, of approaches here, I think. I guess Sam, as we draw to a close, and this has gone on longer than we thought, just because I think we've been intensely interested in, in what you've had to say and learning more about this project. So, so thank you for your time. I'm wondering if you could give us some?

• 1:18:47Ryan Sean Adams?

  Predictions on what happens next in stablecoins. Just like you're thinking about this day in and day out. Do you have any hot takes, any predictions for the next one year, the next three years in terms of how the space evolves and what happens next? Just anything that comes to mind.

• 1:19:03Speaker 00

  Yeah, definitely. So first thing is I actually always like to say we're positive some players at Frax. And I think a lot of this is actually catching on because I always like to say stablecoin pegs are stronger together than they are trying to actually take from each other. It's always a good idea to grow the entire economic piece of the pie rather than take other people's piece of the pie, whether it's liquidity, whether it's like size, market cap, or users. But basically, that's the philosophy we always do at Frax, right? So like, we love Terra, we're willing to work with them, and we are going to do this absolutely massive for pool. We're willing to work with pretty much anyone.

• 1:19:47Speaker 00

  We love Faye and those guys as well. Joey is a great guy. And the people building Volt, which is the other project. In terms of where we see the space going, I think that, you know, I don't want to like kind of toot my own horn, but we've been pretty spot on with like, you know, the things like looking like fractional stablecoins, us releasing Frax as like the first, you know, fractional algorithmic one, and then also releasing the first CPI, you know, pegged stablecoin in the FBI. I think what's going to happen is that in the next 12 to 24 months, there will be consolidation around three, maybe four decentralized stablecoins.

• 1:20:32Speaker 00

  And by consolidation, I mean it's going to increasingly look like, you know, things like UST Frax, DAI, probably Faye maybe and stuff are going to be kind of the ones that are, all the new projects are using as collateral, right? Like what we like might be using for USDC. I think it's gonna, there's gonna be a consolidation on the decentralized stablecoin level, right? And second thing I think there's gonna be a lot of the narrative of these inflation resistant assets. Talked about in terms of is Bitcoin and ETH better for inflation resistance? Or are they better central bank reserves on these decentralized central bank?

• 1:21:17Speaker 00

  Protocols like FPI and like, you know, Terra and stuff. Because one thing that's really important that Doe started the narrative on is like BTC is like the new gold. Right? And they're using that as like Terra's basically gold, right? And we think the same thing for ETH and basically some BTC, right? To have some kind of exposure to, but I think that ETH is basically the same kind of trillion dollar asset as Bitcoin. And what's gonna happen is there's gonna be a lot of shifting of the narrative of, you know, inflation resistance is where you go with like Bitcoin and ETH.

• 1:21:58Speaker 00

  And instead it's gonna be you go to these stable coins because they literally have an inflation resistant peg. And then you invest in like ETH and BTC and stuff to increase your your net worth denominated in these like FBI stable coins. Or like dollars if you still use those. That's my kind of hot take and the reason that I'm, people call me like a stablecoin maxi or something like that. And I always try to not, you know, take the maxi moniker. But it's like, I think that for stability and inflation resistance, stable coins or currencies with like an actual algorithmic monetary policy are superior.

• 1:22:37Speaker 00

  But I believe that the two big other trillion dollar narratives, which is Ethereum and Bitcoin, make the perfect reserves for those kinds of stable coins. So that's kind of the way to end this, I think.

• 1:22:50Ryan Sean Adams?

  That's a really good take and I think Bankless is definitely the Bankless thesis agrees with what you're saying. And certainly I think our listeners can relate to how painful it is to spend their ETH and spend their Bitcoin, right? You'd rather be sending something like, is it FBI? Which is, which is kind of like an earning an FBI and, and you know, keeping kind of your, your one to two month reserves in that. And never having to spend, just stack your ETH, stack and stake. And the same with Bitcoin as well. Thank you so much, Sam. This has been a lot of fun and I think you turned on the light bulb for a lot of listeners. So we appreciate you coming on Bankless and telling us about the stablecoin wars, talking to us more about fracs.

• 1:23:31Speaker 00

  It was my pleasure. Thanks, guys.

• 1:23:32Ryan Sean Adams?

  Guys, we'll include some links in the show notes, the fracs dashboard, also the Elgo stablecoin market share dashboard that, that we displayed on YouTube. Risks and disclaimers, as always, ETH is risky, Bitcoin is risky, stablecoins are, that's for sure. Crypto is risky. You could definitely lose what you put in, but hey, is it any riskier than fiat? I'm not sure these days. The truth is, we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:24:00David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks and exclusive content, and even the Bankless token for airdrops, raffles and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings and weekly rollups,

• 1:24:43David Hoffman?

  where we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless nation.