Bankless - FRAX & the 4pool Curve Takeover | Sam Kazemian

Episode Date: April 13, 2022

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 

Stable coins are one of the three trillion dollar narratives of crypto. And I think that three trillion dollar narratives are Bitcoin, Eith, and Stapoints. 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 Stable Coin 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?

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 speed running, the history of money and finance. And so Sam speed runs through the history of central bank management, right? And 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, again, the four pool, the USC, the Doquan spiciness,

and how FRAX has gotten caught up in the middle of this to FRAX's benefit. Yeah. I'm going to be honest, David. I walked away from this conversation really bullish on FRAX. Yeah. Like really actually excited. It's been a while since the project. It was just like, wow, this is really neat.

And so we were in education mode that entire time, actually, like, on their receiving and 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 Herring 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 Herring 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. I actually, you could pay in credit card, David. So I didn't have to spend any ETH on this. What? No gas fees. Just paid with the credit card. Oh, no one. You didn't have to spend any Eth.

Yeah, dude. So no gas fees. I just like, and it's minted on Polygon. So this is it. This is my OpenC account. It says the floor price is 179, okay? But 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 that disease. So super cool there and there's still time. There's 1995 owners of it and there's 250 total left so that it's 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 now. Yeah. Yeah. That's no liquidity. 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 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 a history lesson and a lesson in finance and economics and it's my favorite type of show when I am not only learning, but also being entertained at the same time. And so the state of the nation today, Ryan, is learning. 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. AVE is the leading decentralized liquidity protocol.

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which gives the Brave Wallet an extra level of security versus other wallets. With the Brave Wallet, you can buy, store, send, and swap your crypto assets, and you can even manage your NFTs and connect to other wallets and defy apps, all from the security of the best privacy browser on the market. Whether you're new to crypto or a season pro, it's time to switch to the Brave wallet. Download Brave at brave.com slash Bankless and click the wallet icon to get started. Bankless Nation, we are super excited to introduce our next guest,

Sam Kazmian, he's the founder of Frax Finance. A lot of Fs there. He previously got into crypto, same way David Hoffman, my co-hosted, via GPU mining. He also worked on the decentralized Wikipedia project, Everpedia, but in 2019, he started this really interesting algorithmic slash hybrid stable coin project called Frax Finance, which is the topic of today's show, because we're going to talk about stable coins. It would be some of the stable coin wars that are going on and what Sam thinks of the situation.

Sam, welcome with Bankless. How are you doing? I'm doing great. Thanks for having me. This is awesome. A huge listener and excited to be on, discuss everything. stable coins, crypto-economics. Awesome. Well, we're going to get, I think, in the back half of this conversation to some of

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

Like stable coins weren't as talked about and certainly algorithmic stable coins weren't in the limelight. Why do you think everyone is having this conversation now, Sam? 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. I 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 being like one of the first people to sign up for the ETH newsletter when it was announced in like 2000. 14 when, you know, Vitalik started talking about Ethan. Back then it was counterparty and colored coins were the thing, right? As you guys probably remember. And stable coins 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 stable coin white paper is Robert Sams' signer it 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 stable coin design because it introduced the two token system of, you know, you have a stable coin 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. 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 industries come a really, really long way, right? And just like how there's really important trends that, you know, you know, grow exponentially like defy summer

2020, right, like all of the yield farming, defy primitives and all these things and then NFTs, I think the next big thing is stable coins. And the reason for that is I think, the infrastructure and the ability to launch your own, you know, stable asset is finally mature enough to have that kind of Cambrian explosion, right? Like I actually like to kind of say there's, you can now, there's like a WordPress of stable coins now, right? You can create your, you just, you need like a deep curve pool or you need a three pool or something, some really concentrated liquidity. You have to make sure to give enough yield there. And it's like a cookie cutter playbook now, right the infrastructure is there just like how the infrastructure for nfts with open sea and minting and

degenerative art and stuff was there and then you have this kind of curve right we're at the point where you have the infrastructure to kind of cookie cutter stable coins so there's going to be a cambrian explosion of these kinds of things i think in the next you know from now until the next like 12 months basically do you think we had a guest recently who said uh stable coin is cryptos app, would you go as far as to say that? Like, stable coin is the big thing that, you know, crypto is meant to deliver? I think stablecoins are one of the three trillion dollar narratives of crypto. And I think that three trillion dollar narratives are Bitcoin, ETH, and stable coins.

That's my view. And so that's why I got really interested in stable coins. That's why I look at it from a historical point of view. know, the first, you know, stable coin 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 evolution, right? And I think it is a trillion dollar narrative. And so I actually am of the belief, like, for example, Bitcoin is a different kind of asset and ETH is a different kind of asset and stablecoins are different kind of asset. All three have such large potential that they're the three, in my opinion,

multi-trillion dollar narratives, the T, the T-size narratives of crypto. People have spent their entire careers focusing in on stable coins. When there's so much to pay attention to in the crypto industry, sometimes people just get compelled by stable coins, and that's just the thing that they are interested in. And inside of that, algorithmic stable coins have had their own very rich history in the crypto industry. There's plenty of history lessons to learn as Algo Stable coins have tried to get out the door. There's the story of basis. Then there's like the exploding stable coins of empty set dollar and Dynamics debt dollar. And it really took a while for the Algo Stablecoins to really get their engine revving. I think Fracts being one of the first models of the

stable coins that kind of algorithmic stable coins that really started to work and then UST 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, UST has algorithmic components, but they all step away from the purely algorithmic stable coin 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 Stable Coins. Like, do you think it's at all possible to produce a purely algorithmic stable coin? 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. Koenings 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. 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 to get an ounce of gold for each one. 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. And 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. After two months, the central bank officials come and say, okay, actually, the 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 piece of paper that say, They have one ounce of gold written on them, not trade for 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. But the gold is still there.

It's all one-to-one backed by gold. Okay. After the six months of the renovation, turn around and six months later, the central bank comes out and says, okay, look, 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 and we're going to go buy and sell pieces of paper for an ounce of gold, we have a commitment or a central bank where 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 one thing I actually

want to say here is the gold standard that everyone talks about, right, like 1972, when Nixon and took the dollar off the gold standard. The gold standard everyone really likes is this part of the story right now where you can't redeem dollars for the actual backing because there isn't one-to-one at Fort Knox.

There isn't enough gold ever, right? But the government has a complete, you know, duty to maintain the exchange rate 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 sold most of the gold we have a bunch of loans that are making money but

but that's not gold right the prices of those things change and stuff so what we're going to do is 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 an industrialized economy, the most important thing is not that our pieces of paper are 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, we need to make sure what is the most important thing industrialized economy that people need such as food such as rent medical care cars electronics you know just good consumer items right things that keep your standard of living the same you need to be able to afford medical care rent all of the 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 are going up right then what we're gonna have to do is we're 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 prices of those things are going down, actually, what we'll do is we'll just print more pieces of paper, right, to make sure the price actually stays the same, right? And so we'll, we'll do. We'll just print more pieces of paper, right to make sure the price actually uh stays uh the 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 1972 right

and uh i wanted to tell this the story to actually frame this this full conversation about stable coins because obviously uh this is actually the full true story of central banking evolution right You start with one-to-one redemption, and then 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. We can invest it in stuff and make money, but we have to make sure we have some to market-making, make sure the exchange rate is always the same thing we want.

And then you start realizing, or 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 stable coin question, the reason I wanted to say this is that every financial thing, including stable coins, evolves somewhat similarly and has properties of the these things. 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 promise 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 are 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, 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 stable coins with absolutely no anything, right? Like the equivalent of this would be the central bank with zero gold with them saying the pieces of paper have to have one ounce of gold, you know, exchange rate. That's not going to happen, right? Like that. So the answer to that, I think is no unless there's, you know, a lot of market making going on. So someone's got to 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 stable coin, right? And 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 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 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 I think if there's one thing in terms of crypto economic design that we're hopefully

going to be known for is that we invented the fractional 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 $1.99.0. 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 were the largest pool on, uniswap number five or six, we have never broken our pick. 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 Prax falls alone.

think we want to get into the design of fracks a little bit more, but that was a really, really interesting story. And I think for a lot of people, yeah, I really enjoyed that. That was lovely. JP Coning, by the way, is really fantastic on this space. Interesting. Sometimes JP Coning is crypto-sceptical, 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. 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, 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? 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? 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 U.S. 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 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, we'll talk about

we have, FRAX is a two stable coin system, right? There's the FRAX price index that we actually released last week. But I think that FRAX basically right now is partial claims on like hard money, right, because we have hard assets, right? And we try to keep an exchange rate to the dollar. Can we actually look at this? I know David wants to get to like more talk about stable coins in general. There's more triangles, more trilemas ahead of us. But just really quick, so we understand.

So I'm pulling up app.frax.com finance. This is sort of a chart of frax and FXS and a few other things. I'm wondering if you could just kind of decompose us a little bit. So we see here fracks. We see this number market caps. of $2.6 billion. We see this other number over here of 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 dashboard so that folks can understand FRAX with the numbers and what it's actually composed of? Yeah, definitely. So FRAX launched with just two tokens, FRAX and FXS, all the way in to last week actually when we launched the the Frax Price Index stable coin. So Frax is just the dollar stable coin. 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 a historical one because it's called signer in shares. We named this

Fract shares. And so that's just the governance token. The collateral ratio there is actually the hard assets that are in the reserve or in the smart contracts and the series of, you know, system smart contracts. We started out 100%, as you can see, and then quickly kind of stabilized or kind of moved around between 90 to 80. And those are the hard assets that the protocol can lay claims to. A lot of them are Curve LP tokens, as you could see right under the value there. A lot of them are collateral from lending operations, which we call AMOs, algorithmic market operations. Those are just very similar to MakerDAO, right? You have a bunch of fracts that you can borrow, right, and you collateralize it with, over-collateralize it with Ether or everything else, right?

So that's kind of like the Maker-Dao-Dai kind of system. The algorithmic section is the section that is kind of the supply is expanded and contract, it based on minting or burning Fract share tokens, right, like the actual governance token. Some people like to call it. Frax is 100% collateralized, but there's just some of it that's collateralized by its own governance token. It's not just 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. I don't know. It's just it seems a little nonsensical. Help us understand that again. So these curve AMOs, these are curve LP tokens, right? So these would be composed of other stable coins basically. Basically it's a yield bearing stable coin position, right? Yes, exactly. So die, USDC, US like tether, that sort of thing. Plus trading fees in curve.

Exactly. And CRV emissions and CVX emissions. Got it. And this liquidity AMOs, you said that was more like MakerDAO collateral. Those are like protocol on 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. East dive, uniswap V3 LP positions.

Exactly. Exactly. So there's a lot of protocol and liquidity just outside of curb. and we're on many chains. So a lot of these are actually on different chains that are like natively protocol own liquidity fraxis, mintable and issued on 12 different chains. A lot of them, EVM and L2s, like Arbitrum, Optim, Polygon, Moonbeam, you know, Phantom, all of these things.

So a lot of that is on those other chains as well. Cool. And this algorithmic section, which is about like, I don't know, 15% or so. Is that about right? That's the unbacked side. That's the unbacked side, or it's backed by the value of X. FXS, which is basically the FRAX governance token. Now, if you're 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. Is that the contrast? Off-chain LFG group. Yes. Yeah, I would say that that's,

That's correct. Like in fact, you know, I think a lot of stable coin 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 percent or something like that would be Bitcoin right it would basically uh there would be a slice of a bitcoins it's funny because we see UST moving in your direction they're moving more in that the like fractionalized direction and

less algorithmic so it's almost like I don't know frax is moving more algorithmic but they're certainly coming more towards your design yeah I mean so we so like I said what our name is literally after the fractional stuff we we invented but I don't really even think we like own the idea or anything. I think what's interesting is like I said, financial evolution has the same kind of evolutionary pressures. It's just economic, right? So as things progress, right?

And like an economy, they start looking the same in terms of what the kind of right answer is in terms of efficiency and kind of like how everything will work. I think most things will look a lot like this. The only difference is like what collateral ratio they'll keep stuff at, right? And in fact, you know, you could argue that, you know, Maker Dow, for example, is not algorithmic. It's over collateralized. But the other way that I like to compare, you know, Maker Dow actually, is that going back

to our kind of central bank story, right, maker Dow 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 piece of paper with like two dollars 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 two dollars of other things right or like a loan on two dollars basically after a while again everyone whether you come from the algorithmic side of like zero percent or the maker dow 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, USDC is both Maker has exposure to it. And as do we, right? Like you can look and there's there's Curve LP tokens in the. this stat. And so, for example, even Terra, right? Like, Terra works with 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 like, you know, make sure that the unit is trading at that amount, right? And so it's like, like, jump is absolutely massive, right? And so, They're absolutely huge. Like, if you recall, the wormhole, like the unfortunate, which was really, really unfortunate, I was sadden to see that. But the wormhole hack of, like, what was it, 300 million or something, ETH, jump was like, I, no problem. Here's 300 million.

Let's, you know, let's make everyone whole, which was great and respectable. The same place where all that money comes from is also the same place that, you know, market makes the biggest of stable coin markets, right? And so the thing is, if you want to actually autonomously and internally be a central bank, which I think Tara is going to be the biggest and most impressive one with Frax and probably Maker, right? And us, you know, these are the big three right now. You need to actually have stuff to go out and do that, right? You need to have the actual assets, the hard assets, rather than having other people kind of do it.

And I think that's where the evolution of this stuff is going, right? That's what we're seeing, honestly, both with Maker, right? With Frax, with Terra, with everyone, right? And that's the honest truth. 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, like, which of the assets I redeem for, or how does the peg get defended when I come and come with my stable coins of Frax tokens and I would like to redeem them? Like, how does that work? Yeah, when the redemption window is open, which is like if the peg is even one-third of a cent off, so like literally 0.33 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 FXS 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 FXS, 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 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, one USDC per frax or one, you know, dollar worth of assets, and then the last get all of the, you know, 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, the collateral ratio has moved. up and down across all the times that we've launched.

And the collateral ratio will go up during times of, you know, market, you know, turbulence and like volatility so that we give back a higher ratio of assets and it'll actually sell FXS, you know, to stabilize that that collateral ratio, even if there's no redemption, even if no one's actually dreaming to make sure there's actually like that much assets if the the clatter 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. Right, yeah.

That was one of my questions is, like, is there risk of people running for the door, right? And this was a conversation that we had in our UST episode where people are fearful that if there ever is a lack of confidence in UST, 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 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 value that you would get in the first place, kind of disincentivizing the actual run on the bank. 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, 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.

And all of these assets here, are these all like sort of on chain or does some entity have to, some. off-chain entity have to maintain custody of some of these assets, right? It's like we're talking about UST, and the LFG 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? It's 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 there's no There's no off-chain assets. Everything you see here is not only on-chain, but also readily available.

It's not like, oh, there is some assets here. They're on-chain, but they're over there. And, like, 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. That's amazing. It's crazy you even have to ask that question, Ryan.

Why? I mean, the reason I have to ask it is because because USC doesn't have it on chain. 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 a pretty good episode,

but like there was kind of the contrast point of sort of the dichotomy behind like a Maker Dow type design, a maker design and a USD design. I guess I walked out of that episode seeing the tradeoffs on both sides, right? So one of the strengths of Maker is it's far less prone to like these tail risk type of events and like depegging in a catastrophe and run on the bank because it's collateralized, right? So it's more safe.

For illustration, the collateralization ratio that we see the 85%, which is very strong for an Algo Strablecoin, Maker Dow is something like 250%. So very, very safe. Right. And so it's got safety. But 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 were 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 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 the tail risk event of 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 tradeoff space. So is frax more scalable than something like maker and Likely a little less safe but maybe you know like acceptable risk parameters? But tell me about the scalability profile of something like like frax is it it can it scale in the way that a UST can

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 is the animosity you see on on? Oh my God, people thought we were like, we were terrible like, ETHMAXIs asking even the questions we asked. That was just the, oh, it was actually so, uh, it was actually very polite in my opinion. For everyone, I think it too.

I thought it was great. Yeah. But yeah, so what about the scalability? Yeah. So I think like, like you said earlier, I think a lot of these, uh, stable coins will probably look something like fractional, uh, algorithmic like frax's model the question will be like what collateral ratio right like what is it something that's very conservative fractional uh like fracks like 85 86 percent or like right now terra is moving upwards a little bit i think there's 10 to 20 percent btc i don't know they

they're increasing it that's for sure right um but i think it just depends on the the actual uh protocols aggressive like growth strategy right 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 actual desired, you know, peck, right? Going back to our, like, story about 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 fracks right now and uh maker fracks has less but but still they have exposure to us DC right 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 $2 of other stuff or $2 worth of loans, and you can't actually still keep an exchange rate without having some of that thing. And no one's been able to fully exactly figure it out. Now, I will give really big props to Terra's guys, and they're really, really smart, and they're really, really good at strategy

and getting Tara adoption. The thing is, the obviously, have a lot of market-making activity from people that have a huge interest in UST working out, right? They have billions of, the people have like billions of dollars of Luna, right? Luna is like the number seven largest cryptocurrency, right? It's absolutely massive, right? And so when you have a lot of other people that have billions of dollars of dollars, right, and they have, you know, a huge interest in making sure to buy and sell the, the stable coin at that peg, right, then it becomes a little bit easier, right?

But when, for example, frax and maker, what you see on the chain is what you get. We have like no, there's no market maker, none that we've ever talked to or that I'm aware of that for the goodness of their heart is like, you know, deciding to keep fracks at a dollar peg. And so what you notice is the two stable coins that have every single thing on chain, they do have some USDC exposure, right? Like, again, it's very, very, very difficult to keep a piece of paper that says one ounce of gold, trading in an ounce of gold if you don't have a bunch of gold, like a lot of the gold itself, right? But we actually are doing a lot of stuff to lower USD exposure. In fact, don't quote me on it right now on the spot, but 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 Dye currently does. I think we have like 40 something or low 40s in terms of like actually USDA and tether exposure when you check the actual lending amounts, the algorithmic amounts, the curve pool, which some of it is, is, dye itself as well, right? So like die underneath it is half or 50, 60% 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. This is really cool. Decentralization maxi and.

me likes the on chain words. 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 were three, you know, Algo Staplecoin designs, and we're looking at them here for people we're seeing on YouTube. This is UST in proportion. It looks like a market cap of about $18 billion, so the largest now. And Dye is kind of second if you sort of count dye as an algorithmic stable coin, right? Maybe it's a D5 staple coin is something. people would say 9 billion die and then frax appears about 2.7 billion dollars worth but there's also mim here which i didn't realize that has gone up as well this is a 2.7 billion can you tell us a little

bit about uh mim that's is that uh danny sesta's uh project yeah um round mim mim i think it's an over collateralized model actually we we and this kind of goes back to you know what we we might talk about with like stable coin drama or news and stuff but uh we love everyone um and so we tried to work with mim a while ago and they weren't really that interested and then uh they i don't know they had the the weird seafood episode or whatever and i think that their uh liquidity is kind of a little bit weird these days but it is an over collateralized model it is fairly uh large um i think that part of the thing is like it's used for a lot of D-Gen leverage, right? And so this is actually a good example of like you can be over collateralized. I believe MIM is significantly over 100% at

least, right? But it doesn't mean that it's not risky. Right. So that's actually a really good counter example 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 picture of like the full risk because the risk is an entirely summation of all of the possible market activity right and so for example I think actually to be honest obviously like I think frax is as as safe as as die right I really do in fact I think it you know dies extremely safe I actually think that to be honest I think UST is way more safe than people think.

And hopefully, you know, this is not, you know, people don't think I am saying that because we had the four pool partnership and stuff. Because there's a lot of people that have a very strong interest in the UST peg, right? And so even though that's a very difficult thing to measure, right? Like it's difficult to model because it's, you know, it's hard to actually quantify. it's much safer than what people think about like there's nothing here other than the governance tokens volatility. If that were the actual truth, right? If that was the entire picture, there would be way more times that the US TPEC, something

that they would have collapsed in all of these like, you know, these crazy downturn markets like right, when whenever we wake up one of those days like and then crypto markets like negative 30, right? And everyone's like, oh, my God, right? It would have happened way more than that, right? So I actually think the big three, and I like to call the big three is like UST, fracks, and die, they are much safer than people actually think. That's my personal opinion. One last piece, Sam, because we talked about this in our UST episode, of course, like part of the backing of UST 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 a Luna being used in the Luna ecosystem, right? What are the drivers of FXS price? Like, why would that go up or down in terms of a, value. Is it purely sort of like meme value, monetary premium value? Are there some fees that FXX holders get? Can you tell us about the drivers behind this? Yeah, definitely. So the FXS token can be staked as VEFXS. 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 and you can stake,

your FXS 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 VE FXS balance proportional to, you know, how long you've staked your FXS tokens, and you actually get cash flow from the profit of the market operations of FRAX. We call them algorithmic market operations. And you could see right now the APR is 4.740.

percent down there. It goes anywhere between, you know, three to like 20 percent, 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. Oh, my God. That's a strong ratio. Well, we think 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 USC, 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. So like the jump capitals of the world, we're not sure exactly who the sources are, 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. Not at all. It's not an inflation. Yeah, that is entirely cash flow. Wow. All on-chain cash flow then. Economic sustainability, you love to see it. Love to see it.

Very good. Sam, just a last few side of questions before we get into the spicy side, the four pool, the stablequin wars, and why do 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? Yeah, definitely. The FPI is the second stablecoin in the FRAX ecosystem.

It's the first ever stable coin pegged to the CPI, consumer price index, which is the prices of 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 hotly anticipated. Again, going back to kind of the grand vision, right, like the thing I said, stable coins are the third trillion dollar narrative of crypto. The evolution of stable coins will probably look like the evolution of central banking, right? And remember the last part of the story of the central bank was that after a while they said, okay, let's not actually peg to some external exchange rate that we can't control. Let's peg to an exchange rate that is our definition as like a society and a government of like

a standard of living of like items that we want this piece of paper to be able to afford, right? And that's where the FPI is like the FPI is basically, in my opinion, like the final evolution of stable coins on-chain. We'll probably see a lot of stable coin projects kind of taking inspiration from like the FPI design. In fact, we are working with Volt protocol, which is led by Kirk and a few of the guys close to Faye, which is another project. And I think there will be a lot more 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 that direction, right?

And I think it's really powerful because we're going to basically be able to be kind of the Bitcoin of a self-sovereign peck, right? And so the idea is at the beginning we're going to have the CPI 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. Eventually, the idea is having the weights of the basket of goods be entirely governed on chain, right? Like basically a self-sovereign economy with a self-sovereign definition of standard of living and inflation, right? Inflation is defined as the actual price divergence of the currency you use against the basket of items, right? against the thing that you need.

That's exactly what the Fed actually defines inflation to be, right? And coincidentally, today was the Fed and BLS.gov report on CPI, right, which is every month the U.S. government releases 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? Its 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 45, 50 years in the United States, which is very concerning, obviously. But that basically means that in the past 30 days,

the value of those pieces of paper to what they were supposed to track is not doing very well, right? Can I just break this down for people, right? So it's like crypto has just produced something really cool and new in the FPI and in FRAX, right? So if everyone saw the headline, it was a headline around the world this week.

CPI now 8.5%. So, and that, that, That's a lower bound estimate, as Sam just said, but your dollar is worth 8.5% less than it was a year ago at this time. So did you get an 8.5% raise in your paycheck? And the answer for just about everyone is probably, no, I didn't. Maybe I got a 2% of 3% if I'm lucky. Well, you lost money. You lost 5% as a result.

And making less money. Making less money. By holding it in the dollar, you're making less money. And by getting your paycheck denominating the dollar, you're actually making less. you've got a raise to compensate. So what is crypto produce? This thing called FPI, which doesn't actually track the dollar. It attracts CPI inflation.

So that 8.5% that everyone's like, oh shit, I just lost 8.5%. If you held an FPI, you would have actually been neutral. You wouldn't have lost that 8.5%. If you got paid in FPI, 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. Because central banks don't produce that.

They're not in tune with what consumers actually want and demand. And this is what's so neat about this project. 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 FPI. You can mint it with fracks at the actual peg price.

So like obviously the growth of the FPI stable coin will be going higher and higher as the actual peg tracks CPI itself, right? In fact, it's it's kind of interesting because it's almost like currently, it's almost like a dollar stable coin that is growing at the inflation rate because we use the exact same CPI basket as the Fed uses for the dollar, right? 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. I think we'll take it.

I mean, projection 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? Yeah. So they actually use a custom chain link 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 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 uh that is obviously just going to be fixed when there's on-chain you know ability to uh have governance on the cpi gauge all right guys so that was the deep dive into the fracks uh got way deeper than i thought we were going and and we got excited. Because we got excited. And like we always say, we haven't said it recently, so I'll say it here. Crypto is always speed running the history of money and finance. And Frax really seems to be like skipping 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've got to talk about some of the current events going on because Doe Kwan's recent proposal for the curve floor pool is caused eventually the FX 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 forepool. So we're going to get to those subjects and also just the long-term equilibrium

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To start building your DAAP on Arbitrum. If you're a Dgen, many of your favorite dafts on Ethereum are already on Arbitrum, with many moving over every day. Go to bridge.arbitrum.io now to start bridging over your ETH and other tokens in order to experience... All right, guys, and we are back. This is a tweet that Doquan put out at the very start of this month, and he writes, Introducing the Fourpool between Frax Finance, TFL, redacted, pretty much we own all the CVX,

the governance tokens, four curve. And he's introducing the Fourpool, a new curve stable coin liquidity pool between UST, FRAX, USDC, and Tether. And he says, the curve wars are over, all emissions are going to the four pool. And so this is one of the spicier tweets has come out lately because it's what it's doing is it's removing a lot of liquidity from dye and it's redirecting the liquidity from the former dominant three pool out of curve and pointing and saying it's going to be pointed towards this four pool, which instead of die, the dominant decentralized stable coin inside of Ethereum is pointing it towards UST, a decentralized stable coin that is non-native to Ethereum, fracks, another decentralized stablecoin. that's on Ethereum and then USC and Tether. And so first off, Sam, did this surprise you? This proposal surprised you?

Well, so first, yeah, I think some background. No, it didn't surprise me because I've been talking 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, Tara, we briefly talked about stable coins 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 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 backstory here with the four pool is that we are, Fracts and Tara 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 Fraxes 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, this success of how big a currency is, how much of economic activity and people are actually using your thing, right? And a good mixture of it, right? Like, everyone's using UST right now to save and anchor. Again, like, it's great. But we need to get, like, if your currency is sure, 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 fourpool as their metapool of choice and curve. Like I said, curve is kind of like the WordPress of stable coins or making pegged assets, whether it's stable coins 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. 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, Tara's foundation and they all have access to, right? And there's nothing wrong

with Maker not wanting to do the same thing with Die. 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, like, die, a 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. I've talked to Seb. I've talked to a bunch of them. They're all great guys. They have different execution opinions. 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 know.

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. But Doe and I have a really good relationship. We like we like to strategize. We like to move fast. Yes, our kind of like risk to growth tolerance is higher. I don't think that means we're in any case like enemies or not, at least, at least I'll. come up here and say like fracks is is not um but but it's just something the die is not interested

in um and if they are uh at least from fracks the you know we're always willing to outstretch the hand and i think uh i think so is dope i mean obviously i can't i can't like put words in his mouth but i think the knowing him and 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 uh personality and And I think that's what Jose said on the show as well. I think this kind of lines up. Okay. So there is like this one piece of real estate, which is Curve,

which is really, really important for liquidity with stable coins. 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 stable coin wars, where do you think the equilibrium of the stable coin wars ends up? Is the stable, does the war word even appropriate? or is that just like the clickbaity headline that people like to talk about? So where do you think the long-term like equilibrium of the stable coin fight for liquidity in

defy ends up at? 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 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 decks. 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. 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 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. and 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.

Once things get going, 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 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 stable coin world by storm. I think it's actually going to be bigger than what the headlines say once everything is rolled out.

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. 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. That is cool. And, yeah, thanks for explaining that. I guess one thing to impress upon our listeners is they call it the Staplecoin Wars. But that can be the focus.

But there's also a massive amount of staple coin synergy here. So even like FRAX itself is backed partially based on Dai that's in these LP tokens and curve. And what is dye backed by? Well, increasingly, these other real world assets. So at some level, FRAX wins when Dye makes a deal with Tesla, as they did like two weeks ago to provide lending protocol services to Tesla. So all of these real world assets coming into DFI actually strengthen FRAX as well. And I do think this lattice approach of all of these different experiments and, different strategies to address stablecoin actually makes the deep five 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 will win, some will lose. Some will more successful over time. But there's strength in having this plurality 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 what you've had to say and learning more about this project. So thank you for your time. I'm wondering if you could give us some predictions on what happens next in stable coins. 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. Yeah, definitely. So first thing is I actually always like to say we're positive some players. at frax and and I think a lot of this is actually catching on because I always like to say stable coin 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 fracks, right? So like we love terra. We're willing to work with them and we are we are going to do.

this absolutely massive four pool. We're willing to work with pretty much anyone. 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 to, like, toot my own horn, but we've been pretty spot on with like, you know, the things like looking like fractional, stable coins, us releasing fraxes, like the first fractional algorithmic one and then also releasing the first CPI, you know, pegged stable coin 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 stable coins. And by

consolidation, I mean, it's going to increasingly look like, you know, things like UST, FRAX, Dye, 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 might be using for USC. I think there's going to be a consolidation on the decentralized stable coin level, right? And second thing is, I think there's going to be a lot of the narrative of these inflation resistant assets talked about in terms of is, is Bitcoin? coin and eth uh better for inflation resistance or are they better central bank reserves on these decentralized central bank uh protocols like fpi and and like you know terra and stuff because one thing that's really uh important that doe started the narrative on is like bTC is like the new gold right and they're

using that as as like terra's uh basically gold right and we think the same thing for eth and 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 going to happen is there's going to be a lot of shifting of the narrative of, you know, inflation resistance is where you go with like Bitcoin and ETH. And instead it's going to 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 C and C and stuff to increase your net worth denominated in these like FPI stable coins or like dollars if you still use those. That's my kind of hot take. And the reason that I'm, uh, people call me like a

stable coin maxi or something like that. And, and I always try to not, you know, take the, the maxi moniker. But it's like, I think that for stability and inflation resistance, uh, stable coins or currencies with like an actual algorithmic monetary policy are, uh, superior. 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. 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 an FPI, which is a FPI, which is, which is, kind of like an earning an FPI and, you know, keeping kind of 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 FRAX. It was my pleasure. Thanks, guys. Guys, we'll include some links in the show notes to the FRAX dashboard. Also the Elgo Stable

Market Share dashboard that we displayed on YouTube. Risk 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. 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.

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