Algorithmic Stablecoin "Frax" Challenges Central Bank Currency

Recently, stablecoin projects have emerged one after another, becoming an important entry point for the industry. A stablecoin project called "Frax" announced its entry on October 21, with co-founder Sam Kazemian and the team openly stating their challenge to Central Bank currency.

Strong Founding Team Background

The Frax project has garnered widespread attention, largely thanks to its strong founding team.

CEO and co-founder Sam Kazemian is an Iranian-American software engineer who majored in philosophy and neuroscience in college. With a passion for cryptographic technology, he self-taught programming and cryptography knowledge during his time at school. In 2018, the decentralized online encyclopedia that Sam helped create went live on a certain public blockchain.

The project’s Chief Economist is a renowned scholar responsible for Frax’s economic model and lending standards. He has long focused on monetary policy and believes that competition from private entities challenging the Central Bank’s money supply is healthy. Another important member is the General Counsel, who previously served as the Deputy General Counsel for a certain president.

Algorithmic Stablecoin of Partial Reserve System

Sam Kazemian stated that the Frax project originated from personal interest, and he believes that algorithmic stablecoins may be the only existence in cryptocurrency that can rival Bitcoin.

Unlike traditional stablecoins, Frax adopts a partially collateralized model, supported by only a small amount of dollar reserves. The project draws on the concept of the Federal Reserve, lending out reserves algorithmically and charging interest, ensuring that the value of Frax is pegged to the dollar. To reduce risk, Frax will initially hold nearly 100% reserves, gradually decreasing as the network becomes more widespread. All loans will be recorded on the blockchain, without the need for Central Bank involvement.

However, some digital currencies under the partial reserve system have not been tested by the market and face some skepticism. Industry insiders point out that if the redemption demand is too high, stablecoins that lack full one-to-one backing may collapse.

Loan Mechanism: Frax's Stability Assurance

Sam Kazemian emphasized that Frax's loan mechanism will ensure its stability. The project utilizes on-chain lending to generate cash flow through interest, which can be used to buy back FRX when prices fall. The valuation of Frax will be strictly controlled by an Algorithm, similar to how Central Banks issue bonds to buy back fiat currency.

Using the interest earned from decentralized finance (DeFi) currency markets to maintain algorithmic stability is essentially similar to the monetary policy relationships among certain well-known stablecoins. Sam anticipates that Frax may become one of the largest lenders in the market.

Currently, Frax and its collateral are being tested on the mainnet of a certain public chain and are regularly deployed to the code hosting platform. Although there is no specific timeline, Sam indicated that Frax is expected to launch a complete product within a year.

As Sam Kazemian's new project, Frax will benefit from the infrastructure and ecosystem of his previous projects, making it more adaptable to market and regulatory challenges. Sam stated that Frax will allow the use of certain tokens as collateral to borrow from the Frax reserves and will attempt to integrate Frax into the previous projects. He believes that Frax is the gateway to DeFi, and the two projects will mutually promote each other.