Frax Poised to Roll Out 'Compliant' Stablecoin

Frax, the DAO behind the eponymous stablecoin, may build a “compliant,” dollar-pegged stablecoin if legislation introduced last month in the U.S. Senate does not pass this year.

“The idea behind that one is that it’s fully compliant and has a blacklist feature,” Frax founder Sam Kazemian told The Defiant in a recent interview. “And that one [would] have a real corporate entity, just like Circle.”

Possibility

Kazemian has previously discussed the possibility in a Frax chatroom on the Telegram messaging app as well as Flywheel, a newsletter and podcast promoting Frax.

U.S. lawmakers from both parties have introduced bills that would regulate the digital asset industry, though the bills differ wildly in size and scope. Observers believe a targeted bill is most likely to gain traction in the newly seated Congress.

Foundational Piece

“Within the digital asset regulatory landscape, stablecoins are the lowest hanging fruit,” Jeremy Allaire, CEO of Circle, the company behind the USDC stablecoin, told crypto publication CoinDesk this week. “It’s the most straightforward, it’s a foundational piece.”

Among other things, Toomey’s bill would allow Frax to open a bank account at one of the Federal Reserve’s 12 regional branches, known as a Master Account, Kazemian said.

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The Defiant

“That would actually make things really simple,” he said. “I really hope that bill passes in some form.”

Flywheel called it a “home run for stablecoins” that would give issuers “access to the safest yield in existence, the risk-free rate offered by the Fed.”

Should Congress drop the Toomey bill, Kazemian believes a corporate entity issuing a compliant stablecoin would be able to open a Master Account. In that scenario, the compliant stablecoin, tentatively called frxUSD, would become one of the assets backing the existing FRAX stablecoin.

Placeholder

“Think of it like tokenizing the master account deposits as a second token, but that second token is not what’s going to be, you know, on Curve or Uniswap,” Kazemian said. “It’s essentially a collateral placeholder.”

In an appearance on the Flywheel podcast last month, Kazemian said Master Account deposits and the yield they generate are the safest real-world assets with which one can back a stablecoin.

“There’s nothing more risk free than depositing dollars … on the Fed’s actual ledger,” he said. “There’s literally nothing, by definition.”