Frax CEO: The Next Visa Will Be Built Onchain (Here's Why...)

Transcript

We're here with our next guest, uh, Las Vegas local. Uh, you guys know him well, friend of the show, Sam Casmian of Frack Finance. And, uh, Sam is no stranger to the show and our stabled up segment. This segment is powered by FRA. And, uh, we are very, very, very grateful to Sam and FRA for supporting the show, supporting education in the space. Sam, >> I would say uh, welcome to Vegas. How do you like it here? But you've been here much longer than the rest of us. Maybe I should say welcome out west and uh you know all the way here uh it is 110 so I don't know if that's uh melting for New Yorkers but welcome to Sin City. Fra is based out of here uh for people who

don't know. Uh it's a it's a great area because I think we'll we'll talk about kind of the opportunities and things like that that people are um not seeing yet. But I think uh it's an interesting time. We were just discussing about how, you know, the market prices might not feel bullish, but there's so much good business deals and all these things going on that it doesn't feel like the prices and the deals are are meshed. >> Yeah. Um I mean, you've been here like through the ups, through the downs, you you've been building through it all and so you've you've seen a thing or two in your day. um when it has, you know, if you were to compare this with previous market downturns, previous market conditions, you know, this one feels a little bit different. Anytime I find

myself saying this feels different, it feels like, you know, we had BitMart shut down and BitMX wound down and like there have been some casualties in the market, but we haven't gotten like the big collapse. We haven't gotten the Terral Luna. We haven't gotten the FTX. People were saying strategy. Some of them are still saying strategy, but do you think we're going to get the big collapse here that pe some people are calling for? Other people have said that we're bottom. It's just a matter of time and matter of apathy that that we'll move through. But when you're looking at some of the business cycles that are out there, how much more destruction in these business because it feels like there's a lot brewing beneath the surface. Maybe clarity go through, maybe it doesn't. with tokenization,

stable coins, which we'll get into like so much that is signaling to us that crypto is not dead, the industry is not dead, whereas in previous cycles it has felt like maybe this thing won't come back. It doesn't feel that way this time. Do you think, you know, it's just because we haven't seen the big casualty yet and then it will feel like that or what what do you what do you think feels feels the same or feels different about this time? Yeah, I mean I my personal view is there's there's no like uh giant dead body under under the crypto ocean, so to speak. It's it'll be macro. Uh whether you know all this geopolitical stuff is is a bigger deal than people think or it's a smaller deal than it

currently is. Who knows, right? Uh that's the only mispricing. Is it too too high or too low? And I think that's what we'll find out in the next 6 months. And in terms of like you know where everything's going like you said this time feels very different cuz you can actually describe what the difference is. So I'll like say it as you're you're seeing around here in Vegas like before in a bare market you you didn't see like the secretary of state or like the senators or institutions actually being participating on the ground floor like here. I was actually just talking to the Nevada secretary of state uh fra being based here. very apt good conversation.

Uh a lot of opportunities that are not, you know, usually talked about. For example, maybe in a uh the government during the incorporation process of a of a company in Nevada, which has been really hot uh after Delaware, right? You can get stable coin account, a fraet account, a virtual bank account. All of these neoank things that are only currently applied to retail, right? Crypto traders, right? you need to bring them to other markets that are honestly bigger than the average crypto trader, right? That there's like there's like 200, you know, crypto cards or or whatever. That's a nice business, but they're all trying to attack the same exact demographic of like spend your stable coin and trade and then like get

a token reward, right? We're also building something there with a totally different outlook, right? And so like the there will be a FRA card and and a and a very interesting programmable card that won't look like any of the other 200 or so, right? That's going every every week. And and the and the point is >> you need to bring this technology to new opportunities. And and when you see the opportunities left and right, it doesn't feel like a a bare market. when you're talking to the the Secretary of State for a large state and when you're talking to a senator and then they're like, "We need to bring this this banking, this technology, the stable coins, this payment processing uh to all of these places to our state, to our businesses, to our people." And they

actively want to push that forward rather than being like, "Oh, well, let's wait like 2 years or whatever." They actively want to schedule calls, see if if they can push this forward immediately. That's totally different. You could describe how how different that is, right? And so there's also obviously Vegas being uh sin city and the you know gambling capital of the world, there's also private sector opportunities as well, right? It spans both public and private, >> right? And so from a secretary of state's perspective, which I think is a great framing because it feels representative of the the actors that are now the market participants and those typically have not been the market participants, but a secretary of of state is looking at increasing tax revenue for its state primarily, right?

And Nevada is a great example because they generate so much income in taxes from the casinos if I'm understanding correctly. And so, you know, being such a primary income source, I'd imagine that both the private sector and the public sector are looking at new opportunities to increase their income. And by virtue of that, the the secretary of state is able to t you know, generate more tax income as well. And so, the most intuitive example here feels like well, you know, the state's got its reserves. It's got a budget and it's got money and it can put that money into a stable coin and it can earn money from reserves. How I mean are those the kind of opportunities that we should be

thinking about on a state level and if so how does frack help a state accomplish those goals? >> Yeah definitely. So that that's a very interesting like financial structural kind of side of it. In fact, one of the things I think that will be pretty popular to to do is back genius compliant collateral, whether it's bank deposits or uh government debt with stable coins that are strategically aligned, right? Like uh let's say casinos want to integrate like FRAUSD or some kind of stable coin and in return the deposits are in uh banks that actually do the the payans and payouts for the casino's normal business, right?

There's just a lot of these structural things that creates much more positive flow and positive value across the entire ecosystem. There's also just efficiency, right? Like if you think of the secretary of state, they incorporate companies, they collect corporate tax, incorporation tax. And what do you do when you incorporate a company or startup, the first thing afterwards is you need to open a bank account and run payroll and all this stuff. And that takes a while. What if you could just have that all done digitally? Because you could have a neo bank, something like FraNet, something like all these other ones, right? There there's there's a lot of these opportunities, but what if you could have these things just be instant? In fact, what if the real like distribution is we just do the incorporation on behalf and then you immediately get like a full account,

right, for your business and then running uh the the payroll through stable coins, getting yield for however you want your your business to borrow, tapping them into DeFi on the first day, right, when your company's actually incorporated. There's all these avenues that you could just bring the efficiency of digital assets, stable coins, payments and and hook them on the actual crypto rails from day one. Uh those are not really being explored, right? Like right now we we see like a lot of the conversations trading which is great, right? But it's like it's like perp design. It's like uh cards for crypto natives that you know want to borrow and and use like a and stuff like that.

Those are all great, but probably there's going to be two or three winner take most of that exact kind of feature and functionality, right? There's there's places where you can really create a lot more value uh from 0ero to one in my opinion. What what is your take on um these maybe you would call them neo banks but I I probably call them stable coincentric banks like Arabore right the guy from Andreal is like you know kind of gone and and and done this and it and it sounds very similar to um what you're describing you know you open up a business if this gets integrated into the business registration flow you can open up a lot more of these out of the box and and you know with the current regime whether

clarity goes through or not um and and an agency, a regulatory agency that kind of flies under the radar a little bit more so than the SEC and the CFTC is the OC, which is in charge of all the banks, banking charters, these sorts of things. And they've been issuing charters for like cryptonnative companies to to do these things. >> They've been giving them out like candy is what I what I say basically. I mean, so yeah, I mean that's, you know, you're saying what we're all thinking and so like is that sort of the path for maybe not every one of these 200 card, you know, you got a crypto card, you can spend your thing, right? But, you know, is that a path that that you and FRA are exploring to help integrate with some of the more, you know, regulated bodies at

at at be here? >> Yeah. So, actually, it's great you brought up Air Arabore because they're actually our our like newest partner that that we haven't fully congratulations Yeah. announced yet, but they're we have a official FBO FRAUSD reserve account. It's Genius Compliant. They're an FDIC insured bank. Uh we're doing some interesting things with them that we'll actually announce pretty soon. But exactly as you're saying, it's these innovative banks. Their software is fantastic, by the way. So, I give a shout out to Ehervore uh and um Palmer, Jacob, all all the guys there. And um it's it's exactly the type of innovation that's needed. Um the important thing to to think about though is that you have to have layers, right? Like if you want

to accomplish a certain thing, you can get these charters. If you want to accomplish uh a certain other distribution channel, you don't need it necessarily. So for us, uh I think we'd look at it probably next year. Uh and and so that's that's kind of our timeline. And and I mean you're you're a leader in the stable coin space. You have been for a long time. And so just from an educational point of view because we have operators that you know listen to stabled up and they you know take away some um you know potential guidance as far as how they should navigate some of the market conditions like when and why would it make sense for a stable coin company or a neo bank to pursue the OC bank charter route versus not? When when does it make

sensor to do so? >> Yeah. Uh it's a good question. So it depends on what services you're offering and in what order you want to offer them, which is actually the other important thing. So for example, if you want to be the direct actual uh entity that holds your own reserves and you can actually potentially do some interesting things with them, right? Like for for example, if we deposit FRAUSD's genius compliant reserves at Arabore, which is FDIC insured bank, Arabore can obviously hypothecate them. They're FDIC insured bank. they can give you know mortgages, credit creation, all this stuff.

>> Could we work with them in a positive some manner that uh creates interesting credit creation in uh a specific sector for for example this is not actually uh official or anything like that. So it's just an idea. Imagine if we deposit nine figures at uh Arabore and then we say, "Hey, our predominant business base is in Nevada for example and we have tons of companies that have been using our NEO bank. Could you extend them credit based on your own uh risk analysis and stuff obviously, right? But prefer credit creation in in this region.

That's a win-winwin, right? Triple win. Um that's like for example something if you want to do that all inhouse um you should probably pursue an OC charter, right? Uh but first you could you could do it with a strong partner, right? Um for example, with us, the other thing that we're saying is we're working on this really novel card in in the uh last couple months of this year is hopefully when it'll come out in Q4. Um there's a lot of ways to issue cards, right? That's why there's like 200 of them or something like that, right? But we're trying to get a uh direct uh BIN relationship with Visa rather than using just an API uh endpoint or partner. We looked at a lot of them. Uh, a lot of

them are great for different use cases. And so it goes back to your question, when would you actually want to uh go all the way for certain things. It depends what you're trying to offer uh and and how quickly you're trying to actually offer it. So for cards, uh, full 100% interchange pass through novel designs of of a of a credit card that's hybrid with, uh, crypto, which usually they're all debit, right? And actually that's a the regulatory reason and also compliance reason because other BIN sponsors would not be comfortable with saying okay I'm going to issue credit against some you know crazy type of uh architecture. Uh they're they're fine with saying okay safe stable coins USDC you know FRA USD whatever uh fine you

know you could spend it as a debit card. So we had to go direct we had to actually take responsibility we couldn't build what we're actually trying to build without going direct. uh which makes it harder but also makes it more technologically innovative. >> Yeah. AB: Absolutely. And that I mean, you know, there are barriers to entry in some of these spaces and and sometimes for good reason, and it it it takes uh someone who's up for the challenge to overcome some of these barriers to entry. um you reminded me of something that I I saw on the timeline over the last 24 hours or so uh with respect to Visa but also Open USD which um is you know out of tempo and you know has kind of been not so much talked about in in

recent times since it came out and I think a lot of people and companies that originally endorsed open US dollar have sort of taken a more generalist approach uh which is sort of a leadin to to what I want to ask you about here which is um a tweet from Lorenzo and he's a friend of the show from Arc Invest's uh digital asset team and he said on on Visa's earnings call the company was asked whether OpenUSD would compete with Circle and Tether and and the established stable coin players and Visa's response was that Visa going forward would remain multicoin multi-chain. Our role is not to pick winners. Our role is to help clients connect to the stablecoin ecosystem securely and at scale regardless of which stablecoin network or infrastructure ultimately gains

adoption. Um and so given that a lot of companies signed off on this open US dollar thing, it seems like a lot of them don't want to handicap themselves when it comes to accepting stable coins across multiple networks. So >> what is your perspective on the way that card settlement networks like Visa and Mastercard and Discover have been approaching the stable coin space? How has it evolved? And given that now you're seemingly enter the space, and please correct me if I'm wrong there, but h what is your now positioning as it relates to some of the incumbent card providers and settlement networks?

>> Yeah. Uh that that that's a great question because uh actually I guess as as a background since starting yesterday I should say PRA has also joined the open USD alliance as probably the newest member but this is a great question because that also applies directly to to us. I think every single company depending on whether they're an issuer of a stable coin like FRA uh card network they have different priorities in what they see the value that they can both bring to the OSD alliance and consortium and then also get out of it right uh for us for example when we were were talking directly uh with the stripe and and bridge team that created the consortium right the idea for us is

obviously we issue our own stable coin uh O USD Being genius compliant means that we can essentially accept it onetoone. We would like to actually be uh able to do onetoone mint and redeems and actually have this clearing house ability offer it in all of our products. Although our credit cards like the kind of the way that it was said on on the Visa call that you quoted, if someone wants to spend OSD for specific esoteric reason, they're more than happy to, you know, use our product to spend it.

Right. For us, what's most important is being able to offer onetoone orchestration, onetoone onoff ramping, one:1 system with OSD. And that is actually a net value ad for OSD if in geographic areas and and sectors places use it, right? Same thing with like card networks. They they probably don't want to be extremely opinionated, but they would love to have the economics, the onetoone mint and redeem, uh additional integration APIs and and all these things. The power of the consortium is not necessarily everyone having like a strategic uh alignment of pushing this over another. It's everyone having uh a strategic alignment to at least accept

it at the same time, which is half the battle, right? Because imagine you're starting a stable coin that's not in a consortium. You'd have to have Visa accept it directly as a settlement stable coin on on Visaet, right? you'd have to have all of these like black rock, you know, mint and redeem assets with it instead of USDC. Well, now they do O USD and USDC, right? That's a very substantive thing that I think people are are are missing. Who has the actual incentive strategically to push OSD uh early? Probably Stripe and the Tempo team, right? And obviously they're very capable, very very smart team. And uh I think there's some some cool things that we can build with them in in DeFi and

Neoanking together, but they have the the farthest alignment. Obviously, everyone else has an alignment to make sure that it's accepted, it's integrated, uh it has unit economics, and that is a very important thing. I think people are miscounting that. Another way to think about it is if everywhere accepts a stable coin as a as a unit, the less likely it is to actually be redeemed in any one particular place because you have to make upstream payments that are accepted also in OSD. For example, if we're going to uh mint Black Rockck, you know, Biddle or something like that, uh overnight we might hold the OD cuz we know that next day Black Rockck would accept it because they're, you know,

part of the the consortium, right? There you go. Now the the the time duration of someone holding billions and billions of it is increased, right? And all that stuff adds up. So I think it's a very substantive thing, but people might be overestimating consortiums. They're not private uh shareholders on the same cap table, right? Obviously. >> Yeah. And I I I think we've had previously a similar conversation and you've you've explained how the creme de la creme for a stable coin is to be accepted as money. And if you can get that, you've essentially, you know, gotten yourself into the echelon of of staying power, sustainability, and these sorts of things. And and it sounds to me

that the more cohesion there is in the stable coin market, the more winners there are in in the sense that and and the question that I'm getting to is ultimately are are you a like a stable coin monoist or a stable coin pluralist just in the sense of like is there going to be one blockchain or many blockchains? Like it it seems to me that if there are working models where there are onetoone redemptions and there's partnerships and everyone can have their stable coin, but they can all be redeemable for one another, it it creates a cohesive ecosystem of stable coins that if one of them is accepted as money, they're all accepted as money because they're all equally redeemable

for one another. Is that a vision that you have to get into like the positioning of like accepted as money? Is that sort of ultimately where we're headed? And is the thesis of ultimately arriving there, is that correct? That everyone sort of forming these partnerships and and and creating a redeemable network for one another helps to achieve the moneyiness of stable coins. >> Yeah. Uh, I think to answer your direct question, as a monoist or pluralist, I guess it depends what you mean by plural, how many, right? I'm an 8020 type of person.

I think there will be a few uh that are 80% of the entire stable coin market cap, which I think is going to be trillions by 2030. Uh, like at least a couple trillion, 3 to four trillion is still Scott Besson's estimates, right? Um, and then the 20 other percent is the the longtail, but there will be a lot. So, I guess you could say closest to uh a pluralist and hopefully FRAUSD is in that couple 80%, right? The I think five or so probably that makes up that that 80% is it would be my guess. Um, the way that you said it actually is really smart. Maybe the next Visa network or Mastercard is all of these consortiums of consortiums being joined like FRA being in it, Circle being in it, you

know, the the OSD consortium, FRANET, the one:1 clearing house. There's other clearing house companies that have relationships like we have a relationship with the Better Money Company. It's a it's a new clearing house company and uh they do FRAUSD, they do USDC, they do uh all of these and so those that that network connection of all of them maybe that is uh the next visa, right? Maybe that is where most commerce will be uh in like 5 years, right? Um I think that there will be a lot of stable coins. We we also do an issuance uh system. We issue Sonics USSD, Somnia's USDSO. talking to a few others and one of the first things that they would get out of all of this is immediate oneto ontoeness full rails all

of the integrations uh that FraUSD has uh maybe not as many as like Dex uh things across networks but in their network which is exactly what they they want they they reign supreme right and so that network now connects one to one and orchestrates with everything that we've built so I do think it's an 8020 rule I do think that the next kind of Visaet kind of thing is is being built right now. Technically might be a uh super network of of Visa because Visa is in the this consortium, right?

>> It's in the consortium as well. And so it Visa could in theory partner up with other other networks that would have right they they could partner up with a Mastercard or a Discover where they were typically seen as competitors but now in this new stable coin space they could be seen as partners. these roots are way more open than than people think. I know there's like concerns of like, oh, a consortium made of like US tech companies and stuff like that, but I think you're right in that the these consortiums, right, the the asset is self-custodial, right? Going between Visaet or or Mastercard, if you like swipe at a different place or there's overcharge or FX fees that there's no way you could get out of with all these,

you could withdraw it to your web 3 wallet. You could deposit it in like Frastead. We'll do one to one. If if the others don't, we'll do one to one or maybe one time we might not be able to or something. They they probably can. You could withdraw it. And so the actual c control and custodial relationship is totally different. And these are open networks even though you know genius requires blacklist and things. It's very very much a big step up of what it was before. >> Yeah. Um, we've said on the show multiple times, I think every show we do mention FRA at least once. And so, typically it goes like, you know, FRA is open, open, stable, borderless, and and genius compatible.

Open, stable, borderless. I think I think, you know, are all are all relatively straightforward. It's the genius compatible part that I'm just curious to hone in on a little bit more because with all this clarity conversation, it was we we were reminded at recently that there's still rulemaking that is happening with Genius. And so when you say that, you know, FRA is genius compatible. What does that really mean? And and how much does that help to separate it from some of the other stable coins that are out there that don't fall into the genius compatible category? >> Yeah. Uh, it's a great question cuz I was hoping the OC would do their uh rulemaking on July 18th, but like they I pushed it back to I don't even know when now. It might even be early next year. I

don't quote me on it, but um what we mean and I think what most people mean is to the best of our understanding and our council and uh and Claude uh right >> Claude. Yeah, I have to be honest, right? uh the assets that back FRAUSD and the way that it's custodied in segregated FBO accounts and the fact that we uh can redeem the entire supply and they're entirely custodied by qualified custodians, money market funds, securities, treasuries, and FDIC insured bank deposits. We think it matches the the Genius Act. Now, obviously, no one's been licensed. As

you said, the guidance hasn't even finished coming out. So, >> and that's why we say genius compatible and not genius compliant. >> Exactly. >> There's not even rules that would say what is compliant, which is exactly what you're saying. But to the best of your ability, you've used your best judgment to make sure that it is compatible with the rules that are most likely to be put into place. >> Exactly. And actually the the importance of that can't be uh overstated because there's a lot of you know partnerships and and everything that we'll announce towards the end of Q3 and then into Q4 with either states or private sector uh well-known companies that uh probably everyone's heard of and uh maybe people have stayed at in in Vegas when when

they're here. uh the most important thing when they want to uh hold a stable coin in their reserves for like payouts or corporate uses or accept it as payins and not immediately convert out of it on the spot. Is that is this thing regulated or is it like compatible with it when when Genius is licensed and and regulated and everything like that? And if you you say, "Oh, it's like a decentralized stable coin or something," that's that's a dealbreaker, right? And that doesn't mean they can't be good decentralized stable coins can't be good onchain uh digital assets, synthetic dollars, yieldbearing dollars used in in DeFi and and everything else. But this anchor of

a real digital dollar that uh is a stable coin that companies, states, uh all of them are are fine with holding more than a millisecond before converting out of it. uh that is a hugely important thing and we can say with confidence from experience that uh there will be a lot of you know companies that have agreed to hold FRAUSD but also other genius compliant stable coin just from the talks that we've had so we know this this exists multiple like like places. >> Yeah. Well Sam as always man um appreciate the time you're extremely thoughtful. I I I love how big we think when we come on these shows. I feel like we ultimately get somewhere where the space itself wasn't there before we had

some of these discussions. Um, in particular, the uh, you know, the way that some of these networks could be constructed. Um, it feels like we're still early days, which is incredible uh, because we've come so far. You've come so far um, and uh, you're a tremendous partner of the show. We really appreciate your support and uh, yeah, we're really excited for uh, for the future here. >> Thanks, man. Yeah, it's great to be on. Uh, enjoy Vegas. Uh, it's good we have AC here. Yeah, absolutely. Thanks, Sam. Appreciate it, man.