Frax Founder: The Future Of Stablecoins & Onchain Businesses (Why Now)

Transcript

Welcome back to the tokenization tower. You're watching the roll. This is episode number 36 of Stable Up, our weekly premier stablecoin show. None other than Sam in the tower. Good to have you, Sam. >> How's New York treating you? >> Excellent, man. This is so cool. This is like uh I feel like New York and SF are like the two pillars of tech, AI and crypto and finance. So, this is awesome. >> Yeah, man. It's um all the ads in the subway are are AI ads now. So the the the SF uh culture is infiltrated here for sure.

>> Yeah. I saw a bunch of crypto though. I saw some Ripple and other stuff. >> Yeah. >> Well, one of the notable things, Sam, uh today and this week is is is action on the Genius Act. Uh kind of getting that into law, you know, we were just talking about prior to this going live just about there's a couple more things. Could you just uh catch us up on on what's happening there with the Genius Act? Uh what is left to get this thing into into law? Yeah, I I mean I I think legally speaking, it's it's technically law. It's just that the OC and the federal agencies that have been tasked with actually giving guidance and and the process to apply for like a genius license or I guess technically a payment stable coin issuance uh you know uh license uh need to go through with all

of the comments, rulem uh final releases of the actual procedures and everything. And I think for short uh TLDDR, I think by Q1 uh 2027, I think it should be open for business, which obviously we're hoping with FRA uh we'll have FRAUSD be uh licensed Genius Stablecoin. Now, one thing that I will say is that since it's uh on default acceptant, right, the way that it's going to work is that you apply and if unless there's a very specific response of no for a specific reason, uh I believe it's 120 days of auto uh default in compliance.

>> Okay. Um, and so I think that's what's going to be really great for innovation because unless you're doing something extraordinarily wrong, >> uh, and you get a no. Uh, it's a default yes. Whereas the FMA and Fed master account and all that stuff, right? It's a default is no. So then the Fed used to always be able to just leave it for years, right? And and just, you know, say, well, we don't know how risky this new bank or whatever is. And that's just a political way of saying f you, right? Right. So, so this is the exact opposite of that which is bullish.

>> Yeah, that's great. Well, great. Great. Just wanted a quick update there really today. I wanted to just kind of have a a frack specific conversation about the business of fracks and kind of a as we're in this very institutional era of this industry. Uh I coined this term revenue meta a year and a half ago. It's a very silly term. Got a lot of flack for it. We're very firmly in this era of I'm an investor. I'm looking at fracks. I want to understand business model, revenues, token flows, emissions, net value flows, how these things are coming together, what the stable coin business is doing, how it makes sense from like why FRA is an investable company, investable asset uh with with a token that is obviously separate from a stable coin. So, fable coins are obviously one

of the pillars of this era, right? Per tokenization, stable coins I think are like the big three. So, you guys are in a really uh strong spot here. just kind of let's just get a high level of the FRA business model. How how how does FREX uh generate uh fees, generate cash flows? What is the business model of Fra as it is now? And then looking forward, let's start here high level and kind of just get into the weeds about what uh the investability of of FRA is. >> Yeah, for sure. So, obviously the flagship product is F FRXUSD. It's a genius compliance stable coin, right?

And we like to say it's a FRA is a stablecoin operating system means it's a verticalized stable coin stack right that that we have. And one of the most interesting things actually brought up the Genius Act and also the Clarity Act is is coming out and maybe it'll pass and I maybe it won't I think there's a high chance it will. Um what we actually do with FRAUSD is we get it integrated in the most uh DeFi important hubs. Right. So A's new uh V4 actually the FRAUSD is currently like the largest stable coin there. um we're working directly with them. There's a lot of curve pools and so what we do is we actually stream the risk-free rate to these important DeFi uh hubs and we make it so that this is the default digital dollar that's compliant that is fully

redeemable that can be used as as payments and is onetoone right at all times. The entire supply can be redeemed in T+1 right for cash if you want to or one to one in other uh major stable coins. And the idea here is like all of these places like A if you lend Frax USD you'll get streamed the risk-free yield as a baseline. >> Y >> instead of other stable coins and it's not like a campaign that's like done in a month or something. It's actually a mechanism. And so we've built this out. Um and that's actually one thing that's very powerful for for fracks when uh if the current wording of the clarity act actually passes where only activity based uh streaming of yield or rewards that are not interest rate for idle holdings but interest rate or rewards

for activity right uh is is allowed clearly um this model is actually going to become the standardized model where you participate in DeFi you participate in a uh payment system like a a FRA card, an EtherFI card or like a uh a Visa payments card, right? These programmable cards. Um or you participate in these DeFi hubs, right? You create a curve pool where you're pegging to FRAUSD instead of other stable coins, right? And when you LP it, you get streamed the underlying for the amount of FRAUSD you hold in that pool, for example. And this is actually a really important composability tool because if you think about how to build a fiat coin in in 2026, if you were going to build it from the ground up, it

would work something like this, right? It would be aligned in all major places in in DeFi, in hubs and spokes of where economic activity is happening. And then you would monetize it as it gets more monetary premium, which very few stable coins have been able to do outside of tether and circle obviously. Um, then those can be monetized, right? like we we don't share 100% of the the actual yield on 100% of the supply. Um when people hold it, they use it as payments. Uh we actually can capture that monetary premium. And then also we have other products around it, right? We have the Sfra USD savings vault. You stake it in there and then those strategies you can kind of think of it like an official vault, right? Those go higher than obviously the baseline T bill yield.

It's always guaranteed as as the T bill yields for for staking in there but then we actually deploy it into important places like a like carry trade like uh RWA strategies and so those always uh yield pretty much industry benchmarks right and so you have this full stack financial ecosystem there's many places to capture value that uh is not commoditized right one of the things that u we kind of talk about in internally both at FRA and I think a lot of places in in crypto and tech are talking about is when AI commoditizes the actual software, right? What is actually durable in terms of revenue?

Like I think your revenue meta is right on the money, right? No, no pun intended, but that there's a caveat to that which is >> the revenue has to be durable, right? And so like one example is like that that is the market potentially saying is not durable is if you look at Salesforce equity the over the past year, they've actually beaten forecasts, right, on on revenue, but the price has gone down. Why? Why has the price gone down is is that the market is essentially saying >> we don't know if SAS the way that SAS worked before that Salesforce is dominant in right will exist in 5 years or 10 years. So we don't know even though today your revenue is amazing, it's durable and all this stuff, we don't know if it'll be durable in 5 years. And so one thing that I think FRA

is very very good at is this monetary premium and this verticalized ecosystem that is growing >> very similar to uh things like tether um things that are sticky that have have a mo you can't vibe code liquidity or integrations right and so that's why I think it's very valuable. Okay. So, think thinking on that line of durability as it pertains to FRA's business lines, what does the what does the expansion look like for FRA then markets are forward looking? You talk about durability of revenue um you know into this year in into next year. H how do you think about FRA's financial state as it as it pertains to expanding the revenue um thinking about things like uh token value acrruel etc. talk to us

about kind of like this the the bigger picture. Okay, we have these business lines, we have these products. How do we how do we um how do you kind of round this out into uh making FRA the asset something that uh people are super super bullish on buying etc because they see the business lines, they see the the growth. Just talk to us a bit about like that forecast and what's how you're thinking about Fracks the asset as well. >> Yeah, for sure. Uh, and that's a good question actually because I think there's going to be a few tokens that are uh heavily investable. Obviously, Hyperliquid being one. Um, I I'm still bullish Zcash, but I I think you guys probably have talked enough about the

Zcash situation. >> You had a fun couple days there. >> Yeah. Yeah. Um, and and I think there will be a few really important DeFi tokens that that are in this sticky moat that's durable light like FRA. I think a is is another token. Uh CRV, CVX, right? The these have have staying power. They're not going anywhere, right? Um I think one one thing we've institutionalized and are going to formalize is that as as we were saying together too, starting Q3, we're going to have a uh token holder uh investor week, right? We're going to actually have financials that are pushed out.

Yeah. Um, there's going to be, you know, analysts, people that can actually see and they can see exactly the breakdown, what the growth has been, what product lines the the team and and the entire organization is working on. Um, what things are coming rather than only being able to hear about them in like, you know, these these podcast episodes or these appearances. >> Um, there's going to be a formalization of that. And I think um you know it's it's interesting because it's either tokens becoming more like equity >> or the other way to think about it is equity has has become more like crypto because of how volatile stocks and all these other things are. So they've kind of met in the middle rather than one has gone to the other direction. Um so I think you'll see FRA as more like a an

asset that has fundamentals quarterly you know uh investor updates um formalized with the team in sync with governance and all those things and we're actually compiling all of those with data rooms and everything in uh in the organization and then we're going to publish it in a formal way um in in the next uh couple months in in Q3. Um and I think the other thing is a lot of these tokens will have to start doing that. Um Hyperlid for example obviously has tons of revenue. It's business is really easy to understand but as it diversifies a little bit more in in different like fee structures or even has different kinds of you know um flagship products right

they'll have to also formalize this kind of reporting too right and I think everything is going towards that direction. Uh we we also have some payment platforms and deals that that we've signed that are actually really really big and we we'll announce that during Q3, but those for example, you can't see that onchain. You can't see revenues basically. >> Exactly. And those go to burning the FRA token. Um some goes to reinvesting in the business, right? And so those schedules, the the proposed burns and all these things, we're going to make it very clear what what those are. Um where the actual cash lies, obviously, we're going to hold it in FRAUSD, etc.

>> Yeah. Uh I got a question here from someone watching. Uh what is the advantage of F FRXUSD stable coin versus Sky or Athena? Um just generally how do you think about this growing kind of uh market of stable coins in that you know separate from Tether and Circle Sky Athena Fracks kind of like this trifecta of the three outside of those two. Uh what what is the how do you think about the the landscape there? >> Yeah. Well, well, I think there's there's a big difference between FRAUSD and USDE or USDS, right? The closer thing is the savings vault that we're talking about, S FRXUSD, which is yield bearing and has risk on on the balance sheet will deploy the underlying. Um,

I'm actually a pretty big proponent of uh there's just two types of stable coins essentially. There are stable coins that are essentially digital dollars that are redeemable that will be widely accepted. Um there's going to be you know a few of them as money obviously tether circle hopefully fraudd um you know there's others like Agora um PYUSD and and um USDG and and things like that um those are different those are very different um even though FRAUSD is built with DeFi first principles economically risk-free uh in terms of it's just T bill's genius compliant assets USDE is not like that right USDS is not like that >> uh for taking the actual balance sheet risk, right? Whatever it is, right?

They're they're all blue chip, very competent teams, but you >> should at least want the yield underlying, right? And so there's a very big difference. And in fact, we know this from those off-chain payment deals that I was talking about. One of the things is a lot of these uh public traded companies want to actually hold stable coins on their treasury for payouts, not just accepting payins. Um, and obviously the first thing they want to make sure is is the stable coin they hold on their treasury, on their balance sheet for payouts, is it genius compliant? Is it is it essentially risk- free minus like smart contracts or something, right? Is it economically risk- free? I don't think that uh well, not think I know for a fact from from

talking to them and and their management that they just want to hold digital dollars. Yeah. Right. The the savings products are totally different. they might allocate some to you know yield bearing stable coins or or savings vault or Athena or Sky. Uh very different and in fact I think the teams that uh operate in the yieldbearing area >> very different GTM than the teams that actually have the underlying like M1 money essentially. >> Yeah. Yeah. That that actually brings me exactly where I wanted you to go which is how do you think about Okay. So stable coins are at couple hundred billion right now. 300ish a little over that. 320 maybe. um you know we're going a couple trillion but there's different GCMs right there's different types of like that growth will be in different

areas how does FRA capture a significant part of that growth the next three to three years like you're right in the sweet spot here right like you've got the the tides of the game that you're playing if you will are on your side how do you maximize the the growth of X F FRXUSD specifically with your GTM what does that look like you know give us a bit of an insight into behind the scenes how you're thinking about and what you're doing to scale the outstanding supply of FRX USD and really just permeate it to help your, you know, just the broad FX business pie grow.

>> Yeah, for sure. I I think the way that we we think about it is there's a new generation of assets coming on chain and a new generation of uh protocols, either new versions like a V4, which were currently the the the biggest stable coin on. We have over 20 uh curve pools that are pegging to FRAUSD with their new uh any project that's like a new um yield bearing stable coin or uh synthetic dollar or RWA, things like Royo um and and things like uh MetalUSD and MSUSD and there there's a lot there's a there's a big list and our idea here is that these assets are going to be the big assets of tomorrow RWAS uh equities even right stocks We want to

make sure that we're at the forefront of that and first mover in terms of liquidity, in terms of uh rates, in terms of uh pairs and partnerships. We're not going to do the things that people did yesterday, right? We're not going to go to a centralized exchange and be like, "Oh, please add like a BTC FRXUSD pair." Uh Tether's doing a great job with that. They they've they've done that. They they've they're crushing it, right? They're fantastic and they've they've actually captured that market, especially when it needed to be done, right? Um and so we want to work with anyone um that wants to create liquidity, right? That wants to actually make new pairs, that wants to launch lending pools, that wants to have a more efficient uh digital dollar that's

issued in the US. Um and so in two years, three years like you said, if you close your eyes and and you think, okay, what does success look like for FRA and and FRAUSD and thus the token, uh it would be hundreds over 100 or something of curve pools or AMMs like we work with aerodrome as well and we starting to work with unis swap and unis swap x with with intent liquidity and all these places. >> Um we're just talking to the 1-in team earlier today as well. All of these places have deep frad liquidity for assets that are new. >> So, so for example, for yield bearing stable coins, RWAS that are under 18 months old, their predominant liquidity would be against FRA USD. That doesn't mean they can't have other liquidity, right? But the way that

>> Weath, WBTC, all of these things, their predominant liquidity is against USDC, right? Uh those assets totally fine. USDC, all great, right? The new ones should be FRXUSD, >> right? And then same thing with payments, right? These these payment platforms and and companies that want payins and payouts, the ones already using them uh and and currently are in in crypto use USDC. That's totally fine. You know, that's all good. But the new ones that we're talking to, they are starting from scratch, right? We can give them a better, more efficient, fully integrated product, fully integrated platform. So in like 3 years, if you look around, it should be billions in FRAUSD with the same definition of sticky liquidity. Y >> lending uh right like a v4 in 2 years

hopefully is is like twice as big or three times as big as a v3 right hopefully has 90 billion 100 billion uh supply hopefully >> half of the stable coins in there are frau right now literally half is frau but it's tiny because it just launched right so you could kind of see where we're going with all of these things and so as we also roll out our other uh defi products things like that um we want to make sure that going forward from here we are seeing all of those dominant KPIs which we we are currently >> and so one of the things that I think uh people would like to understand a bit more about is you know in in in for example in in the sky model the the as the outstanding supply of something like a USDS grows um they generate more

revenue and then they they can uh do more buybacks they have uh this yield product right they can create basically the business is like grow the stable coin supply with FRXUSD growing How does that how does that uh lead to a stronger business and healthier business for Fracks? What does that exact correlation look like? >> Yeah. So, for example, if there's uh billions and billions in supply, um let's say just for simplicity, half of it uh the risk-free rate is being streamed in these DeFi hubs, right? Y >> the other half obviously is is is gravy, right? The revenue goes into the organization um pays the cost, licenses, etc., sellers and then the rest goes to

burning FRA tokens. >> Yeah. >> Um and then the other things like the savings vault, right? If it's everywhere, right, and and being used, people will probably save using the FRA savings vault. Same idea as Sky. There's a spread, right? Like if it it pays out 6% in the SFRA USD savings vault, but the actual earnings is like 6.57, right? There's that spread that goes entirely into the actual DAO, right? And that gets to FRA tokens and it gets burned. There's also other protocols and products that we're uh revamping like FRA lend um with with curation features and and we're talking with uh a lot of um other partners in in this area and so that speaks for itself lending uh FRAUSD earning the floor but then also creating this debt and and creating high TVL

right then being able to capture that through fra etc goes to the Dow goes to burning fra tokens this multimodel where a lot of economic activity is captured uh throughout about the financial stack, right? It's it's not just a going back to that commodity software uh durability uh example. We don't just sell software, right? So like we don't just like sell, you know, accounting software or like crypto software where if you just automate this part out or use something else, we're you know fraised, right? We are part of the entire monetary stack where one part of our product growing makes the other part better, makes the other part more useful. Um and so that I think is the ultimate staying power,

right? So like we already see uh revenue coming in that regardless of the current token price across everything both fra tokens but all these other tokens at all-time lows, right? Uh we don't we're not dependent on the token price, right? This is real uh economic business and so that that's really valuable. >> Yeah. And just curious on on there's this concept of like pre-commitments to the uh to the token holders or to the like there's a programmatic function here. Is that the case with uh the uh SF FRXUSD vault revenue that spread the stable coin uh spread revenue? Is that is there a you you know you mentioned uh salaries, licensing fees, expenses and

then the rest goes you know to to this kind of like fax burn. Is this like a programmatic um happening that is on a monthly basis, bi-weekly, daily, quarterly? How how are you thinking about like the like the rigid or f like flexible structure of of the financial uh aspect of bringing revenue back into the protocol? >> Yeah, right now it's not programmatically like onchain with like sfr USD revenue or or other kinds of revenue like like frack lend and things like that. It's just accumulated. Uh there's two things I actually think either quarterly with the reports right and and actually saying the exact uh target of of burns um or um during those

quarterly reports saying um at certain prices we will buy to put uh essentially a more active less kind of I guess gameable uh like kind of uh floor to them. I I forget who it was. Was it Ether or was it was someone that were was like um we will buy it at at these prices. >> Um I need to check it. I need to ask DCF Goddard who it was. But that that I think is a really great idea. >> Um >> more than just kind of like just >> Yeah. You know, back in the day it was called Merlin candles with MIM for anyone that like they had a single block every day that they would use the like MIM profit and it would just the token would shoot up and then it would shoot

back down. And I I think it it makes a really good spectacle, but I'm not sure if it's like the best use of uh revenue. >> Yeah. And on that note, like when you think about uh acrewing revenue and and then revenue that FRA generates into the protocol, into the business, there's kind of like this like dichotomy of opinions of people saying that people should invest revenue back into the team, the growth, R&D, scaling, etc. And you've got people over here like, "No, just buy back the tokens. You know, I pump my bags." there's kind of like a a divergent view here. H how do you personally think about this at the current state where FRA is at? Do you believe that um what your current like the current structure is the ideal and and adequate structure?

Um how do you think about that going forward as you guys grow as as well? >> I think it's a really uh unique question per each organization, right? Um I think we're almost there. maybe like one or two quarters more of like reinvesting into the the business entirely um until parts or large amount of the revenue can be used for buyback and burns. But there's also the other the other aspect of it. One is um right now I think a lot of like tokens are and obviously not financial advice but are are at like all-time lows or something where like I I saw a tweet that was like the A token is like at the ICO price that it was.

>> There's sales everywhere. Yeah. Yeah. >> Same with like like almost every DeFi token right? >> And so it's like that's kind of funny if it's at the ICO price when it was like zero TVL, but now the TVL is like 15 billion or something and it's clearly like the dominant lending. Same thing goes with like FRA. Like everyone knows what we're doing and and and the company is sustainable and and sufficient, right? But doesn't really matter. I think right now actually is ideally a good time for the organization to to buy back and burn the tokens but then yeah but then like reinvest it depending on what is going on down the line. So actually like counterintuitively maybe these two quarters are the right time to

buy back and and and burn and then maybe reinvest it actually in three four quarters when the the price is actually a reasonable um speculative market cap that we reinvest into the business. >> Yeah. And I don't mean to make this so much about buybacks because I think it's kind of like a you know it's it's a tricky one in terms and it's been kind of talked a lot about but do you think like like do you want to just buy back and burn or why not just buy back and hold the asset on your balance sheet? Why burn it? >> Yeah. I mean economically they're they're they're the same, right?

>> The value. >> Yeah. I mean you could you could then use it again like assuming like you it's like a commodity token, right? That that you can't mint again. So you could put it back into circulation later. Um I think that's it's a good idea. Economically they're the same. >> Yeah, they are. >> Um but one thing is that I think >> when you buy back a token and then you burn it, you actually have an easier way to show that the supply goes down over time. Um, and a lot of these tokens unlike Bitcoin or Ethereum like they they can they can be minted through governance or like a contract upgrade or something, right? Um, FRA is a little bit more difficult because now it's the gas token on our on our chain.

>> So we maybe we depending on governance we buy back and hold, right? But a lot of the governance tokens you could just mint with an MSIC. >> Yeah. >> Um, so we're in like this institutional era, right? And just kind of zooming out from FRA a bit as we as we come to a bit of a wrap. There's there's just quite a a change of pace of how things are happening, right? Like the players that are coming in the space, they're just moving a lot slower than I think what we're used to. Um larger balance sheets, larger investments, longer time horizons, less risk tolerance, right? When you think about FRA's unique position in in this point, how valuable is the lindy of you know no exploits of no of very few like depings

if any reliability genius compliance like or compatibility? Um how how unique or how much edge and kind of like value prop do you believe that fracks what you guys how you guys have built your company lends itself into this next era? do believe that you're uniquely positioned because of this. Um, I'm kind of, you know, giving you a layup here, but you know, just like that like very resilient, unsexy, we do things well, we do them right. It's it works in this era. How do you think about that for your company, your positioning, your brand?

>> Yeah, I I think when we started with the new asset issuance like FRXUSD and all this stuff, the most valuable asset we had was is the brand and Lindy, right? Everyone knows that we we do really good job, secure job. We are here to stay. We're long-term oriented team. Everyone in DeFi knows us and onchain. One thing I I will say actually is that we've been very impressed that a lot of the payins and payouts and these uh public company and web two company deals that we've signed that we'll we'll announce soon is like uh they've they've already heard of Fracks and they have a good opinion of them of us. And so that actually does help really get our foot in the door than if it was just like totally something that no one's heard of or like just this new startup.

>> Yeah. >> Um I think on the time horizon stuff that that you mentioned too, >> um my contrarian take is that there's going to be like a step function growth in in like uh stable coins. And what I mean by that is like it's stable coin supply has been between like a 100red billion and 200 billion since like DeFi summer, right? Like if you if you think of it's just it's it's gone like this and then it's like just a bit. >> I think that it will keep going like this until in like a 6-month period the the supply will double. >> It'll just go to like 600 700 billion.

>> Yeah. >> And then it'll like stay there for I I don't know however long, but it'll go between like 600 billion and like 750 billion or something. Um, and what we're building at FRA is making sure that we uh benefit one of the most in in that step function because the way that it'll happen, right, is like >> banks for example move like 10% of their deposits into out of nowhere like 15 billion minted, right? Or like a public company that uh everyone's probably heard of, right? They'll be like, "Now we have a stable coin treasury as part of our corporate account balance sheet that we'll do payouts in." Oh, cool. How much are you minted? Five billion, right? 5 billion minted will basically be a top five stable coin, right? When

whoever signs that deal, right? So, I think that's what's going to happen. We might be 6 to 8 months away from those that phase, right? But I don't think it's going to be this really like, you know, smooth line or like linear line. I think it'll be like a step function and we've we're building for that day where that step function is is going on. >> Yeah. Well, Sam, I hope you have a great rest of your week in in New York. I know it's going to be slammed for you and and super hectic. I appreciate you spending some time with us. Um ladies and gentlemen, this has been Stabled Up episode number 36 from the tokenization tower. Sam, great to have you buddy.

Great to see you again.