TLDR

In this episode of BidCast, Jason Kam speaks with Sam Kazemian, founder of Frax Protocol, about the recent passage of the Genius Act and its implications for the stablecoin market. They discuss the evolution of stablecoins, the importance of compliance, and how Frax will try to position itself as a leader in the digital dollar space. Sam shares insights on the growth strategy for Frax, including partnerships with major financial institutions and the innovative features of the FraxNet platform. The conversation also touches on the potential for AI initiatives within the Frax ecosystem and the future outlook for stablecoins in a rapidly changing regulatory environment.

Chapters / Timeline

• 00:00 Opening

• 01:02 Introduction to the Genius Act and Frax Protocol

• 02:11 The Evolution of Stablecoins

• 05:21 Frax's Vision for Legal Digital Dollars

• 09:14 Implications of the Genius Act for Stablecoins

• 12:01 Compliance and Merchant Trust in Stablecoins

• 13:38 The Unique Position of Payment Stablecoins

• 17:05 Frax's Competitive Edge in the Market

• 22:21 The Future of Banking with Frax USD

• 29:41 KYC Compliance and User Experience on FraxNet

• 35:22 The Role of Stablecoins in Financial Systems

• 37:51 Market Potential and Growth Projections for Frax USD

• 41:12 Frax USD's Circulation and Use Cases

• 43:41 Go-to-Market Strategies for Frax USD

• 48:40 Tokenomics and Revenue Generation for Frax

• 51:07 Future Innovations and AI Integration in Frax

• 01:02:19 Strategic Partnerships and Future Outlook

Transcript

<< Jason Kam (01:05) >>:

OK, we are live. Welcome to another episode of BidCast. I'm your host, Jason Kam, AKA at MapleLeafCap Today is May 21, 9 AM Hong Kong time. BidCast is being livestreamed to BidClub members. Questions are from the members and my own. Today I'm speaking with Sam, the founder of Frax Protocol. Sam, welcome.

<< Sam Kazemian | Frax (01:28) >>:

It's great to be here, Jason. Thanks for having me.

<< Jason Kam (01:30) >>:

Yeah,

well, ⁓ this call is actually really timely because ⁓ of the Genius Act's passage ⁓ yesterday through Senate. Is that right? ⁓ And I'm actually really excited to talk to you. I think let's dive right into it. The two big questions on my mind are ⁓ what exactly just happened to the Genius Act? I have some high level understanding of it making anybody that can issue a stable coin that are compliant a legal tender of M1.

<< Sam Kazemian | Frax (01:41) >>:

Yeah.

<< Jason Kam (01:59) >>:

But why does it matter to you? And then secondly, I know that you guys are transitioning. ⁓ There are a lot of things happening. Just walk me through their journey of how you went from what you were before to now for  Maybe those two things.

<< Sam Kazemian | Frax (02:11) >>:

Yeah, for sure. So

I think it's good to have like a two, three minute background and then actually getting literally to yesterday and what it means both for crypto stable coins, but also specifically for acts. So I've been in crypto for a really long time since 2013, since I was like ⁓ an undergrade at UCLA and I started mining crypto and all this stuff. ⁓ And I think the main important thing when it comes to stable coins, which back then there there was none like like Tether came out like the year later and like, you know, was this ⁓

This view that stable coins originally the ethos was the holy grail of stable coins is this decentralized stable coin that has all the properties of like Bitcoin decentralization censorship resistance fully non-custodial right and then also pegged to a stable unit predominantly USD because everyone uses it globally or wants to use it if they have access to it like this right and that's kind of the the whole point of algorithmic stable coins right like the the whole point is it kind of represented the very first like like

vision of the holy grail of stablecoin. That's why Terra was such a huge thing and then it got so big and then it blew up. All of these things basis and then also the very first version of Frax for people that probably listen to this, they're in the industry, they're ⁓ pros and veterans. The original vision with Frax was we have a really good answer to how to build this holy grail ⁓ algorithmic or decentralized type of stablecoin and Frax was one of the like the

legacy, Frax, which actually still exists, right? It became a household name in crypto, right? The Frax brand, everyone knows. And as the industry evolved, right? And that's another word for saying like, people realized...

There's no such thing as this algorithmic stablecoin that's pegged to a ⁓ centralized unit, the USD. ⁓ That's not the actual Holy Grail. That is not the top total addressable market, like the TAM of stablecoins in the multi-trillion dollar vision. What actually would be the Holy Grail is literally issuing a stablecoin that is

for all intents and purposes non-custodial, right? Sure, it could have a blacklist if you're a terrorist or whatever, ⁓ but it's on the blockchain, so 24-7 settlement, but the issuer of the actual unit that you're pegging to, which is in this case the US government, the Federal Reserve USD, actually says by decree of fiat, by decree of law, this thing is a dollar. That's the actual holy grail design of a stablecoin, right? ⁓

As an industry, we went from dreaming of this stablecoin being this Bitcoin-like thing that has this immaculate stability to realizing, okay, that's not possible, right? That actually goes against the laws of physics, economics, right? And that's not the actual largest total addressable market. I never actually would have expected, ⁓ literally, in the US Congress, literally legal tender, essentially, legislation or things like that.

for stable coins, which passed a very, very critical ⁓ hurdle yesterday in a positive vote to pass cloture, which is what your original question was. so, Frax's total new revamping of ⁓ our vision, our execution, and our roadmap is answering this call of actually the immaculate design for a stable coin. Like we're not pivoting, still this stable coin, know, multi-trillion stable coin vision is.

the actual legal digital dollar that is issued on blockchain, right, by like a protocol, by a specific group that the state actually literally says this is a dollar because we wrote a law that says if this is built in this way, this is a legal digital dollar. Just like they do for bank deposits, right, that are basically M1 money, right, all of the actual money in the economy, right? And so the...

Going back to your question a little bit is like yesterday was a pretty key procedural vote called the closure vote, which is in the Senate. basically all the time up to debate a bill can be ended so that it can actually be put to a official vote on the Senate floor. And ⁓ the genius bill, which is the stable coin legislation bill in the Senate, needed 60 votes to actually pass closure, which means go to a formal vote in which

Formal vote only requires 51 % or 51 senators out of 100. And since the Republicans have majority and this is a Republican sponsored bill, it's almost certainly going to pass. really the de facto thing is if it passed that, we're pretty good. Some form or another between reconciliation is what it's called where the wording from the House version of a similar bill basically gets negotiated and then passed to the president's desk.

essentially ⁓ procedural from then. Obviously the world is unexpected, some crazy things can technically happen. A bunch of Republicans can be like, actually like World War III is about to start. have more of part of like, we refuse to sign this until later. But for all intents and purposes, yesterday was extremely, extremely historic. That's why you saw the news and everyone tweeting, my God, this is amazing and all this stuff, which actually is the biggest ⁓ important thing for Frax's roadmap, because we've staked our entire

⁓ redefinition, revaluation, and our entire resurgence on being the primary, ⁓ essentially, ⁓ allocation asset, like the, the frax, ⁓ token, right? Not the stable coin, the frax token, ⁓ being the, ⁓ investment asset. If you believe in this, this thesis and this worldview that the immaculate largest, market cap, ⁓ you know, like vision for stable coins is one where the issuer of the entity of the

of the unit you're pegging to is like, you are the thing, rather than trying to synthetically peg to some unit and then getting these bunch of money transmitter licenses and regulatory regional thingamajiggies and just literally going straight to the source, the source of the unit says, you are a doll.

<< Jason Kam (08:37) >>:

And to the extent that the bill passes, ⁓ I guess my read from it is that companies like USDC and Tether and what not, ⁓ they're no longer operating in the shadows. are now, ⁓ whatever they do is now legal. And with the added benefit of, ⁓ you know, the stable coin that they create should be accepted as legal tender for payments all over the United States and maybe globally. Do you read it the same way?

Or are there any other added benefits that I'm not understanding? To a stable condition.

<< Sam Kazemian | Frax (09:09) >>:

Yeah, think so.

So there's two things. One is... ⁓

It'll take a while for like so we've actually structured our new ⁓ FRX USD, Frax USD stable coin to ⁓ be pretty streamlined and like compliance specifically for this. We launched a little bit over two months ago, so basically it's new for all practical purposes. ⁓ But it'll be ⁓ probably a little bit harder with like the size and reserves and things for ⁓ I think Tether and Circle to, especially for Tether because they have to do the foreign issuance. ⁓

clause ⁓ specifically to actually get the Stablecoin charter, but I assume they will both do it. I assume obviously that this is not ⁓

This is not some like regional MiCa license or VARA or you know something like the Japan Money Transmission License or something. This is actually much bigger and there's a reason you can tell like this is not like hyperbole because they're all there and like right like if you noticed all everyone is staking their like political capital, their resources and all this stuff and like

Tether and Circle don't have like a token to pump or something, right? Like some people could be like, like this founder, like, I don't know, this L1 founder is there to like, I don't know, pump the price of their token or something. That doesn't actually apply. These are adult businesses, right? Like with real, like equity and all this stuff, Circle is trying to go public. ⁓ They know that this is like the biggest deal ⁓ possible for.

dollar pegged stablecoins. I don't know if you're trying to peg the euros or whatever or like yen or something, this doesn't really apply to you. But if you're trying to peg the dollars, this is literally the law that essentially says the government of the...

dollar issuer is saying you're basically a dollar, right, for all practical purposes, right? And so ⁓ that is a huge thing. I expect them obviously, I've seen them in DC when we've been there, I've been there. Paulo is awesome, he's actually really ⁓ smart visionary. ⁓ He actually has a lot of things planned and I assume they'll get their either payment stablecoin charter or some kind of interesting ⁓ US-based structure for it. Or either work with a US-based...

⁓ payment stablecoin chartered entity ⁓ or start their own or something like that so we'll see

<< Jason Kam (11:33) >>:

And what does that, what does that actually mean once a company is now basically fully compliant? Like, I suppose it reduces the merchant's friction of dealing with you because they kind of trust you now. ⁓ And I suppose, you know, the, the, the users that use this April call will feel a little safer because it like, it's kind of unruggable. So it kind of helps BD, but, is there anything more to it to, your sort of growth journey going to the future?

<< Sam Kazemian | Frax (12:01) >>:

Yeah, it's

definitely a lot more to it than like a of a regional license. So let's just actually go through the main thing. There's only like a very short list of collateral that a payment stablecoin can be backed by. It's Fed reverse repos, 2-A, 2A-7 money market funds registered for the SEC, certificate of deposits at FDIC insured banks, or ⁓ RWA tokens representing those things. So like legal claims on those kinds of assets.

⁓ You can only back it with that. You can't do like credit of like Apple even though it's super safe or like this other thing. ⁓ So it's just de facto.

just cash, like it's just T-bills and reverse repos and deposits that you know the Federal Reserve is an FDIC will always bail out, right? And so ⁓ it's basically riskless minus I ⁓ guess smart contract risk if we're being like super technical. And then there's additional provisions in the bill that says a payment stablecoin issuer can't do other kinds of activity like the company that actually has the charter can't so that there isn't credit risk so that it could go bankrupt and like other people can

and say, you did a loans department and then the loans people did this or that and then so we're gonna try to claw like the collateral there to repay people. It's actually very, very, very strictly written to basically be you get to issue dollars, like digital dollars. And so like that is the only thing ⁓ you can do. And the important thing about that is like banks can accept this as deposits.

and they can actually use it as settlement media. ⁓ That's actually pretty important because the banking system in the United States, they can't do this with anything else other than dollars, right? So like, for example, if you go to a bank right now today and you deposit like a million dollars of cash, ⁓ first they might arrest you because a million dollars of cash, right? Because then you can't do that. But if you just do it like that in a hypothetical world, right? When you log into your bank,

It'll show a million dollars, right? If you log into like Bank of America, right? And you just deposit it'll show a million dollars. The bank will then the next day go and lend 500k to someone else for mortgage, right? But then when you log into your account, it doesn't show half of it gone, right? It still shows for you a million dollars, even though someone else has been wired 500k, right? Like now that person has 500k to go buy a house, right? You can't do that with Bitcoin deposits. You can only do that with cash deposits.

After the Genius Bill, you can actually do this with payment stablecoin deposits, which is a very, very big deal. It's a very different thing. If you go to a bank and the bank takes one million FRXUSD as a deposit, you log into your bank, it'll show a million dollars. The bank can then take 500K of that FRXUSD, send it to someone else for like a mortgage, right? Package it, you know, whatever, do their credit risk assessment or whatever. When you log in, it'll say a million dollars.

<< Jason Kam (14:43) >>:

you

<< Sam Kazemian | Frax (15:06) >>:

That person now, when they log in, it'll say 500k. And so you can do this rehypothecation and it's ⁓ completely legal to do that. And you could take it as bank deposits, settlement media. ⁓ And you can't do that with other non-payment stable coins. So like, for example, like Dai, you know, I don't know, USDE, et cetera. Yeah.

<< Jason Kam (15:27) >>:

Yeah, I understand. Do

the banks have to accept it? Because it's now M1, effectively.

<< Sam Kazemian | Frax (15:31) >>:

So, no, mean, okay,

so technically, no one has to accept anything if we're being like lawyer level legal, like technically no private business even has to accept cash. Even if you go and like, know, if you look at a bill that says it's legal tender for all debts, public and private in the United States, there's a very narrow definition if you're asking it in that way where it's only required to be accepted.

A, by the government when you pay taxes and B, if you go to like a court of law saying this person is is indebted to me and they won't like repay me back and stuff. You can't just make up like this person needs to give me 10,000 goats, right? Like the law will say, okay, what's the dollar value of like 10,000 goats, right? And they can actually repay you in dollars and then the court will drop the charge. That's the only narrow definition of like, ⁓ that's why you see private business say no cash, no cash, we only accept card.

or some places say, no card, we only accept cash. ⁓ So technically in a lawyer definition, not required to accept anything. ⁓ But from a ⁓ prohibition perspective, they can now be accepted everywhere as dollars.

<< Jason Kam (16:33) >>:

I see.

I see. So previously it was, yeah, we just can't do that. Now it's like, well, we could technically do it, but we want our JP Morgan stable coin versus your Frax coin. But if it's that, then it's just a simple swap on chain and you can just deposit without going through the OTC route today. You kind of have to do several hops. Is that the right way to think about it?

<< Sam Kazemian | Frax (17:05) >>:

Yeah, so

exactly. that's actually a really good ⁓ segway into why Frax USD is unique because there's two ways this could play out, right? One is ⁓ everyone could just issue their own ⁓ colored, know, stablecoin, JPM coin, ⁓ know, Stripe coin, right? They have the bridge coin, right? USDB, which they're actually a partner of us. So can actually explain exactly how.

⁓ That actually works in that relationship, which is a good example, but there's all these other things Wells Fargo USD, right? The Bank of America CEO said like we'll looking at both USD or whatever, right? ⁓ So why would someone ⁓ use Frax USD over their own, right? That's a primary question, right? If we take the premise that stable coins are objectively better in settlement, right? Because they're just new digital dollars. The next question is

Well, why won't they just use their digital dollars, right? They just actually do it. So there's usually two important things about it, right? Which is one is everyone is concerned that stable coins, because they're objectively superior than like old analog digital money, right? That they will get their AUM hollowed out, right? So banks are worried about their deposit base fleeing, right? And then people using it to mint like USDC or some other stable coin, right? And

Money market funds and other places with all type of cash are worried that people will convert, you know their ⁓ Money market funds to like USDC and then hold it on Coinbase, right? Because they have a reward right they have the USDC rewards up to four point one percent or something right and These are the main like two two issues, right? It's like well, we're gonna get our the AUM hollowed out right for banks for and money market for anywhere anywhere that has old money, right? And so they they have to decide do they actually? ⁓

issue their own or do they actually work with someone else? And the reason ⁓ I actually in the recent like keynote that I gave at like Token2049 compared Frax USD and then the whole frax vision similar to like Libra, the original like Libra vision is that we actually give the entire unit economics obviously minus some like, you know, protocol fee ⁓ back to everyone that's in this loose consortium of Frax And so for example,

⁓ Anything that's legal, payment stablecoin, collateral, right? Any of our partners can mint FraxUSD by just using their own deposits or their own money market funds. So we work with BlackRock, we work with Wisdom Tree, and soon with Fidelity. They're like the biggest money market fund issuers, right? So if you have money market funds with them, you'll actually just be able to log into your FraxNet account, which is like this payment fintech app that we're building on top of the whole Frax ecosystem, and you can just mint FraxUSD.

right, just directly, and then they don't lose their money market fund, AUM. That just goes to the Frax ⁓ issuers balance sheet, right, backing Frax USD. If you're a bank partner ⁓ of like Frax USD and this consortium, your deposits don't actually get hollowed out. They just wire the Frax Inc, the issuer, right, the bank account, and then we back the Frax USD with those certificate of deposits, and then now your bank users can literally within your bank or in Zelle or in all of the...

US banking system send around FraxUSD. That's one thing, right? The second thing is the interest yield, right? Like what happens to the interest yield, right? Like what about the savings, right? And that's also a really interesting thing that we have with like the Fintech layer that we call FraxNet, the stablecoin bank account system that we've built, is that anyone can sign up and then just connect their Web3 wallet, any wallet that FraxUSD ⁓ is on any chain that we issue natively on.

And in real time, we ping their balance and then we distribute real time streaming yield on Fraxtal chain, their account on Fraxtal. They can sign up and register whatever account they have on the Fraxtal chain. And the Fraxtal chain is a high performance chain so that we can actually distribute real time yield and do these mint redeem issuances directly on that. And if you think about these two specific tokenomics, AUM aligned, like growth aligned, and then full

distribution of the underlying yield in real time, better than monthly dividends, better than checking savings accounts that don't give pretty much anything, because that's a business model to take all these yields. if you compare it to this objectively superior dollar, objectively superior streaming of yield in real time, and being able to custody your own dollars, if you want, you could also use a hosted wallet solution if you want to connect that to your Fraxnet account.

you're like a fund or entity or like a person that doesn't want to hold your own keys, but you can use your own keys, which is why it's really, really powerful. When you combine those two things, especially with everyone that we've talked to, you know, this isn't like the first week we're talking, we've been working ⁓ for months with this. This is actually extremely interesting and powerful for pretty much everyone, ⁓ pretty much, I'd say the vast majority of ⁓ institutions and partners that we've...

⁓ been talking to. So it's actually a very very good model.

<< Jason Kam (22:21) >>:

And just to dive deeper into it, ⁓ it sounds like on the first point that they can kind of mint and burn as long as they're part of a consortium, that's your head start versus everybody else. Because if I were a competitor who is starting afresh, I have to still build these technical integrations. Is that fair to say?

<< Sam Kazemian | Frax (22:43) >>:

That's one of the most, yes. So first of all, we're already issued for, so we've launched about two months ago with a lot of tier one partners and we're issued on, I wanna say 14, maybe now it's 15, different chains. And so exactly, like both the partners on the institution side, but then the chain coverage, the cross-chain messaging system, we also have something that's a...

equally if not slightly faster than CCTP essentially, one-to-one, FRAXUSD movements. All of the technical and integration side is something people have to start over with. And the second thing that I think actually after yesterday, honestly is probably more important, is ⁓ progress on doing this in a compliant way to fast track payment stable coin ⁓ charter. ⁓ This is like the most important thing to be honest because when we talk to banks, they're like,

Do you are you because because they're all looking at this right like that's actually how you know that the legislation is not like a nothing burger because This actually in my opinion this actually proves this is the right type of legislation because to be honest like Banks don't like it because it actually removes their their kind of monopoly on creating ⁓ De facto legal tender dollars, right? ⁓ And so they're not only paying close attention to this but this is actually great legislation by the mere fact that it allows

new entrance into a market. Usually if you think of regulation, right, the primary thing people have against it is like, it gets incumbents more entrenched and then it becomes difficult to compete. Very rarely do you get regulation that actually the incumbents are like, ⁓ shit, no, please don't do this because it actually brings a lot of new fresh blood into a market to compete on the same thing. And so this is one of those. And so, ⁓

it's important for us to actually be ⁓ at the lead of that because otherwise there's no working with banks, Like banks actually need to work with payment stablecoins or like you said, look into issuing their own. In fact, that's actually the primary first two questions that is usually on the initial call when we talk to

<< Jason Kam (24:57) >>:

And, and then this recall, I guess one does like, let's say it's implemented and I don't know, JP Morgan will do this, but let's say, for example, I would now able to, let's say they work with you now. I go onto JP Morgan. say, I want to withdraw, right? I want to wire out and there'll be a new option. It's like, okay, wire through stable coin. And then I just, basically I would not be able to tell if it's frax or anything else, but I would say, okay, well, I want to send my money out on Ethereum and I can just type in my address.

And I just hit send. And on the back end, they would basically mint FraxUSD with you, and you will send it on Ethereum to my wallet. Is that roughly how it works?

<< Sam Kazemian | Frax (25:37) >>:

Yeah, that's actually that's correct. Or they don't even need to ⁓ necessarily mint it if they already have it. They might even hold it and be earning the actual yield underlying. Because again, that's capital on the bank's balance sheet. They can rehypothicate against that. Right. But if they hold like any other type of asset, like a synthetic dollar stablecoin, they can't use that ⁓ on their their capital side on their on balance sheet. Right. That's exactly correct. And actually, your example is even better because it kind of gets at a

additional answer of why they would use FraxUSD over ⁓ creating their own. We're on 14, 15 chains already and probably going to be more in the coming weeks. And so ⁓ if you issue a JPM coin, ⁓ great, but it's probably on Ethereum. Maybe after a couple months it's on Solana. Maybe after a couple months it's on, I don't know, BSC or something. Maybe a couple months later it's on Arbitrum. And then you have to have a whole group of people figure out, what's the messaging layer like that we combine all of these things and blah, blah.

Or you could just use FraxUSD and then use your own ⁓ deposits as backing of it and work directly with us. And it's everywhere, right? And also people know of Frax and it's a great DeFi household name and people use it on chain.

<< Jason Kam (26:49) >>:

And just to be clear, ⁓ JP Morgan, like only the Frax USD on Fraxnet would be able to earn interest. Or can I stake my Frax USD on Ethereum? Like, how does it work?

<< Sam Kazemian | Frax (27:03) >>:

You can hold it on any chain that we natively issue, which is like on those 14, I think actually now 15, but I'll check after this call. But anywhere that it's native, if you hold it and you just connect your Web3 wallet and obviously you sign a transaction proving you own that address and you hold it there, you will get all credit for holding it on all of those networks. And then you get a single real-time yield stream to a Fraxtal account that you have.

right, that you prove you own a Fraxtal account address and you just get real-time streamed across all of

<< Jason Kam (27:37) >>:

On your own L1, not on the 15. OK, so.

<< Sam Kazemian | Frax (27:40) >>:

Yes, that's great. That's great. In fact,

actually, that's a great reason to highlight that. reason ⁓ the Frax still is so important to this vision as like our own L1, right? Where the Frax token is the gas token and the staking token and everything is that if you actually look, and I talked about this on my keynote briefly, but if you look...

at the total number of addresses that USDC and USDT are held across the world. It's about 120 million addresses. Now I'm not saying each of those are unique human beings or anything, but imagine FRX USD just has 10 % of those. Just 10%. So like about 12 million or so addresses. You can't stream that on Ethereum or on Solana. What are you gonna do? Like if there's a PumpDotFun meme launch happening that day or some other thing or whatever, how are you gonna actually distribute

⁓ real-time yield to that scale ⁓ consistently, reliably, in a non-custodial way, right, to two people's like Web3 wallets, without a very high performance ⁓ L1 that is specifically designed, obviously that's smart contracts, there'll be a DeFi ecosystem, et cetera, but its primary mission is actually to be extremely performant and cheap to stream real-time yield, mint and redeem, Frax USD, legal tender, dollars, and all of this stuff, right? So that it's actually...

the real answer to why another chain? Why do you need another chain? Why don't you just build this on Solana? Why don't you do this on blah, blah? You can't, with the scale that you actually want to actually provide this very, very valuable service.

<< Jason Kam (29:18) >>:

OK, that's interesting. So unlike any other staking-based ⁓ coins that you have to earn yield by staking, here it's as long as you hold it on any chain, will accrue interest, but only on FraxNet, your layer one. And ⁓ do I have to KYC compliant myself to get those interests out, or can I just log on and then bridge it over?

<< Sam Kazemian | Frax (29:41) >>:

Yeah, so you do need to, it has to be regulatory compliant actually. So the Fraxnet name is for the payment and banking app that you do KYC to join. ⁓ Fraxtal, the blockchain like fractal but with an X, that's the L1. And obviously it's a permissionless high speed ⁓ EVM blockchain. it doesn't require any kind of, know, KYC to use. There's like curve, convex, all of these ecosystem of.

DeFi and other things growing on there, but FraxNet, it is compliant. We do require KYC to do that. And then obviously ⁓ you connect your bank account, right, and that kind of stuff that requires like KYC and minting and redeeming to and from there. Certain things don't, right? If you want to actually mint and redeem FraxUSD for USDC or USDT or other future payment stablecoins, those are non-custodial operations if that's all you want to do.

through the fintech layer. There's no KYC for that because that's not necessary. ⁓

<< Jason Kam (30:45) >>:

Got it.

I'm just speaking from a regular use because if I'm a bank, I can figure out all that. That's very simple. But if it's me using FraxUSD, I'm just using this as payment, as storage. But my interest accrues somewhere and it's on Fraxtal, the main net. one first thing is that I can also just go on Fraxtal, the main net, connect my wallet, and then just yank that balance without KYC/AML. Is that...

I don't have to KYC/AML through Fraxnet because I have the access to Fraxol, the layer 1.

<< Sam Kazemian | Frax (31:16) >>:

No, no, so in order for it to actually

start streaming directly to your non-custodial wallet, part of the registration process is ⁓ the actual KYC-ing. The reason, by the way, the reason for that is both obviously compliance with the Genius Bill, but also ⁓ since there's an entity that actually issues the Frax USD stablecoin, just like Circle, just like Tether ⁓ Inc. and stuff. ⁓

all of the custodians that hold these balances for us, right, report to the government the yield that the issuer is earning, right? And so if the issuer is going to give all of, or pretty much all of the economics of that back out, they have to be able to report, like with clarity, obviously to the government, that we have given the yield out and here's who we've given the yield out to. Otherwise it'll be like, your company's...

to earn like $10 billion of revenue and then they were like, actually we don't have 9.9 billion of it. I don't think that's gonna really fly yet.

<< Jason Kam (32:17) >>:

Yeah.

How many users do you have on Fraxnet now and how rigorous is that AML KYC process? How fast can I go through if I have all the docs ready?

<< Sam Kazemian | Frax (32:27) >>:

So

actually the the the frax net Application with all of our partner integration that's going live next month. So frax USD itself is Stablecoin. It's fully redeemable. It's out. It's on all of these chains. It's on sonic. It's on ⁓ Solana, it's it's in used in PumpFun AMM It's being used in other places. Aave is looking at integrating it and all this stuff frax net the the payment system with the partners and

and Mint Redeem options actually isn't out until hopefully next month.

<< Jason Kam (33:01) >>:

And do I have to do a one-off KYC/AML or can I just log in through my Chase account, just connect Chase and then I'm basically KYC/AML through Chase. So I don't have to do it. Like how would that work in practice?

<< Sam Kazemian | Frax (33:13) >>:

We're actually

trying to streamline that so it's actually even ⁓ more painless than people think. ⁓ Because, for example, ⁓ you would have to, exactly as you said, through all of these different places, have to log in. But we've actually figured out a way that if you just ⁓ KYC once through the system that we're actually building, you can connect your bank, your brokerage, ⁓ pretty much everything. Obviously, I can't say for sure.

because like what's compatible, but so far it's once and done with everything, so far from how we've built it. So you only need to do it once at the beginning and then never again.

<< Jason Kam (33:50) >>:

Hmm.

I suppose there will always be a pretty aggressive actors that are pre-KYC on Fraxnet and they just kind of stream out the yield to Frax USD owners completely by, but it's those guys breaking the laws and not you. you kind of turn a blind eye to it. don't know.

<< Sam Kazemian | Frax (34:08) >>:

What?

So yes and no sort of like like anyone from an entity to a ⁓ normal person you and me can have a Fraxnet like stablecoin bank account right this this Fraxnet account ⁓ and so we actually expect new fintech apps and stuff to be built on top of like the Fraxnet like there will be an API obviously and things like that where ⁓ the actual new company like let's say like a fintech company right they have a Fraxnet account

And then under them, there's like hundreds of thousands of users, right? And then those users get downstream the yield and then our counterpart is just this fintech app.

Right? And so that's not even ⁓ unlawful. That's just, we actually expect that to be built. That's just layers on top of this foundational like stable coin operating system, right? Like that's basically what we're building. And actually I don't expect ⁓ very small like retail, like people that like hold like thousand bucks, 5,000 bucks, you know, those kinds of things to really sign up for like a Fraxnet account because everything they would want and need

is on chain, right? Like swapping this to USDC or like ⁓ maybe they would connect it just for their bank account, right? Like just to convert and come and go. ⁓ The people that have like $5,000, they probably stake in like Curve or like a high yielding, you know, like Place and things like that rather than ⁓ risk-free like, you know, ⁓ short-term T-bill rate, right? It's usually the entities, whales, ⁓ institutions, ⁓

large players, like large users and things like that, that have real cash that want to just park it, know that it's regulated, know that it's safe, or fintech applications that want a foundation that's safe and regulated to build on top of to then actually ⁓ offer unique services to a lot of the smaller ⁓ users in retail.

<< Jason Kam (36:13) >>:

⁓ It would seem like it's a cleaner way of earning yield because you just, and even all the Falcon X of the world, they should just be able to OTC swap FRAXUSD to any other stable coin or USD with no slippage because they should be able to mint and burn very quickly.

<< Sam Kazemian | Frax (36:29) >>:

Yeah, literally like

any like, Frax USD to any payment stablecoin is one to one. So we actually already do that.

<< Jason Kam (36:39) >>:

Who is your custodian and who manages the yield generation?

<< Sam Kazemian | Frax (36:44) >>:

So it depends where the ⁓ assets are. So we have BlackRock money market funds, is ⁓ by BlackRock. We have Wisdom Tree, which is one of the largest money market fund issuers in the United States. We also work with SuperState, which is Robert Leshner's, ⁓ their custodian underlying is BNY Mellon. ⁓ We also work with Fidelity, as I was saying. And so it really depends on where ⁓ the underlying asset is.

of these places and we'll soon have like a few other big ones, bigger I would say, ⁓ partners to announce hopefully.

<< Jason Kam (37:25) >>:

The whole structure makes sense to me. And because it makes so much sense, I would assume there are other folks that are trying to do similar things eventually. I guess if you look out maybe 12 months into the future, ⁓ what size of TVL on FRAX-USD would make you happy, like if there's a target? And then what would you say are the use cases that drove most of that growth?

<< Sam Kazemian | Frax (37:51) >>:

So obviously, as the founder, I'll be both ⁓ aspirational, but then reasonable, right? Aspirational, honestly, I think that the total addressable market is 20 trillion. The reason for it, and then the logic is that all analog M1 digital dollars are, if you look at the Fed's own reporting, is about...

20 trillion, literally, like if you go right now on Fred, which is the Fed site, technically all of that is up for grabs, right? And if you actually think of how much stable coin market cap today is, it's about 200 billion, that's only 1 % of 20 trillion, right? Like that is literally, people think the stable coin market cap is high or really big right now, and it's mostly tether, that's barely a percent of the full.

digital dollars, analog digital dollars, right? Like the old system of money in the entire US financial system. And so the total addressable market is as much of that as we can convert. And so ⁓ the reasonable, like 12 month, you know, ⁓ guess here that I have to dial down to, you my excitement is like, these are pretty big numbers. And so if you think about it in like a measured sense, like what if we could convert

10 % of like our partners as money market fund AUM to digital dollars, right? Frax USD with real time streaming or 5 % of the bank deposits of like major banks, right? Those the total denominator is like in the hundreds of billions. And so if you take five to 10 % of that, that's about 10 to 15 like billion, right?

And so in the next like year, if we are to execute correctly, right, which is like, you know, ⁓ the tempered way of saying is we might not be able to, but if we actually do execute correctly, ⁓ I actually expect FraxUSD to be like number three behind Tether and USDC as the predominant ⁓ third thing that no one ⁓ expects this market to be ⁓ possible, right? And then everyone will be taking notes on how to actually approach this new.

regulated market as legal tender, you know, digital dollars. And like you said, I expect like people to copy us, which is fine. Like it's, you know, technically everyone's copying Tether, right? Like they were first in 2014, right? And so I'd love to see about 15 billion supply in the next like 12 months ⁓ from now. So like next June. And that's my conservative view of like, if we execute properly.

<< Jason Kam (40:39) >>:

So a quarter of circle, basically. And would that Frax USD be circulating in the way that circle is, which is across different venues of payments? What do you think drives that growth? Is it different FinTech applications, yanking out of a banking system to Frax USD and then people spending it? Is it like?

What would that look like? What would that 15 billion look like if you do achieve it?

<< Sam Kazemian | Frax (41:12) >>:

I think it would be circulating even more meaningfully than USDC is today. To be honest, obviously USDC is circulating meaningfully. People are using it mostly on chain and some OTC exchanges and large payments, cross border payments and settlements and things like that. It's just starting to be really used in visa underlying settlements or something as a test kind of case of stable coins and these things. I think FraxUSD

assuming again we get the payment stablecoin charter, we're like, ⁓ or first to market in this area, it'll be used within banks, outside of banks as payments. It'll be used for large ⁓ inter-bank settlements, for large account movements. It'll be used in credit cards. And then also obviously, because it's on all of these chains and actually Frax started as like a DeFi brand and is really well known for users on the blockchain, it'll be used in

all of the classical DeFi things that everyone is familiar with. There will be huge curve pools on, there will be Uniswap, there, know, Aave will have very, very deep, you know, multi-billion dollar Frax USD lending, borrowing, all of this stuff. So I would actually say it's, it'll be circulating more meaningfully than what people think of stable coins today.

<< Jason Kam (42:29) >>:

I see. So it seems like it's going to be more whale based. It's highly institutional across bank, across institutions. It'll be more parked like SUSD than like Circle being actually spent in small nominal amounts. It's how you imagine this.

<< Sam Kazemian | Frax (42:44) >>:

I

mean, I guess it depends on your definition, Would you consider ⁓ Circle's entire supply to actually just be sitting in ⁓ the Circle Reserve Fund and T-bills? Because technically that stuff is not moving, right? And so ⁓ I think what I would say is there will be retail usage of it downstream, but

they will be probably moving FRAX USD liabilities within FinTech or banks as like balance sheets. So I think I kind of got your question and what I think the real answer to it is, yeah, the movements will probably be fairly large, but people will be actually buying and selling ⁓ like in applications in small amounts and in large sums ⁓ over time, yeah.

<< Jason Kam (43:41) >>:

So it seems like your means of growth, ⁓ your go-to-market would mostly be BDAing ⁓ the fintech applications that build with banks on Fraxtal, on FraxNet, as well as just getting into more banks and getting into more financial institutions. Like that's your most impactful GTM. Yeah.

<< Sam Kazemian | Frax (44:00) >>:

Yeah, actually.

that's a good question because I actually think of ⁓ three types of GTM for stable coins that are are multi trillion and like opportunity. is the one is actually the tether one that I think everyone erroneously thinks is the only GTM of stable coins, which is go to places that don't have reliable access to the dollar and like bring them a digital dollar that's just really objectively more powerful than

old analog dollars, it's non-custodial, you could just send it to anyone else that's connected to the internet and all this stuff. That tether has ⁓ essentially created an almost near monopoly on it. you look at it, like USDC can't seem to break into there very well. ⁓ Tether is just this, I call it kind of the first contact theory of stablecoins, which is like anyone that first sees the light and uses stablecoins, right, first.

Whatever they use assuming it doesn't implode like Terra. They're gonna be content with using of all things ⁓ You know equal if they're not expecting yield or they're not you know ⁓ Thinking other things and stuff like that and so Tether already has that market a lot of people think because tether did that first the only real way to grow big is to go to places that don't have the dog which now they do because of tether by the way and and like try to compete with ⁓ tether

And I actually think this is ⁓ my contrarian view, which again, either this will pay off massively as like a, you know, top 10 crypto industry bet or not, ⁓ is that people are wrong about that. Tether already brought that they were right when it was ⁓ wide open. Now ⁓ Tether has a near monopoly on it and it's more difficult to actually get people that already use Tether to switch to a different stable coin. As you can see, USDC can't do it.

right? And then it is to become legal digital dollars in the United States. And now it's possible. It was impossible before. Now, literally after yesterday, it's almost certain to be possible and actually bring everyone that hasn't had access to objectively good ⁓ digital dollars to onboard to this new Web 3 revolution of legal, regulated, transparent, safe.

digital dollar stable coins. And so I think this is like too contrarian for a lot of people to think as it's like really popular to think, well, Americans already have Venmo banks and blah, blah, blah, and all this stuff. Therefore, the only stable coin, you know, GTM is to just copy Tether because we've already seen it. It works. It's like, no, no, no, they already have Tether. they've Tether has done a good job of upgrading most of the world that had zero access to the dollar and gave them a better

They actually leapfrogged the reliable analog banking system. There's a similar analogy where Africa and other developing countries actually leapfrogged the desktop computer era. They went from literally no internet connection to mobile phones, androids, iPhones, and pocket computers, essentially. They never went through the phase that America and the developed world went, where every home had a giant...

⁓ you know, like dial up desktop, if you remember that, like during, you know, your adolescence and stuff, they just skipped right to the good stuff, right? Because they just actually didn't have the infrastructure for this stuff. We're actually stuck, like the desktop computer, we're stuck in the analog phase, and so we have to upgrade to the actual next generation of digital dollars. People actually ⁓ make a categorical mistake, in my opinion, when they say,

⁓ we already have desktop computers, why do we need an iPhone? This is like totally, totally wrong, right? And so I think the important thing is people should understand that once people use like stable coins like Tether, right? And then another, there's no evidence that they're really itching for a ⁓ USDC or something like that.

<< Jason Kam (47:54) >>:

Yep.

Yeah, suppose

I understand your point, but I guess in the US, your value proposition for fintech companies and banks to use you is hopefully faster pace of transfer. And also they are effectively using short-term treasuries as stable coin. Like anybody who is kind of using this automatically get the yield or they just kind of transfer faster. And if you like, that's enough to drive 15 billion of TVL onto FrexNet.

<< Sam Kazemian | Frax (48:40) >>:

Yeah, like two things. One is a lot of people are like, well, there's a lot of friction. How are you going to get them to switch over? We're the ones actually talking to them, right? Like, not the ones, ⁓ not the people like ⁓ saying that there's a lot of friction. And the only friction that they're worried about is their AUM. Once they know that they're not going to get their deposits or their money market fund ⁓ AUM and their hard earned business clawed away.

<< Jason Kam (48:50) >>:

Hmm.

<< Sam Kazemian | Frax (49:08) >>:

and then they're gonna get this objectively superior payment media that is legal, regulated, and transparent, they're pretty sold. To try and offer it to their customers and all this stuff, there is actually not that much friction. In fact, there's a lot of appetite to try it, and for a first to it, I think, like I said, even 10 % of a really big number is like third after USDC and Tether very quickly.

<< Jason Kam (49:34) >>:

Yeah. And how long is that sell cycle into these institutions?

<< Sam Kazemian | Frax (49:38) >>:

depends on which one. Some of them are ⁓ much farther along in like having a digital asset team ⁓ really ready to try something. Again, they don't think it's friction. They're actually very excited to actually talk to us about this all the time and ⁓ get some big things going to have some strategic announcements and things to reveal in like two months time from two, three months since we start planning it. Others...

are a little bit slower. They're like, we haven't decided on a strategy to like tell the CEO and stuff. We're still exploring whether we will do the launch our own coin or do this or something totally ⁓ separate. And so that's probably more like a six month kind of thing. So it really just depends on which ones.

<< Jason Kam (50:26) >>:

Hmm. Let's say you get to your $10 billion target on FraxUSD. ⁓ Maybe walk me, and there's obviously an outstanding question of the transactional throughput on FraxNet itself, because that's the gas fee. But heuristically, Fraxtal, sorry, sorry, yes, I have to be very precise. There is a question around the velocity of how fast a FraxUSD transacts on Fraxtal.

<< Sam Kazemian | Frax (50:41) >>:

You mean Fraxstol, right? Yeah, L1 blockchain.

<< Jason Kam (50:53) >>:

But maybe walk me through a bridge on how that $10 billion of TVL, of FraxUSD, translates to fees or cash flow generation or whatever for Frax itself on an annual basis.

<< Sam Kazemian | Frax (51:07) >>:

Yeah, for sure. to go to the...

the FRAX token, the volatile, the scarce digital commodity asset that we actually upgraded used to be called ⁓ FXS, FRAX share. And it used to be a governance token because the original FRAX vision was to build an algorithmic stablecoin and ⁓ to answer the original ethos of decentralized stablecoins. In order to actually do this ⁓ Libra-like vision of an L1, that is the settlement and issuance chain and the real-time yield streaming and have

this system where essentially there's this enshrined digital dollar like this digital currency we needed to upgrade the token so that it's essentially an L1 token it's basically like BTC it's basically like ETH and it is a essentially a store value security staking token that you stake and you validate the chain and also gas is paid there's multiple sinks in the ⁓ ecosystem from

ecosystem apps that we've already built that were never tokenizing. It's only the Frax token. For example, people probably familiar with Frax Ether, ⁓ Frax Lend, and all of the Frax ecosystem apps. All of that income goes to both ⁓ staked Frax tokens as well as burning part of it. So like for example, there's Frax name service. If you have an L1, right, people want .frax, usernames, identification, payments, and human readable accounts. All of those, you need Frax tokens, right, to actually

get those names and unlike ENS, which has its own token, so all of the ETH that people spend to buy .ETH names get sold to actually go to ENS tokens.

everything in the Frax ecosystem that we've built just goes to the Frax token. So all the burns, all the fees, all the value sinks, and then you can think of the Frax token as this ⁓ capped emission L1 token that you can't change the emissions again unless you hard fork, which is the same as ether or BTC, right? It's not like an MSIG governance token where you can just like MSIG a mint, right? You need coordination of.

decentralized group of holders of stakers that actually provide security. basically, almost certainly, just like BTC, ETH, et cetera, the token emissions is not ever gonna change. So it's about 143 million hard capped over the next eight years. So it goes like 10 % emission, 9%, 8 % the year later, 7%, et cetera, et cetera, until it gets to 143 million.

You can think of it like a scarce digital commodity. then everything in the Frax ecosystem, the most important being obviously what we've talked about on this call, the flagship legal tender digital dollar, but everything goes to the Frax token, right? And then obviously the apps on Frax still chain, things that pay for transaction fees. There's the base fee that gets burned. There's obviously transaction fees for payments of Frax USD, everything there. And we're also exploring some like...

really interesting stuff at large numbers where maybe people would want to actually have real time yield streamed in frax tokens rather than dollars. You can opt in instead. like, let's say there's like, like we were saying, like 15, 20 billion of frax USD. Maybe some people want, you know, let's say half of them instead of getting the T bill yield, right? They actually want to just earn real time yield of frax tokens to be aligned on owning.

a piece of the banking network, right? The chain and the banking network of everything that they use. You'll have basically $10 billion worth of T-bill income of holders going to purchasing Frax tokens and distributing out to a wide ⁓ net of places that people hold Frax USD in like fintechs and banks and all this stuff, which is a very, very, very powerful distribution mechanism. That's more down the line, like a medium term thing, obviously, but...

The structure that we've built, the upgrade to the original FXS token now to just Frax and actually making it this scarce digital commodity that has multiple sinks, incomes and revenue stream, but also is this essentially scarce digital like, ⁓ you know, digital oil, digital L1 gas token, right? This unit of account in the entire Frax ecosystem was required to actually change the vision from this like DeFi, you know.

decentralized stablecoin token ecosystem to an all-encompassing L1 blockchain with a stablecoin vision.

<< Jason Kam (55:47) >>:

Yeah, I guess just to parse whatever you just told me into a more succinct way, ⁓ number one is that you have ecosystem projects that ⁓ the fees that they generate would be broken down into stakers as well as direct burn effects. Do you have a rough split of how you want to design it?

<< Sam Kazemian | Frax (56:10) >>:

⁓ Right now it depends on each ecosystem project. Like for example, the FRAX name service that I was saying, all goes to getting burned. Like it literally just goes to specifically getting burned. ⁓ The chain, obviously that requires hard fork updates to change. Right now the base fees, it's an EVM chain, right? So it actually comes with EIP 1559 structure built into it. The base fees get burned, the rest goes to ⁓ validation, right? It depends on the ecosystem, yeah.

<< Jason Kam (56:16) >>:

Okay. Got it.

Good, okay.

⁓ If you do achieve 10 billion of TVL, I guess that's 400 million of annualized interest based on current short-term treasuries. ⁓ Does the Fraxtal chain have a tick rate on that 400 million interest?

<< Sam Kazemian | Frax (56:57) >>:

Yeah, it's like whatever, so whatever is not ⁓ used in Fraxnet accounts, right? And not all of them will be, right? Like, you know, for example, it's not gonna be as extreme as Tether where like they get almost all like of like the circulating supply of USDT as like this money printing machine. ⁓ Our economics are not like that because we wanna build alignment and get very, very big, very fast rather than ⁓ have like zero or near zero rev share, but.

FraxUSD in Curve, FraxUSD in DeFi, in all of these places, ⁓ doesn't get the yield, right? And so all of that you can think of the Frax token as essentially tether economics, In addition to all of the L1 economics and all these things that I said, but all of the T-bill income goes directly to Frax stakers that are validating the chain, yeah.

<< Jason Kam (57:51) >>:

goes to stakers and not burning frax tokens.

<< Sam Kazemian | Frax (57:54) >>:

Yeah, that's the current structure,

<< Jason Kam (57:57) >>:

Do

you plan to change that?

<< Sam Kazemian | Frax (58:00) >>:

No, we don't plan to change that. mean, we can propose an upgrade of like the chain and everything and then the stablecoin issuance can change slightly. actually, it cool if your investor audience, what they...

<< Jason Kam (58:16) >>:

Yeah, will be interesting.

And so there is the non-KYC portion, there is KYC portion. The non-KYC portion, your take rate on that will be 100%. And that 100 % goes to stakers of Frax token to validate a network. And then off the KYC portion, would distribute all of it, I'm guessing.

<< Sam Kazemian | Frax (58:32) >>:

That's correct.

All of it maybe like right now actually we haven't set in stone but since it's centralized decision about five bips of like management fee which is like very very low but yeah pretty much all of it pretty much 95 percent.

<< Jason Kam (58:52) >>:

Got it. Five bips versus the 4%. No, five bips off 4%. OK. Got it. Got it. ⁓ Makes sense. So if you're successful in this effort, would, mean, Frax USD it would be a sizable stablecoin. ⁓ I don't know what the take rate would be based on percentage of non-KYC AML customers, but let's say 10%. I have no idea. So that would be a $40 million.

yield generated on top of the fees within the ecosystem, ⁓ as well as the sort of transactional throughput, which will be sizable, I think, on the $10 billion fees, ⁓ we should be looking at a pretty sizable staking yield on top of the frax inflation itself. And that's what's going to pull up the frax token value. Am I missing anything that's value capturing for the token?

<< Sam Kazemian | Frax (59:49) >>:

I think you basically got all of it. And the thing I wanted to actually stress is like, this is a very streamlined, ⁓ like tokenomics. We methodically did it this way because like there's different views, right? Like you could micro tokenize all of the ecosystem, like sub-dows, right? Or something like that. And then do like farming or whatever. And we have the exact opposite view. We have one single token distribution, very, very clear.

⁓ hard capped supply that is not a governance token that can be minted. has to be hard forked if it ever is gonna change. It's basically not gonna change. ⁓ And this entire token gets everything. We don't have, there's no like ⁓ equity model where you you've probably seen Uniswap Labs and the Uni token and then they do the equity raise and then so then there's a front end fee of like ⁓ for the equity holders and then it's like, okay, well.

They just launched UniChain. Is it owned by Uni holders? Cause they're admitting to like, you know, where, how much do they take? Every single thing ⁓ that we've built is actually ⁓ entirely for the Frax token. And it will always be. And our goal is to actually do the exact opposite of like the hyper tokenization of every single like small like project or whatever, and make it so that everything goes to the Frax token. There's no like equity. There's no.

second token. In fact, that's why we upgraded FXS to make it very clear. It's basically this sovereign L1 scarce asset that's used as gas, that's used as staking security, that's also used when you stake it to govern certain DeFi parameters as well, but it also runs the chain. Everything is, ⁓ so you could kind of think of it like a restaking token, right? Of all the DeFi ⁓ layer ⁓ ecosystem products and things like that. And so,

That I think makes it truly, if we are successful, like a top 20, top 10 crypto asset in the next five years. If we're successful, it is basically a digital commodity that's scarce, that has a unifying purpose, and its distribution continues to increase the more its legal tender, digital dollar, continues to be a universal used across the world in the US.

<<Jason Kam (1:00:51) >>:

Hmm.

And do you fund yourself ⁓ by selling Frax tokens or do you fund yourself with the treasury that you built up over time?

<<Sam Kazemian | Frax (1:01:17) >>:

⁓ There's a small amount that is allocated to the actual funding. I think it's actually about 12.5 % of the ⁓ emission, right? Like the 10, nine, eights, I like the yearly emission. 12.5 % of that is ⁓ to the team that actually runs the protocol and everything. And also the funding, there's like a public ⁓ governance vote every year for like budgeting of like actual just like...

dollars like we need to run everything, salaries, keep the lights on, things like that.

<<Jason Kam (1:01:53) >>:

Got it. I know we're almost on time. There are two things I do want to ask you before we go. Sorry, we're running a little over. ⁓ I've also heard about this AI effort you're doing. ⁓ We don't have that much time to cover it, but it's going to be on Frax.

<<Sam Kazemian | Frax (1:02:11) >>:

Yes, that's correct. It's definitely going to be on Frax. I call it kind of the AI VM, which is like, ⁓ I think a lot of the things that, ⁓ this, but by the way, it's just, it's R and D. So like, this is not anything where actually like, it's not part of the roadmap. It's just something that is really interesting with certain partners like IQAI and other ecosystem DApps. And it is basically a way to ⁓ have shared state computation of inference.

compute, right? Everything in AI right now is basically ⁓ off-chain computation and then maybe you prove it with ZK proofs or there's like a T that you trust, like a trust execution environment, right? And ⁓ you assume that the execution from that is ⁓ valid. And so our actual R &D effort is can we ⁓ create a novel cryptographic scheme that actually binds

inference compute from arbitrary foundational models so that it's easy to actually prove what the output tokens are ⁓ to the actual input tokens of a model. And actually we're getting pretty interesting results. like if there's anyone that's really into ⁓ essentially creating a shared space runtime environment for inference of models, ⁓ hopefully it'll just be basically something we can have.

in addition to the EVM on Fraxtal, that's the structural design. But this is a long-term thing that is ⁓ basically just a passion project, evenings, late nights of us and some of the team.

<<Jason Kam (1:03:53) >>:

And just to be very clear, you're spending 90, 95 % of your time pursuing the stable coin growth journey for Frax and maybe 5 to 10 % on this. OK. OK, good. So I got out of the way. OK. And then the last question I have, is there anything we haven't covered that really, really excites you, like any bigger brands or companies you're working with that could really catapult the TVL Frax USD that we haven't really covered yet?

<<Sam Kazemian | Frax (1:04:01) >>:

Yeah, I would say 99.9 % of the time.

In terms of like what I can like ⁓ announce, I guess ⁓ the main one is Stripe and Bridge. So we've already people know it is public. We'll make a more specific direct announcement together. But I think like the one I'm most excited about is ⁓ Stripe and Bridge on the payment side. ⁓ Superstate and Wisdom Tree on the money market fund, the custodian ⁓ side on those. ⁓ But the reason I really like

Stripe and Bridge partnership is that Stripe recently announced like the stable coin financial accounts, if you saw that in their annual ⁓ product releases. And that's essentially ⁓ a basic version of Fraxnet, if you think about it, right? Because what did Stripe announce? They announced your bank is connected ⁓ to your Stripe account and now you can mint and redeem ⁓ USDC.

right, and the internal Stripe stablecoin and then it's called USDB. ⁓ And then you can also just directly pay merchants right in your ⁓ stablecoin bank account, right? I think it's called the SBA or stablecoin financial account. I think they use the word financial because bank is a regulated term. This is actually what Fraxnet is, but way, way more, right? Fraxnet is way more because you can mint and redeem from brokerages, from banks, from Stripe. Actually, that's part of the partnership is that

We're working with them for full FRXUSD orchestration. And so that's going to be super exciting. And as well as ⁓ making sure that every merchant that has a Stripe account, right, can receive send and receive for FRAXUSD. And ⁓ think of it like an even higher layer of ⁓ the Stripe financial accounts, like an aggregator of all of those features in one platform, essentially. ⁓ And so I'm...

Pretty excited for that specifically because it's a good demonstration of what we're building in a single partner that really dramatically increases the payments use case ⁓ overnight of Frax USD. Honestly, more than pretty much any other stablecoin that exists other than Tether and USDC. Overnight, any merchant and stuff can essentially accept it ⁓ much more ⁓ than pretty much any other stablecoin.

can say other than maybe maybe PYUSD as well, right? Cause PayPal integrates it, but then it's, it's FraxUSD.

<<Jason Kam (1:06:51) >>:

Cool. ⁓ This is very helpful. I want to thank you for your time. We might get you on later to talk about how fast the Frax USD TVL is growing. But Sam, thank you so much.

<<Sam Kazemian | Frax (1:07:04) >>:

Yeah, I'll definitely, I'll take you up on that. See you in a few minutes.

<<Jason Kam (1:07:08) >>:

Thank you. Stay on for a little bit.