Frax’s protocol works by targeting the open market exchange
Sam Kazemian, the co-founder of Frax Finance, a decentralized stablecoin cryptocurrency protocol stated that the regulatory crackdown on stablecoins is majorly affecting those which are backed by traditional financial assets.
In an interview with Cointelegraph, Kazemian explained that the stablecoin regulations being proposed worldwide can be seen as reactionary as they are mandating banking licences for stablecoin issuers like Circle and Tether.
He emphasised the need for conversations when it comes to regulation and pointed out that a lot of experimentation is allowed even in the traditional financial space:
“Things like money market funds don't have a banking charter. It's not a bank. It's not FDIC [Federal Deposit Insurance Corporation] insured. People either don't realize this or they're not informed."
The executive believes that such regulatory barriers don’t particularly affect truly decentralised stablecoins like Frax since they have absolutely no claims on real-world assets and don’t advertise any form of redeemability.
Frax is not only compliant with all requirements but its nature as a fully decentralised company will ensure it can comply with all future regulations, Kazemian stated, adding that the whole point of Frax is that its protocol works by targeting the open market exchange.
When asked what made Frax unique to the many algorithmic stablecoins out there, the co-founder said that Frax’s system where its protocol expands and contracts supply in various places across blockchain protocols, and targets the exchange rates of the Frax stablecoin out in the open market makes it special.
“We like to compare it to a central bank. When it issues a currency, it never says 'hey, you can come to redeem it for this amount of gold, or you can come and redeem it at the central bank for something dollar-pegged’”, Kazemian explained.
He further added that the company’s algorithmic stablecoin thesis was developed on this theory and Frax has never broken its peg, not even during the market crash in May.