$FRAX - The Stablecoin Play No One Is Looking At

Frax has completely re-vamped its systems and is a completely new protocol that presents a way to bet on stablecoin growth

Gmeow it’s been a while - I am restarting liquid token pitch articles! For those who are on premium subscription, I had paused your subscription for the long hiatus I was on - so don’t worry, you weren’t charged.

Some updates from my end in the long time I was away - I joined Defiance Capital as an analyst! However, do note that 0xKyle’s Substack, and my writing in general, is considered separate from the fund and does not represent the fund’s positions. I usually try to be as transparent as possible with these things - as such, here’s the disclaimer:

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Again,

1. I own FRAX

2. This article reflects my personal opinions—not those of DeFiance Capital.

Without further ado, let’s begin:

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FRAX - The Phoenix, Reborn Anew

TLDR:

• 276m MC / 304m FDV ; Frax presents a great asymmetric opportunity to bet on stablecoins + with the upcoming GENIUS bill, Frax is aiming to be one of the first U.S.-compliant payment stablecoin under GENIUS Act

  • Founder Sam Kazemian is co-drafting U.S. stablecoin legislation, giving FRAX unmatched regulatory alignment

  • Asymmetric setup: regulatory tailwinds + product-market-regulatory-fit + mispriced token (very hated)

• FRAX is now a vertically integrated stablecoin stack: frxUSD (stablecoin), FraxNet (banking interface), Fraxtal (L2 execution layer)

  • frxUSD is fully backed by T-Bills and cash

• Token restructuring: FXS renamed to FRAX, now the gas, governance, burn, and staking token; legacy frax dollar has been discontinued, now frxUSD

• Significant under-valuation: ~$304M FDV vs peers like Ethena ($6.1B) & best liquid token exposure to the stablecoin narrative — USDC/USDT have no tokens (private companies), Maker/Curve less direct

• Real-world integrations live: custody via BlackRock/Superstate, partners include Stripe & Bridge

First, let me start with the elephant in the room. The knee-jerk reaction from people when they hear the ticker is one of hesitation - usually because of how overly complicated it’s been, trying to do “too many things”, or a bad experience trading FRAX previously.

Before reading the rest of this article, I urge you to completely shed any past biases you’ve had on FRAX, and approach it with as much of an open mind that you can. Pretend that it’s your first time seeing this - because I sincerely believe that Frax as a whole has completely changed itself to become an entirely different application, making a pivot so momentous that changes the thesis entirely. Let’s dive right in:

1. FRAX Is Well-Positioned To Capture The Upcoming Stablecoin Wave

The stablecoin narrative is one that every crypto participant well understands and agrees has a large Total Addressable Market (TAM). Despite this, I see very little talk on the timeline about the GENIUS & STABLE bills - two landmark bills that define stablecoin legislation by the US Congress. Why is this so? Well, I believe it’s because politics is an extremely arduous process with many hurdles. People have low expectations of outcomes, and think it’s a nothingburger. Most people look at these bills as being somewhat important, but also don’t have a basic understanding of its magnitude. At best, they think it’s pretty cool a stablecoin bill is being passed, but at worst, they expect many delays, and ultimately, for it to be a nothing burger.

However, I would like to assure you that these bills are actually pretty important in defining the future era of stablecoins. To start with, I’d like to provide a ChatGPT summary of the two bills for you to peruse:

There are two very important takeaways from the bills:

Firstly, they define what payment stablecoins are in legal terms. The GENIUS Act will formally allow payment stablecoin (PS) issuers to issue digital dollars that are legally compliant as bank settlement media and used for interbank payments across the US and global financial system.

Payment stablecoins are the largest structural change that levels the playing field for new innovations and opens the entire multi-trillion US banking sector for stablecoin startups. The total $200B stablecoin market cap is only 1% of the total M1 money supply. The US stablecoin bill enshrines payment stablecoins as legal M1 digital dollars for the first time in history. In other words, the great stablecoin game is about to begin.

Secondly, this bill is monumental in creating a framework for stablecoins to be regulated by federal standards, and perhaps more importantly, would most definitely set the standard for global stablecoin issuance worldwide. Today, stablecoins exist within a legal gray area – there is no real regulatory framework for stablecoins, within the United States today. This prevents traditional players from truly integrating stablecoins and makes it hard for existing players to scale to their maximum potential. This bill changes all of that, and thus, I believe will truly ring the bell to usher in the great era of stablecoins.

Now, I am proud to say that there are multiple crypto people in DC that are helping draft this momentous bill – and Frax’s Sam Kazemian is one of them. I believe the greatness of this feat has gone unnoticed – Sam is working at the highest level of Washington DC, helping to draft the bills. If you ask him, he’d point out the parts of the bill in which he personally had a hand in giving suggestions!

People in crypto like to say that crypto founders are not doing anything real, or that crypto lacks fundamentals – well, here you have a founder, in the most powerful levels of the political echelon, single-handedly helping draft the stablecoin bill. I believe that it is not an understatement to say that Sam’s achievements place him in a league of his own among crypto founders.

This is not just a DeFi protocol anymore – it’s a monetary institution that is building with regulatory clarity in mind before it even passes – Frax is now ready to scale legally, institutionally and globally.

FRAX – Onboarding The World’s M1 Money To Stablecoins

Now that the context has been set, I can go on to talk about what FRAX is building today. Frax isn’t just building a stablecoin – it’s building an entire monetary system that integrates TradFi & DeFi into one cohesive stack, with the goal of capturing the global M1 money supply. Frax is executing this through vertically integrated architecture that spans issuance, yield, and settlement – the three pillars of a modern banking system, across three components:

1. frxUSD – Legal Tender Digital Dollars

2. FraxNet – The Bank

3. Fraxtal – The Rails

1. frxUSD – Legel Tender Digital Dollars

frxUSD is Frax’s flagship stablecoin - a 1:1 fully backed digital dollar supported by short-term U.S. Treasuries and cash equivalents. It's extremely important to note that this is nothing like Frax’s previous stablecoin – frxUSD is designed to qualify under the GENIUS Act as a payment stablecoin (hence, Sam spending so much time in DC).

frxUSD is fully backed by cash and short-term T-bills, custodied via Blackrock and Superstate (BUIDL and UStb). frxUSD aims to be the first payment stablecoin in the U.S. with legal tender characteristics, compliant reserve structure, and institutional integrations.

2. FraxNet – The Bank

This is the most exciting part to me. If frxUSD is the dollar, FraxNet is the banking interface. FraxNet is basically a stablecoin banking app – fully KYC’ed, custodial-compliant, but natively on-chain.Imagine logging into your account, seeing your Goldman Sachs MMF holdings, minting frxUSD against it, and then streaming your yield back to your Fraxtal address – in real time.

The North Star here is simple: turn every traditional Money-Market Fund (MMF) dollar into an on-chain, interoperable dollar. Frax has partnered with Stripe and Bridge to do this – with the recent announcement of Stripe’s stablecoin integrations, this should come as no surprise.

In my opinion, this is what makes Frax exciting – a stablecoin with real world asset alignment, addressing a trillion dollar addressable market.

3. Fraxtal – The Execution Layer For Stablecoin Commerce

Lastly, we move on to Frax’s native chain, Fraxtal. Fraxtal is where frxUSD will be natively issued, transferred, and settled. It’s hardforked from Optimism Bedrock, has native bridging like Circle’s CCTP, and is optimized for frxUSD to be the unit of account.

Fraxtal also uses FRAX (previously FXS) as their gas token - This means every single app built on Fraxtal – from FraxLend to FraxSwap to Frax Name Service – will require FRAX to operate. And more than that, fees from these apps go straight to buying and burning FRAX.

I believe that what Sam is trying to do with FRAX is an ambition like no other. FRAX has shed its old skin of being a decentralized stablecoin. Instead, FRAX is building a full-stack monetary system with the following parts:

• frxUSD is the legally compliant stablecoin

• FraxNet is the institutional bridge and user onboarding layer

• Fraxtal is the global execution layer

It’s the convergence of cashflow, utility, and growth. And what gets me the most excited about this is the amount of effort Sam is putting into this to make it regulatory compliant. There is simply no other decentralized stablecoin issuer that is putting themselves on this compliant, transparent, and legitimate path.

With all eyes on stablecoins, the next wave of adoption – real, scaled, trillion-dollar wave – is going to come from institutions and consumers who need to comply with laws. They need redemption rights. They need clarity. They need to be able to walk into a boardroom and say “yes, this is compliant under U.S. law.”

And Frax is building exactly for that world. This is what product-market-regulatory-fit looks like.

2. The Re-structuring of FRAX

Now that I’ve covered the current context, let’s move on to the more minute changes Frax has undergone recently that add more tailwinds to the protocol. This part mostly goes through the changes made in FIP-428 which you can read here if you want.

In essence:

• Old Frax stablecoin has been deprecated and is now known as Legacy Frax Dollar. New stablecoin is now known as frxUSD.

• FXS is being renamed to FRAX – just one, singular core asset to represent the entire protocol. Nice.

  • veFXS becomes veFRAX, wFXS becomes wFRAX, etc.

  • However this transition takes time as exchanges work to support it

• FRAX becomes the gas of Fraxtal – replacing frxETH. Every single on-chain interaction now uses FRAX as gas – and, the plan is to eventually support validator staking using FRAX – a huge unlock for token utility

• New tokenomics: Tail Emission Plan – 8% yearly emissions, dropping by 1% per year till it hits a 3% floor. Emissions are now distributed via FXTL points, a point system that rewards protocol-aligned behavior

  • You can boost your conversion rates with Flox Capacitors, which requires staking FRAX. The goal here is pretty clear: reward long-term users who lock, stake, and actively participate in the ecosystem. ALIGNMENT, BABY.

• This also means no more FXS Gauges – no more mercenary LP farming! No more bleeding emissions just to maintain TVL – everything is now earned

  • Frax is no longer a bribe game - it’s now more akin to a L1 token that gets monetary premium, burns, revenue, and utility rather than a bribe + farm token - which gives FRAX credence to get repriced as one

• sfrxUSD is now the yield bearing layer – it captures yield from underlying T-Bills backing frxUSD.

There’s a few more points, but these are the most important in my opinion. FIP-428 is a beautiful proposal that essentially ties the entire ecosystem to one token, and one token only: FRAX. Every part of the Frax system now loops back into the token; Fees from Fraxtal? Burn FRAX. FXTL Emissions? Only goes to users holding and staking FRAX. Validators staking in the future? Requires FRAX. Governance? veFRAX. And above all, FRAX is now a L1 token as it’s the chain’s native gas token.

Frax has essentially created a monetary loop with internal demand, utility, and sinks. And that’s why I think people are sleeping on this – In my opinion, the takeaway here is understanding that this isn’t just a simple rebrand. Frax is becoming the most regulatory-aligned, yield-generating, vertically integrated dollar stack in crypto.

3. Amongst Liquid Tokens, FRAX Presents The Best Case

Lastly, let’s talk upside. Everyone knows stablecoins are the darling product of crypto, servicing the largest total addressable market - i.e the world. The stablecoin narrative is extremely well understood - however, the list of available tokens to position into to capture this, is extremely small.

Frax is, in my opinion, the best liquid token to long for the stablecoin narrative with incredible upside. On top of the North Star upgrade and building the entire banking stack, Frax sits in the best position within the stablecoin value chain.

The reason is simple - issuers capture the largest share of the economic pie compared to other players - not DEXes, nor lending markets, or payment apps. Controlling issuance is a monumental value-driver that captures the deepest margins - as they say, whoever owns distribution, wins.

It’s why USDC / USDT are the most sought after products on the market today from an investments perspective - too bad they don’t have a token! Below I’ve made a comparison table with other liquid tokens as well, to showcase why Frax is the best token in liquid markets to represent the stablecoin thesis today:

FRAX on the other hand, is almost fully diluted and sits at ( as of 10 May ) $276mm MC / $304mm FDV. This is a token with partnerships with Bridge & Stripe, sitting at sub $500m. Let me remind you that $ai16z right now ( as of 14 May ) sits at $384m MC – basically 2x of FRAX.

Secondly, the under positioning is real. As I said at the start, everyone I’ve pitched this to has expressed some sort of disdain towards the protocol. I’m pretty sure everyone is offsides – and with a chart like that, I’m not surprised. All the more reason to buy – it’s an asymmetric play with incredible upside at current price points; If Sam executes (and he has so far, making partnerships with all these giants) – the growth is there to be captured.

4. Risks Of Trade

Now that I’ve covered the upside, let’s talk risks. The risks here are pretty straightforward, actually:

1. The stablecoin bill gets delayed, doesn’t pass, or changes in a way that affects FRAX.

This is actually happening right now – just a few days ago, the bill failed to clear the U.S. Senate – I will say that I know very little about the process that goes on in DC. However, let me direct you to Sam, who has been working with these guys for the past few months; I quote:

“Not as big of a deal as people are making it out to be. We never expected this to pass until late July before Congress' August recess. Part of the political process, it wasn't like this was going to pass 3 months ahead of expectations. I'm an optimist but not THAT optimistic. It's all still realistic and on pace for July which was always my expectation.”

July will be one to watch – now, if it doesn’t pass in July, I’d start getting worried. But till then, I’m chill.

2. Why have I talked about the GENIUS Act so much and not the STABLE Act? What if the STABLE Act passes instead?

Again, according to Sam, that’s not how it works - they will likely both pass their chamber votes and there will be reconciliation period where there'll be a compromise final draft that gets sent to the president's desk. It will likely look more like the GENIUS Act than the Stable Act, which is what’s important.

3. What’s the worst case?

Neither of the bills passing – such a case will probably only happen if a catastrophe strikes – e.g global financial implosion, in which efforts are totally derailed.

In any case, I also believe that the thesis doesn’t solely hinge on the bills – Frax has shown to be doing monumental work in improving the protocol, which I feel is good reason to bet on them.

4. Failure to deliver on the promise

I see this to be highly unlikely given that he’s spent all this time in DC going full founder mode.

Conclusion

To wrap this up — FRAX is no longer the half-backed algo-stable you might remember from 2022. It’s evolved into a full-stack monetary system, built around regulatory clarity, institutional alignment, and vertical integration. The founder is in DC helping policymakers. The stablecoin is backed by T-Bills and custodied by institutions. The token is getting real utility — gas, governance, burn mechanics, etc.

In my opinion, it represents the purest stablecoin bet that exists in crypto right now – and you don’t get setups like this often. A token trading below $ai16z, tied directly to the largest TAM in crypto — the dollar itself! I am excited to see what the future holds for FRAX!