Author: Kyle, Crypto KOL
Compiled by: Felix, PANews
Note: Crypto KOL Kyle currently holds FRAX; this article represents Kyle's personal views and does not represent the views of PANews.
Key points:
Market cap $276 million / circulating market cap $304 million; Frax provides an excellent asymmetric opportunity to bet on stablecoins, and with the upcoming (GENIUS Act), Frax aims to be one of the first payment-type stablecoins compliant with US law.
Founder Sam Kazemian is actively involved in drafting US stablecoin legislation, and FRAX has a certain fit in the regulatory space.
Asymmetric layout: Regulatory environment tailwind + product-market-regulatory fit + undervalued tokens (under scrutiny).
FRAX has now become a vertically integrated stablecoin stack: frxUSD (stablecoin), FraxNet (banking interface), Fraxtal (L2 execution layer).
frxUSD is fully backed by US government bonds and cash.
Token restructuring: FXS is renamed FRAX, now serving as the Gas, governance, burn, and staking token; the old frax dollar has been deprecated, now known as frxUSD.
Undervalued valuation: Compared to similar projects like Ethena ($6.1 billion), approximately $304 million circulating market cap, and the best liquidity token exposure in the stablecoin narrative—USDC/USDT has no tokens (private companies), while Maker/Curve are not direct enough.
Integration with real-world has gone live: Custodian services provided by BlackRock/Superstate, partners include Stripe and Bridge.
First, let’s address the obvious question. The first reaction people have upon hearing FRAX is hesitation—usually because it is too complex, trying to do 'too many things,' or because their previous experience trading FRAX was poor.
Before reading this article, please thoroughly discard any past biases against FRAX and approach it with an open mind as much as possible. Pretend this is your first time learning about it—Frax as a whole has completely transformed and become a completely different application, with significant implications that have changed its previous direction.
1. FRAX is expected to capture the upcoming wave of stablecoins.
The stablecoin narrative is well known to every crypto enthusiast, who recognizes its vast potential market (TAM). Nevertheless, few people talk about the (GENIUS & STABLE Acts)—these two landmark bills introduced in the US Congress that define stablecoin legislation. Why is that? Because politics is an extremely challenging process filled with obstacles. People have low expectations for the outcome, seeing it as trivial. Most believe these bills are quite important, but lack a basic understanding of their significance. Optimistically, they think it's good if the stablecoin bill passes smoothly; pessimistically, they expect many delays and ultimately no resolution.
However, these bills are crucial for reshaping the future of stablecoins. Here’s a comparative summary of the two bills:
These two bills contain two very important aspects:
First, they legally define payment-type stablecoins. The (GENIUS Act) will officially allow issuers of payment-type stablecoins (PS) to issue legally compliant digital dollars as a medium of bank settlement, used for interbank payments in the US and globally.
Payment-type stablecoins represent the largest structural change, providing a fair competitive environment for innovation and opening the doors to the entire trillion-dollar US banking sector for stablecoin startups. Currently, the $200 billion stablecoin market cap only accounts for 1% of the M1 money supply. The US stablecoin bill first establishes payment-type stablecoins as legal M1 digital dollars. In other words, the great era of stablecoins is about to begin.
Secondly, the bill is significant as it creates a framework for federal standard regulation of stablecoins, and more importantly, it will become the standard for global stablecoin issuance. Stablecoins are currently in a legal gray area—in the US, there is currently no true regulatory framework for stablecoins. This hampers traditional participants' ability to truly integrate stablecoins and makes it difficult for existing participants to fully realize their potential. This bill changes all that, thus it will truly herald the great era of stablecoins.
Today, several crypto individuals in Washington, D.C. are helping to draft this landmark bill—one of whom is Frax's Sam Kazemian.
This is no longer just a DeFi protocol; it is a monetary institution that has incorporated compliance considerations even before the relevant regulations have passed. Frax is now ready for legal expansion on a national, institutional, and global scale.
FRAX: Bringing global M1 money into stablecoins.
Next, let’s talk about what Frax is currently building. Frax is not just creating a stablecoin; it is building a complete monetary system that integrates TradFi and DeFi into a unified system, aiming to capture the global M1 money supply. Frax achieves this by constructing a vertically integrated architecture covering issuance, yield, and settlement (the three pillars of the modern banking system), consisting of three parts:
frxUSD – Legal Digital Currency
FraxNet – Banking
Fraxtal – Channel
1. frxUSD: Legal currency digital dollar.
frxUSD is the flagship stablecoin of Frax—a digital dollar fully backed 1:1 by short-term US government bonds and cash equivalents. It is important to note that this is completely different from Frax's previous stablecoins—frxUSD is designed to comply with the requirements of the (GENIUS Act) to become a payment-type stablecoin (which is also why Sam has spent so much time in Washington).
frxUSD is fully backed by cash and short-term government bonds, custodied by BlackRock and Superstate (BUIDL and UStb). frxUSD is committed to becoming the first payment-oriented stablecoin in the US with fiat characteristics, compliant reserve structure, and institutional integration.
2. FraxNet: Banking
If frxUSD is the US dollar, then FraxNet is the banking interface. FraxNet is essentially a stablecoin banking application—fully KYC-compliant and meets custodial compliance requirements, but natively on-chain. Imagine logging into your account, checking your Goldman Sachs money market fund holdings, minting frxUSD with it, and then streaming the returns back to your Fraxtal address in real-time.
The goal here is simple: convert every dollar of traditional money market funds (MMFs) into on-chain interoperable dollars. Frax has partnered with Stripe and Bridge to achieve this goal—given that Stripe recently announced stablecoin integration, this should come as no surprise.
This is what makes Frax exciting—a stablecoin linked to real-world assets, targeting a trillion-dollar potential market.
3. Fraxtal: The execution layer of stablecoin business.
Finally, let’s talk about Frax's native chain, Fraxtal. frxUSD will be natively issued, transferred, and settled on Fraxtal. Fraxtal is a hard fork from Optimism Bedrock, with native bridging capabilities like Circle's CCTP, optimized for frxUSD as the unit of account.
Fraxtal also uses FRAX (previously known as FXS) as its Gas token—this means that every application built on Fraxtal, from FraxLend to FraxSwap to Frax Name Service, requires FRAX to operate. Not only that, the fees generated by these applications will be directly used to buy and burn FRAX.
FRAX may have shed its old identity as a decentralized stablecoin. Instead, FRAX is building a complete stack monetary system that includes:
frxUSD is a legal and compliant stablecoin.
FraxNet is the institutional bridge and user onboarding layer.
Fraxtal is the global execution layer.
This is the fusion of cash flow, utility, and growth. And what’s most exciting is Sam’s efforts to ensure regulatory compliance. Currently, no other decentralized stablecoin issuer has taken this compliant, transparent, and legal path.
At this moment, when everyone is focused on stablecoins, the next wave of mass adoption (a real, trillion-dollar wave) will come from institutions and consumers who need to comply with the law. They need redemption rights. They need clear rules. They need to be able to walk into boardrooms and say, 'Yes, this complies with US law.'
This is the manifestation of product, market, and regulatory fit.
2. Reconstruction of FRAX.
Now let’s talk about some of the subtle changes that FRAX has recently undergone, which have added more momentum to the protocol. This section mainly covers the changes made in FIP-428.
In short:
The old Frax stablecoin has been deprecated, now renamed Legacy Frax Dollar. The new stablecoin is now called frxUSD.
FXS is renamed FRAX—representing the entire protocol with only one core asset.
veFXS is renamed veFRAX, wFXS is renamed wFRAX, and so on.
However, this transition requires time as exchanges are working to support it.
FRAX will become the Gas of Fraxtal, replacing frxETH. Now, all on-chain interactions use FRAX as Gas. Additionally, there are plans to eventually support validator staking using FRAX, which will greatly enhance the token's utility.
New token economics: tail issuance plan—8% issuance per year, decreasing by 1% each year until reaching a 3% floor. Issuance is now allocated through the FXTL points system, a rewards system for compliant protocol behavior.
You can use Flox Capacitors to improve conversion rates, which requires staking FRAX. The goal here is very clear: to reward long-term users who lock, stake, and actively participate in the ecosystem.
This also means no more FXS metrics—there's no more profit-driven LP mining; no more mass issuance of tokens just to maintain TVL—everything relies on earning.
Frax is no longer a bribery game—it is now more like an L1 token that earns monetary premiums, burns, generates yields, and offers utility, rather than a bribery + mining token—this qualifies FRAX for repricing.
sfrxUSD is now a yield-generating layer—it derives yield from the underlying government bonds supporting frxUSD.
Of course, there are some other points. FIP-428 is a brilliant proposal that binds the entire ecosystem to a single token: FRAX. Every part of the Frax system now flows back into the token; Fraxtal's fees? Burn FRAX. FXTL issuance? Only users holding and staking FRAX can earn. Future validator staking? Requires FRAX. Governance? veFRAX. Most importantly, FRAX is now an L1 token because it is the native Gas token on-chain.
Frax has essentially created a monetary loop with internal demand, utility, and consumption mechanisms. I believe the key here is understanding that this is not just simple rebranding. Frax is becoming the most compliant, yield-generating, vertically integrated dollar stack in the crypto space.
3. Among all liquidity tokens, FRAX is the best choice.
Finally, let’s talk about its advantages. Stablecoins are well known as the most popular products in the crypto space, serving the largest potential market—that is, globally. The narrative around stablecoins is very clear, yet there are very few investable tokens available to seize this opportunity.
I believe Frax is the best liquidity token to bet on the stablecoin narrative, with significant upside potential. Besides the 'North Star' upgrade and building the entire banking system, Frax is in the best position within the value chain of stablecoins.
The reason is simple: compared to other participants (whether DEXs, lending markets, or payment applications), the issuer can capture the largest economic share. Controlling issuance is a huge value driver that can yield the richest profits—as the saying goes, whoever controls the distribution channel wins.
This is why, from an investment perspective, USDC/USDT are the most popular products on the market today—too bad they don’t have tokens. Below is a comparison chart with other liquidity tokens, showing why Frax is the best token representing the stablecoin concept in today’s liquidity market:
On the other hand, FRAX is almost completely diluted, with a market cap of $276 million as of May 10, and a fully diluted valuation (FDV) of $304 million. This is a token that has established partnerships with Bridge and Stripe, yet its market cap is below $500 million.
Additionally, it is a fact that FRAX is undervalued. As mentioned at the beginning, when introducing this project to people, they often display a certain level of disdain. But everyone is wrong—seeing such charts, I’m not surprised at all, and this is exactly the reason to buy in—at the current price point, this is an asymmetric investment with huge upside potential; if Sam can execute (and so far he has, establishing partnerships with all these giants), growth is evident.
4. Trading risks.
Now that we’ve talked about upside potential, let’s discuss risks. In fact, the risks here are quite simple:
1. The stablecoin bill is delayed, not passed, or changes occur affecting FRAX.
In fact, this is happening—just a few days ago, the bill failed to pass in the US Senate. However, quoting Sam, who has been working with these people over the past few months: 'It’s not as serious as people say. We never expected it to pass before Congress's August recess in late July. This is part of the political process, and it’s impossible for it to pass three months ahead of schedule. I’m an optimist, but not overly so. Everything is still on track and is expected to pass in July, which has been my expectation.'
July will be a crucial month; if it still hasn’t passed by then, start worrying. But until then, keep a peaceful mindset.
2. Why is there so much talk about the (GENIUS Act) and so little about the (STABLE Act)? What would happen if the (STABLE Act) passed?
Also, according to Sam, that’s not the case—both bills may pass in their respective chambers, followed by a coordination period during which a compromise final draft will be submitted to the president for signature. The final draft is likely to resemble the (GENIUS Act) rather than the (STABLE Act), and that is the crux of the matter.
3. What is the worst-case scenario?
Neither bill is likely to pass—this scenario would probably only occur in the event of a major disaster, such as a global financial collapse, at which point all efforts would be completely shelved.
But it’s not entirely dependent on the bill itself—Frax has already demonstrated tremendous influence in improving the protocol, and I believe this is ample reason to bet on them.
4. Failure to deliver on promises.
Given that Sam has been fully committed to playing the role of founder in Washington, D.C., the likelihood of this happening is very low.
Conclusion
FRAX is no longer the 'half-hearted' (partially supported and partially unsupported) algorithmic stablecoin of 2022 remembered. It has evolved into a full-stack monetary system built around regulatory clarity, institutional cooperation, and vertical integration. The founder is assisting policymakers in Washington, D.C. This stablecoin is backed by US government bonds and institutionally custodied. The token is gaining real utility—as Gas, governance, burn mechanisms, etc.
Currently, the purest stablecoin bet in the crypto space—and opportunities like this are rare. A token trading below $16 directly linked to the largest potential market in the crypto sphere—the dollar itself. Looking forward to FRAX's future.
Related Reading: The latest developments in the stablecoin track: USDT's market cap surpasses $150 billion for the first time, fierce competition among financial and tech giants, Tether and Circle strengthen their 'moat'.