Stablecoins, or crypto assets which peg their value to less volatile fiat money, are useful tools for a variety of reasons. They can be used to cash out crypto investments, send or receive stable money abroad, and to pay for everyday consumer transactions without fear of fluctuation. A recent estimate from the Bank for International Settlements, or BIS, put the total stablecoin supply at roughly $150 billion.
But central banks, the issuers of traditional fiat money around the globe, do not seem to be big fans of stablecoins. A sharp increase in supply coupled with a lack of relevant regulations has led to concerns that these stable blockchain assets could threaten the current financial order. Fiat money stablecoins, such as those created by Circle (USDC) and Tether (USDT), may require banking licenses in the future to operate. Thus far however, regulators have not been keen to take aim on algorithmic stablecoins, which are governed by automated expansion and contraction of the monetary supply.
In an exclusive interview with Cointelegraph, Sam Kazemian, the co-founder of the Frax stablecoin protocol, discussed the regulatory outlook for the sector and algorithmic stablecoins in detail.
Growth in cryptocurrency activities | Source: BIS
Cointelegraph: There are many algorithmic stablecoins out there, such as Terra USD, Ampleforth, etc. In your opinion, what makes Frax unique?
Sam Kazemian: What makes Frax unique is that we have a system where our protocol expands and contracts supply in various places across blockchain protocols, and targets the exchange rates of the Frax…