Opinion: Why is FRAX the best investment target in the stablecoin narrative?

Author: Kyle, encryption KOL

Compiled by: Felix, PANews

Note: Encryption 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 for betting on stablecoins, and with the upcoming "GENIUS Act," Frax aims to be one of the first payment stablecoins compliant with U.S. law.
• Founder Sam Kazemian is actively involved in drafting US stablecoin legislation, and FRAX has a certain degree of alignment in regulatory aspects.
• Asymmetric layout: favorable regulatory environment + product-market-regulatory fit + undervalued tokens (widely criticized)
• FRAX has now become a vertically integrated stablecoin stack: frxUSD (stablecoin), FraxNet (bank interface), Fraxtal (L2 execution layer)
• frxUSD is fully backed by U.S. Treasury bonds and cash.
• Token Restructure: FXS has been renamed to FRAX, now serving as Gas, governance, burn, and staking token; the old frax dollar has been deprecated, now it is frxUSD.
• Undervalued valuation: Compared to similar projects like Ethena (6.1 billion USD), with a circulating market value of about 304 million USD, and being the best liquidity token exposure in the stablecoin narrative—USDC/USDT has no token (private company), while Maker/Curve is not direct enough.
• Integration with the real world is live: Custody services provided by BlackRock/Superstate, with partners including Stripe and Bridge.

First, let's talk about the obvious issue. The first reaction people have when they hear about FRAX is hesitation—usually because it is too complicated, trying to do "too many things," or because their previous experience with trading FRAX was terrible.

Before reading this article, please completely 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 been completely transformed, becoming a wholly different application, with significant implications for its transformation, fundamentally changing its previous direction.

1. FRAX is expected to seize the upcoming wave of stablecoins.

The stablecoin narrative is something that every crypto person knows and agrees that has a huge potential market (TAM). STILL, IT'S RARE TO SEE ANYONE TALKING ABOUT THE GENIUS & STABLE BILLS – TWO LANDMARK BILLS INTRODUCED BY THE US CONGRESS THAT DEFINE STABLECOIN LEGISLATION. Why is this happening? This is because politics is an extremely difficult process, full of obstacles. People have low expectations for the outcome, believing it to be a trivial matter. Most people consider these bills to be important, but lack a basic understanding of their importance. Optimistically, they believe that it is a good thing that the stablecoin bill will pass smoothly; Pessimistically, they expect a lot of delays, and eventually it won't work.

However, these bills are crucial for reshaping the future of stablecoins. Below is a comparative summary of the two bills:

These two bills contain two very important points:

First, they defined payment-type stablecoins from a legal perspective. The "GENIUS Act" will officially allow issuers of payment-type stablecoins (PS) to issue legally compliant digital dollars, serving as a medium for bank settlements and used for interbank payments within the United States and the global financial system.

Payment stablecoins represent the largest structural transformation, providing a fair competitive environment for innovation and opening the doors of the entire trillion-dollar U.S. banking industry to stablecoin startups. Currently, the market capitalization of stablecoins at $200 billion accounts for only 1% of the M1 money supply. The U.S. stablecoin bill establishes payment stablecoins as legal M1 digital dollars for the first time. In other words, the great era of stablecoins is about to begin.

Secondly, the bill is significant as it creates a framework for the federal standard regulation of stablecoins, and more importantly, it will become the standard for global stablecoin issuance. Currently, stablecoins are in a legal gray area—in the United States, there is no true regulatory framework for stablecoins. This hinders traditional players from truly integrating stablecoins and makes it difficult for existing participants to fully realize their potential. This bill changes all of that, and thus, it will truly ring in the great era of stablecoins.

Today, several encryption experts in Washington, D.C. are helping to draft this landmark bill—one of them is Sam Kazemia from Frax.

This is no longer just a DeFi protocol, but a monetary institution that has taken compliance into consideration before the relevant regulations have been passed. Frax is now ready for legal expansion in terms of law, institutions, and globally.

FRAX: Bringing global M1 currency into stablecoins

Let's talk about the current state of construction at Frix. Frax isn't just building a stablecoin, it's building a complete monetary system that integrates TradFi and DeFi into a unified system, with the goal of capturing the global M1 money supply. Frax achieves this by building a vertically integrated architecture that spans issuance, earnings, and settlement – the three pillars of the modern banking system, which consists of three components:

1. frxUSD – fiat digital currency
2. FraxNet – Bank
3. Fraxtal – Channel

1. frxUSD: Digital US Dollar

frxUSD is the flagship stablecoin of Frax—a digital dollar fully backed 1:1 by short-term US Treasury bills 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 a lot of time in Washington).

frxUSD is fully backed by cash and short-term government bonds, custodied by BlackRock and Superstate (BUIDL and UStb). frxUSD aims to be the first payment stablecoin in the U.S. with characteristics of fiat currency, a compliant reserve structure, and institutional integration.

2. FraxNet: Bank

If frxUSD is the US dollar, then FraxNet is the bank interface. FraxNet is essentially a stablecoin banking application - fully KYC compliant and in accordance with custody regulations, but natively on-chain. Imagine logging into your account, checking your Goldman Sachs money market fund holdings, using it to mint frxUSD, and then streaming the earnings back to your Fraxtal address in real-time.

The goal here is simple: to convert every dollar of traditional money market funds (MMF) 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 exactly where Frax becomes exciting - a stablecoin pegged 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, featuring native bridging capabilities like Circle's CCTP, and is optimized for frxUSD as the accounting unit.

Fraxtal also uses FRAX (formerly known as FXS) as its gas token – meaning that every app built on Fraxtal, from FraxLend to FraxSwap to Frax Name Service, needs FRAX to run. Not only that, but the fees generated by these apps will be used directly to purchase and destroy FRAX.

FRAX may have shed its old identity as a decentralized stablecoin. Instead, FRAX is building a complete stack currency 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 a fusion of cash flow, practicality, and growth. What is most exciting is the effort Sam has made to ensure compliance with regulatory requirements. Currently, no other decentralized stablecoin issuer has taken this compliant, transparent, and legal path.

As everyone is focused on stablecoins, the next wave of mass adoption (the real one, reaching the trillion-dollar scale) will come from institutions and consumers who need to comply with regulations. They need redemption rights. They need clear rules. They need to be able to walk into the boardroom and say, "Yes, this complies with U.S. law."

This is the embodiment of the alignment between products, markets, and regulation.

2. Reconstruction of FRAX

Let's talk about some subtle changes that FRAX has recently undergone, which have added more support to the protocol. This section mainly discusses the changes made in FIP-428.

In short:

• The old version of the Frax stablecoin has been deprecated and is now renamed Legacy Frax Dollar. The new stablecoin is now called frxUSD.
• FXS has been renamed to FRAX - using only one core asset to represent the entire protocol.
• veFXS has been renamed to veFRAX, wFXS has been renamed to wFRAX, and so on.
• However, as the exchange is working hard to support this transition, it will take time.
• 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 Emission Plan - 8% issuance per year, decreasing by 1% each year until reaching a lower limit of 3%. Issuance is now distributed through the FXTL points, which is a point system that rewards compliant behavior with the protocol.
• You can use Flox Capacitors to increase 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 dashboard - no more profit-driven LP mining; no more massive issuance of tokens to maintain TVL - everything relies on earning.
• Frax is no longer a bribery game – it is now more akin to an L1 token that gains monetary premium, destruction, yield, and utility, rather than a bribery + mining token – which qualifies FRAX for repricing.
• sfrxUSD is now the yield-generating layer—it earns income from the underlying government bonds that support 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 fees? Burn FRAX. FXTL issuance? Only users holding and staking FRAX can obtain it. Future validator staking? Requires FRAX. Governance? veFRAX. Most importantly, FRAX is now an L1 token because it is the native Gas token on the chain.

Frax essentially creates a currency loop with internal demand, utility, and consumption mechanisms. I believe the key here is to understand that this is not just a simple rebranding. Frax is becoming one of the most regulatory-compliant, yield-generating, vertically integrated dollar stacks in the encryption space.

3. Among all liquidity tokens, FRAX is the best choice.

Finally, let's talk about its advantages. As we all know, stablecoins are the most popular products in the encryption field, serving the largest potential market - that is, globally. The narrative around stablecoins is very clear; however, in order to seize this opportunity, there are very few tokens available for investment.

Personally, I believe that Frax is the best liquidity token to bet on the stablecoin narrative, with huge upside. In addition to the "North Star" upgrade and building the entire banking system, Frax is in the best position in the value chain for stablecoins.

The reason is simple: compared to other participants (whether DEX, lending markets, or payment applications), the issuer can obtain the largest economic share. Controlling issuance is a significant value driver that can yield the most substantial profits - as the saying goes, whoever controls the distribution channel is the winner.

This is why, from an investment perspective, USDC/USDT is the most popular product in today's market—unfortunately, they do not have tokens. Below is a comparison table with other liquidity tokens, demonstrating why Frax is the best token representing the stablecoin concept in today's liquidity market:

FRAX, on the other hand, is almost completely diluted, with a market capitalization of $276 million and a fully diluted valuation (FDV) of $304 million as of May 10. It's a token that has partnerships with Bridge and Stripe, and has a market cap of just under $500 million.

Secondly, it is a fact that FRAX's valuation is low. As mentioned at the beginning, when introducing this project to people, they all show a certain degree of disdain. But everyone is wrong — seeing such charts, I am not surprised at all; this is exactly the reason to buy — at the current price point, this is an asymmetric investment with huge upside potential; if Sam can execute (so far he has done so, establishing partnerships with all these giants), growth is evident.

4. Transaction Risk

Now that we have discussed the potential for price increase, let's talk about the risks. In fact, the risks here are quite simple:

1. The stablecoin bill has been postponed, not passed, or changes affecting FRAX have occurred

In fact, this situation is happening - just a few days ago, the bill failed to pass in the U.S. Senate. However, quoting Sam, who has been working with these people for the past few months, Sam stated: "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 that optimistic. Everything is still on track, and it's expected to pass in July, which has always been my expectation."

July will be a key month; if things are still not approved by then, start worrying. But before that, keep a calm mindset.

2. Why has there been a lot of discussion about the GENIUS Act, but little mention of the STABLE Act? What would happen if the STABLE Act were passed?

Similarly, according to Sam, that is not the case—both bills could potentially pass in their respective chambers, followed by a reconciliation period during which a compromise final draft will be submitted to the president for signing. The final draft is likely to resemble the GENIUS Act more than the STABLE Act, which is the crux of the matter.

3. What is the worst-case scenario?

Neither of the two bills can pass - this situation would probably only occur in the event of a major disaster, such as a global financial collapse, at which point all efforts by various parties will be completely shelved.

But the situation does not entirely depend on the bill itself—Frax has already demonstrated a significant influence in improving the protocol, and I personally believe this is a compelling reason to bet on them.

4. Failed 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 situation occurring is extremely low.

conclusion

FRAX is no longer the "half-baked" (partially supported and partially unsupported) algorithmic stablecoin of 2022 that it was in memory. It has evolved into a full-stack monetary system built around regulatory clarity, institutional collaboration, and vertical integration. The founders are assisting policymakers in Washington, D.C. This stablecoin is backed by U.S. Treasury bonds and is institutionally custodied. The token is gaining real utility - used as Gas, governance, burn mechanisms, and more.

Currently the purest stablecoin bet in the encryption field—and such opportunities are rare. A token trading at a price below $16 is directly linked to the largest potential market in the encryption field—the US dollar itself. Looking forward to the future of FRAX.

Relevant reading: Latest developments in the stablecoin sector: USDT's market value has surpassed 150 billion USD for the first time, with fierce competition among financial and tech giants, as Tether and Circle strengthen their "moat."