The Frax Protocol Works by Targeting the Open Market
Sam Kazemian, co-founder of Frax Finance—a decentralized stablecoin cryptocurrency protocol—says that regulatory actions against stablecoins primarily target those backed by traditional financial assets.
In an interview with Cointelegraph, Kazemian described recently proposed global stablecoin rules as reactionary, noting they often require bank-like licenses for issuers such as Circle and Tether.
He emphasized the need for dialogue on regulation and reminded listeners that experimentation also occurs within traditional finance:
“Things like money market funds don’t have a bank charter. It’s not a bank. It’s not FDIC insured. People either don’t notice that or aren’t told.”
Kazemian believes these regulatory hurdles do not significantly affect truly decentralized stablecoins like Frax, because they make no claims on real-world assets and do not promote any form of redemption.
He added that Frax not only meets existing requirements but that its fully decentralized structure positions it to comply with future rules. The core idea behind Frax, Kazemian said, is that the protocol is designed to operate on the open market.
Asked what sets Frax apart from many algorithmic stablecoins, Kazemian explained that Frax’s mechanism—where the protocol expands and contracts supply across various blockchain venues and targets exchange rates on the open market—makes it distinct.
“We like to compare it to a central bank. When it issues a currency, it never says, ‘Hey, you can redeem it for this amount of gold or redeem it at the central bank for something dollar-pegged,’” Kazemian explained.
He noted that the company’s algorithmic stablecoin thesis was built on this idea, and that Frax has never broken its peg, not even during the market crash in May.