As long as the U.S. government supports stablecoins, stablecoins will only enhance the influence of the dollar, rather than weaken it.

Compiled & Edited by: Deep Tide TechFlow

Guests: Sam Kazemian, Founder of Frax Finance; Stani Kulechov, Founder of Aave

Host: Robbie

Podcast Source: The Rollup

Original Title: How The Genius Act Could Change The Dollar Forever - Sam Kazemian & Stani Kulechov

Broadcast Date: May 29, 2025

Key Points Summary

Sam Kazemian (Founder of Frax Finance) and Stani Kulechov (Founder of Aave) recently participated in a discussion about the GENIUS Act. This key legislation could officially establish stablecoins as legal tender, which is significant.

The dollar is accelerating its "on-chain" presence, a trend that is changing the traditional financial landscape. We explored the implications of this change, why banks oppose it, and how Frax and Aave are preparing for this shift.

In the discussion, Sam detailed FrxUSD and explained why stablecoins and artificial intelligence (AI) are the most talked-about areas today. Stani shared his perspective, suggesting that security tokens could become the largest asset class on-chain. Although stablecoins currently account for only 1.1% of the dollar's circulation, this ratio could soon change significantly.

Highlights

• Technologies like stablecoins and DeFi will ultimately become the cornerstones of the financial system.

• Simplicity makes things easier to scale, and this applies in the crypto space as well. The concept of stablecoins is very straightforward, which is one of the key reasons it can change people's perceptions of cryptocurrencies.

• As long as the U.S. government supports stablecoins, stablecoins will only enhance the influence of the dollar, rather than weaken it.

• In the crypto space, we need to ensure that innovation does not disappear due to regulation. I remain optimistic about the future. As long as we can find a balance between regulation and innovation, we can build a more transparent and efficient financial system that provides better services for users worldwide.

• The global M1 money supply of $20 trillion can be fully converted into digital form through stablecoins. Currently, we have only achieved about 1% of this conversion, transitioning from the traditional financial world of Web 2 to the digital dollar of Web 3. Therefore, the key lies in establishing a foundational digital dollar system, such as FRX USD, USDC, or bank-issued stablecoins.

Mass Adoption of Stablecoins

Robbie:

Hello everyone, welcome to The Roll Up. Today we are excited to invite two experts in the stablecoin field—Sam from Frax and Stani from Aave. Stablecoins are rapidly rising, and I believe they are one of the few products in the cryptocurrency space that have truly found product-market fit. We see stablecoin-related regulatory bills advancing quickly in both houses of Congress in the U.S., and stablecoins now account for 1.1% of circulating dollars, a figure that will only continue to grow. What are your thoughts on the current state of the stablecoin space?

Sam Kazemian:

I have been trying to control my excitement; the current situation makes me incredibly thrilled. I never expected the development of stablecoins to reach such heights today; the two most prominent sectors globally are artificial intelligence and stablecoins. In the current market environment, no other industry can compete with this. It is gratifying to see the field I have worked hard in for years reach such a peak. One could say the world is finally starting to pay attention and recognize all of this.

I know Stani is referred to as the "Godfather of DeFi," and he may have experienced this sense of achievement long ago. When you have been deeply involved in the DeFi space for years, and the whole world eventually stands on your side, that feeling must be unique. After the passage of the Genius Act this past Monday, the most uncertain and challenging parts of the stablecoin space are behind us. The political and legislative system in the U.S. is very complex, and many people do not actually understand how it works. The bicameral legislature of Congress requires multiple rounds of voting, often leaving people confused, like, "Why is there another round of voting?" But ultimately, unless there are significant changes, such as a shift in Republican priorities (which is highly unlikely), some form of stablecoin bill or its House version will pass.

So, while the Senate has passed some bills, that does not mean they have become law yet; they still need the president's signature. However, this is undoubtedly a historic moment, and everyone is looking forward to it. Next week, I will discuss stablecoin legislation and its implications after enactment with Senators Bill Hagerty and Tom Member. I am very excited about this. Thinking back to when Aave launched during "DeFi Summer," I can imagine that exhilarating feeling.

Stani Kulechov:

I completely agree with Sam; working in this field is really exciting. **You might not expect things to develop to this scale, but deep down, there is always a belief that stablecoins, **DeFi, and other technologies will ultimately become the cornerstones of the financial system.

This transition is natural, just like the shift from paper payments to digital payments; we are now moving towards a whole new financial world, and this process takes time. Reflecting on our early collaboration with Aave, there was almost no concept of stablecoins on Ethereum at that time. A few years later, stablecoins have become essential infrastructure for obtaining liquidity and yield, which is very intuitive and acceptable for both institutions and mainstream users.

I have always believed that simple things are easier to scale, and this applies in the crypto space as well. The concept of stablecoins is very simple, which is one of the key reasons it can change people's perceptions of cryptocurrencies. In the past, when mainstream discussions about cryptocurrencies arose, they were often associated with speculative trading, as most users encountered these assets through exchanges, which often lacked practical use. However, stablecoins have opened up new use cases for mainstream users, such as cross-border payments and value transfer, which did not exist before.

Of course, for regions with unstable financial systems, such as Argentina, parts of Africa, and some areas in the Middle East and Asia, the "stability" of stablecoins is particularly important. In the Western world, such as Europe and the U.S., the role of stablecoins is more about providing DeFi opportunities, liquidity access, and yield extraction. I think these are all very interesting application scenarios. Additionally, the potential of stablecoins in payments and borderless value distribution excites me greatly.

Of course, the legislative details are crucial for the future development of this field. Even if stablecoins receive regulation, we need to ensure that these regulations are reasonable and make compromises when necessary.

Stablecoins vs. the Dollar

Robbie:

Stani, one important value proposition you mentioned, and which Sam also touched on, is extending the influence of the dollar into markets where currency is scarce and quality currency is hard to obtain. For example, the regions you mentioned, like Argentina, some African countries, and parts of the Middle East and Asia, are generally facing hyperinflation issues. Therefore, there is a strong demand for the dollar, as it is one of the most stable currencies globally.

The first step is to introduce the dollar into these markets through stablecoins, helping people protect their wealth from the depreciation of their local currency. The next step is to provide yield opportunities through stablecoins, allowing them not only to preserve value but also to appreciate.

Regarding the impact of stablecoins on the global status of the dollar, I have heard different opinions. Some people worry that stablecoins might threaten the dollar's global dominance. But I think everyone here would agree that stablecoins actually reinforce the dollar's position in the global market. What are your thoughts on this criticism?

Sam Kazemian:

This question requires some background knowledge. I have been in the crypto space for over a decade, starting from my university days mining, even before projects like Ethereum.

Regarding the development of stablecoins, I like to divide it into two phases, much like history is divided into BC and AD. The first phase is the initial idea of stablecoins: can we combine the decentralization and trust mechanisms of Bitcoin to create a stable asset pegged to the dollar? This idea is akin to pursuing the "Holy Grail." Algorithmic stablecoins embody this concept, attempting to achieve infinite expansion and contraction through on-chain mechanisms without needing bank accounts or fiat reserves to maintain stability. This design combines the advantages of Bitcoin and Ethereum.

However, practice has shown that this design is not perfect, and even unfeasible. Similar to the concept of a "perpetual motion machine," this model violates fundamental laws of economics and physics. Therefore, the industry began to shift towards more realistic designs. For example, the V1 version of FRAX attempted a hybrid decentralized model but ultimately found that to achieve stability pegged to the dollar, national support and legal recognition were still necessary.

But now this possibility has truly emerged. The U.S. government may legally recognize certain stablecoins as equivalent to the dollar, which was unimaginable a few years ago. This is also why FRAX's new roadmap still centers around stablecoins. Our goal is a market size of trillions of dollars, which requires a realistic and feasible design. Looking back at history, we gradually realize that a completely decentralized stablecoin that can scale to $20 trillion is impossible. But if we can get the Federal Reserve and the U.S. government to support these digital assets, that would be the most exciting thing. This is precisely the direction FRAX is currently heading.

As for whether stablecoins threaten the dollar's status, I believe that as long as the U.S. government supports stablecoins, they will only enhance the influence of the dollar, rather than weaken it.

Stani Kulechov:

I completely agree with Sam's perspective. The dollar is essentially a simple and efficient transaction tool, and the advent of the internet did not weaken the dollar's position; rather, it expanded its global influence. I expect stablecoins to have a similar effect, as they broaden the reach of the dollar.

In terms of scale, I also strongly agree with Sam's view. Achieving a fully decentralized global currency system will take a long time and require massive user adoption. But for now, the technological potential of stablecoins lies more in expanding the existing financial system.

In the coming years, I believe stablecoins will become the largest asset class on-chain. Further down the line, security tokens may surpass the total of stablecoins and other crypto assets, becoming the largest on-chain asset class. This transformation is very important, as it not only reinforces the dollar's role in transactions but also lays the foundation for the future financial system.

Ultimately, we hope to build a more decentralized, fair, and efficient global financial system, but before that, stablecoins are an important step towards achieving this goal. I am very excited to see more traditional financial institutions and tech companies entering the stablecoin space. This indicates that people's acceptance of stablecoins is increasing, and the industry is rapidly evolving.

Stablecoins, Real-World Assets (RWAs), Security Tokens

Robbie:

Stani, your previous predictions have been validated multiple times, such as the success in decentralized finance (DeFi) lending, which may be one of the most important parts of DeFi. Now, stablecoins are also having their moment in the spotlight. You have predicted correctly twice, and now you mention that security tokens will become the largest asset class on-chain, even surpassing the total of stablecoins and crypto assets.

Can you explain to us what security tokens are? Do they refer to equity? For example, we saw Kraken's recent announcement, and Robinhood has also launched tokenized equity. Are these what you refer to as security tokens? Why do you believe security tokens can surpass stablecoins and other crypto assets to become the largest asset class on-chain?

Stani Kulechov:

First of all, my predictions are not always correct. But regarding security tokens, or more broadly, we can use the term "real-world assets (RWAs)" to describe them, which covers a wide range.

Security tokens can include equity, such as stocks of publicly traded companies, as well as shares of private companies. These assets are not easily accessible to everyone in the traditional financial system; typically, only a few institutions or individuals can participate.

Additionally, security tokens can also encompass debt assets. A typical example is Treasury bills (T-Bills), which have begun to be introduced on-chain through tokenization. When DeFi interest rates are low, these assets become particularly attractive because they can bring low-risk assets from traditional finance into the on-chain ecosystem.

Over time, we will also see more high-risk, high-reward investment opportunities being introduced on-chain, such as corporate bonds or other high-yield assets. This trend not only expands the variety of assets on-chain but also allows many illiquid assets in traditional finance to find new value. For example, some assets are not illiquid due to a lack of attractiveness but because of high investment thresholds or complex trading processes. The advantage of DeFi is that it can concentrate a large amount of liquidity and connect capital with these financial opportunities through efficient interoperability.

In a sense, stablecoins can also be viewed as a type of RWAs. The difference is that stablecoins typically do not provide returns directly to end users, making them more like a B2B tool. However, their emergence indicates that blockchain systems can attract significant value inflows from the traditional financial system, and this trend will only continue to grow.

Robbie:

I completely agree. I think you have painted a very clear picture showing the immense potential of bringing these assets on-chain. This is not just about transforming these assets into productive assets but also fully leveraging the opportunities brought by on-chain interoperability and composability with the traditional financial system.

Yield and liquidity are key factors. These assets need liquidity and yield, and the on-chain ecosystem is well-suited to meet these demands. You mentioned Treasury bills, and I believe they have already become an important component of many stablecoin reserve assets, further proving the appeal of on-chain finance.

Sam, you mentioned that next week you will be discussing with Hagerty and others involved in drafting legislation in Las Vegas. You noted that once the relevant bill is signed into law, it could open up many new opportunities. We all know the current state of the stablecoin market, so what new developments and opportunities do you foresee after the bill is signed?

Sam Kazemian:

This bill is very different from the EU's stablecoin regulations (such as the Mika Act) or other regional stablecoin frameworks. In the UAE, there is a Virtual Assets Regulatory Authority (VAR), and Japan has a similar stablecoin licensing system. For example, Circle announced a few months ago that they received a stablecoin issuance license in Japan. However, the key point of this bill is not about obtaining a certain license or guidance but rather that it involves the issuer of the dollar—the U.S. government itself.

Currently, over 95% of stablecoins in the global market are dollar-pegged. Therefore, the U.S. government's stance on these stablecoins is crucial, as it is not just a regional issue but has global implications. In other words, if a stablecoin can be recognized by the U.S. government as an asset equivalent to the dollar, it has the potential to be widely accepted in the global financial system.

For instance, Arthur Hayes mentioned, "This bill is only for the U.S. market." But in reality, this perspective is incorrect because it involves the legal status of the dollar. Once a stablecoin is recognized as a unit of the dollar, it can circulate in all areas that accept the dollar. Even banks in the EU may be willing to accept these stablecoins, provided they can connect through blockchain rather than relying on the traditional SWIFT system.

From a legal perspective, the significance of this bill lies in the fact that it does not merely legalize stablecoins but directly grants them the legal status of the dollar. For example, in different jurisdictions, as long as the dollar is a legally circulating currency, this type of stablecoin can operate freely in those areas. This shift is prompting banks to seriously consider issuing their own stablecoins, such as large banks like JP Morgan and Citigroup exploring forming consortia to jointly launch legitimate stablecoins. While I cannot disclose more details due to a confidentiality agreement, we are indeed having in-depth discussions with these banks. This is a very important event.

Additionally, with the launch of FRX USD and other payment-oriented stablecoins, I believe Circle's USDC is also closely monitoring this trend. Tether's Paulo has also been active in Washington recently, clearly recognizing the significant implications of this bill. This is not just a regional regulatory issue but a major event concerning the future development of the global stablecoin market.

Robbie:

Indeed. This bill redefines the relationship between the dollar and stablecoins. In the past, the issuance of the dollar was controlled by a single entity, but now multiple institutions may participate in the issuance of the dollar, such as JP Morgan and Citigroup exploring the possibility of jointly launching stablecoins. Hearing that you have already engaged in negotiations with these banks and signed confidentiality agreements indicates that substantial progress is being made. This is indeed very exciting.

Expanding Dollar Credit

Robbie:

Now we see many companies beginning to explore issuing stablecoins, such as Meta indicating it may launch its own stablecoin, and Apple is also considering it. More and more financial, tech, and DeFi entities are attempting to issue stablecoins. These stablecoins are essentially forms of the dollar; as long as they can be labeled as "1 dollar," they comply with regulations and belong to this category. This is indeed a systemic change. In the past, the issuance of the dollar was controlled by a single entity, but now multiple companies and organizations can participate in the issuance of the dollar. In my view, this change may lead to the decentralization of dollar issuance.

Ultimately, what kind of impact might this trend bring? When different companies can issue dollars, what economic ripple effects will occur? For example, will multiple dollar issuers promote more localized credit markets? This way, more issuers can participate in lending, thereby expanding the supply of dollars. What are your thoughts on this?

Sam Kazemian:

What you mentioned is very critical. In fact, the Federal Reserve has long defined different forms of the dollar, such as M1, M2, and M3. These definitions reflect different types of dollar assets in the financial system. Some assets may look like dollars but are not true dollars. For example, we have seen similar situations in DeFi, such as Terra's stablecoins, which were once considered dollars but later collapsed and lost value.

M1 money is the most basic form of currency, referring to assets that can be used immediately in the economy, such as bank deposits or money market funds. These assets can be converted into cash at any time, directly serving economic activities; while M2 includes higher-risk dollar-denominated assets.

Regarding the Genius Act and payment-oriented stablecoins, the core significance of this bill is that it allows non-bank entities to issue M1 money for the first time. In the past, only chartered banks in the U.S. financial system could issue M1 money and were subject to strict regulation. The passage of this bill may break this monopoly, allowing other institutions to innovate and issue M1 money.

Of course, this issuance must comply with strict rules, such as being supported by money market funds, Treasury bills, and federal reverse repos. These assets are almost equivalent to money, thus meeting the Federal Reserve's definition of M1 money. FRAX USD is striving to become the first entity to obtain a license for payment-oriented stablecoins, which will be a historic moment.

Stani Kulechov:

I completely agree. The details of this bill are very important; it not only affects the regulation of stablecoins but may also determine the space for innovation. Looking back at the history of fintech, such as the rise of P2P lending, we can see that regulation often follows quickly and imposes restrictions on innovation. This situation may make it difficult for small teams and startups to compete, as they cannot bear the high compliance costs.

In the crypto space, we need to ensure that innovation does not disappear due to regulation. The EU's Mika Act is an example. While it establishes some rules to regulate the operations of crypto companies and stablecoins, its legislative process is more focused on stablecoins, which does not fully apply to the current crypto industry. Therefore, legislation needs to pay more attention to the actual needs of the industry rather than hinder innovation.

I remain optimistic about the future. As long as we can find a balance between regulation and innovation, we can build a more transparent and efficient financial system that provides better services for users worldwide.

Reactions to the Genius Act

Robbie:

From an external perspective, it seems that the U.S. government is attempting to relax regulations on the financial industry. A key point Sam mentioned is that the issuance of the dollar has historically been monopolized by banks, with only chartered banks allowed to issue dollars, which is also part of M1 money. Through the Genius Act, although regulation has increased, it has effectively broken this monopoly, expanding the issuance of dollars to more institutions and entities, allowing them to participate in dollar issuance. This regulatory approach helps the industry develop while lowering the barriers for emerging companies to enter the market and innovate.

Sam Kazemian:

What you mentioned is very critical. This specific regulation and bill are indeed positive because, typically, small businesses often oppose regulation, as Stani said, because they lack the resources that larger companies have. People generally believe that regulation only strengthens the monopoly position of existing companies, making it harder to break. However, the opposition from bank lobbying groups and the traditional financial system to this legislation proves this point. This is one of the few pieces of legislation that truly opens up the competitive stage.

Ideally, regulation should be able to promote more innovation in competition while also encouraging and incentivizing entrepreneurs and innovators to enter specific fields, establishing clear rules for everyone to follow. Such examples are rare; if I were to ask you what the last similar example you know of is, entrepreneurs would say, "Yes, we need more regulation," while existing companies would prefer less regulation. Such situations are very uncommon, which is why this bill is particularly important in this field, as it completely overturns traditional views on regulation.

Robbie:

As more issuers enter this competitive space, we are also starting to see more varieties of stablecoins. I am curious how existing companies like yours are adjusting their positioning in the environment of these emerging stablecoins and issuers. We also talked about some large banks entering the stablecoin space. How do you view the interaction between FRAX and the stablecoins issued by these banks, as well as with other stablecoins like those from Meta? Are these stablecoins complementary, or will they create a new competitive landscape?

Stani Kulechov:

I do not believe there is direct competition between stablecoins. In fact, I prefer to view them as different payment pathways. It may sound strange, but when people choose to use GHO or USDC, they are actually choosing a payment method. I think this logic applies to almost all stablecoins.

From Aave's perspective, stablecoins are crucial for lending protocols. We maintain good collaborative relationships with stablecoin issuers because DeFi not only enables yield and consumption but also supports the demand for long-term holding. For example, in the Aave protocol, about half of the users hold their stablecoins for more than six months, which is very beneficial for stablecoin issuers.

From the perspective of GHO, GHO primarily uses native crypto assets like Ethereum and Bitcoin as collateral, but it can also be minted using other stablecoins, thus achieving economies of scale.

For instance, in the GHO ecosystem, we have introduced a Stability Module (GSMS), which currently supports USDT and USDC and may expand to more stablecoins in the future. This module allows users to mint GHO by collateralizing these assets, thereby broadening the range of collateral.

Sam Kazemian:

I completely agree with Stani's point that liquidity brings more liquidity. The economy is not necessarily a zero-sum game; sometimes it is a positive-sum game, and we do not need to take a piece from someone else's cake but can expand the whole cake through cooperation. This is also why I often mention that the global $20 trillion M1 money supply can be fully converted into digital form through stablecoins. Currently, we have only achieved about 1% of this conversion, transitioning from the traditional financial world of Web 2 to the digital dollar of Web 3. Therefore, the key is to establish a foundational digital dollar system, such as FRX USD, USDC, or bank-issued stablecoins.

For FRX USD, it is still young, having only launched three months ago. We are currently working through Aave's listing and KYC process, and in the future, we hope it can become a stability module supporting the minting of stablecoins like GHO, as FRX USD is fully redeemable and is a legitimate digital currency issued by FRAX. This is a great example of how stablecoins are symbiotic rather than competitive.

Interestingly, digital dollars like FRX USD, USDC, and USDT cannot directly compete with higher-yield investment tools. Their value must always remain stable at $1 and be fully redeemable. However, through innovation, we can provide users with additional yield programs. For example, Coinbase offers yield programs for USDC, and we will also launch a similar service called FRAX Net. Users can register for a fintech account, connect their Web 2 bank accounts or brokerage accounts, mint FRAX USD, and manage it while also earning risk-free yield.

In this way, stablecoins can not only increase the liquidity of digital dollars but also enhance their usage in the decentralized finance ecosystem. Ultimately, these different stablecoins will complement each other and jointly promote the development of the digital dollar ecosystem.

Transitioning Frax from L2 to L1

Robbie:

Hearing about your progress excites me greatly. We mentioned that stablecoins or circulating dollars currently only account for 1.1% of the M1 money supply. This indicates that we are just getting started. As more liquidity enters the blockchain, this capital will gradually spread to other areas, such as Aave, DeFi's money markets, and various trading platforms and DeFi applications. This is a critical moment for the industry to prepare for an explosion of on-chain liquidity.

You are innovating for your protocol so that when institutions start paying attention to these protocols, they can conduct due diligence. Sam, I heard you are transitioning from L2 to L1. Is this part of preparing for the influx of institutional funds? What is your thought process? What changes will occur when liquidity starts flowing into L1?

Sam Kazemian:

This is indeed an important decision and very complex, both technically and structurally. We upgraded the old FXS token. This token was originally the governance token for Frax and has now been redesigned as a gas token and a unit of account for L1.

We also renamed the Frax Share token to Frax, as the new stablecoin is FRX USD. Now, the functions of these two tokens are completely separated. The Frax on L1 is a scarce asset primarily used to pay gas fees. Of course, users can also stake Frax to earn rewards from the Frax ecosystem.

Speaking of Libra, it is a good analogy. Frax is realizing the vision of Libra at the right time and place. By establishing its own L1 blockchain, Frax has become a center for issuing and settling stablecoins, focusing on supporting the U.S. FRX USD. For FRX USD to truly become a "good currency," it needs to circulate across multiple ledgers and platforms. We have achieved this through Frax L1.

It can be understood that our Frax L1 is similar to Circle's CCTP, but it is fully programmable. CCTP is a cross-chain transfer protocol that allows users to transfer USDC one-to-one to different blockchains. Frax L1 further expands this functionality and currently supports liquidity across 14 to 15 chains, including Solana, Ethereum, and L2. If running validation nodes, these features will be fully opened in the next hard fork.

In the long run, the vision for this chain is to become a core infrastructure for stablecoins, supporting payments and settlements for digital dollars. Similar concepts can be seen in Hyperliquid. Hyperliquid is an L1 blockchain focused on perpetual contracts and high-performance trading. Frax's Frax L1 focuses on payments and establishing standards for digital dollars.

In the future, this L1 structure will combine with a multi-trillion-dollar market to promote the adoption of digital dollars. I believe Libra was the first project to attempt to realize this vision, and Frax is the second. Through FRX USD and Frax L1, we are working towards a more decentralized and efficient financial ecosystem.

AAVE V4 Proposal

Robbie:

Stani, you are about to launch V4, and I hear there are many exciting architectural innovations this time. One highlight is the unified liquidity layer, which provides greater adaptability for different modules. Why did Aave choose to adopt this unified liquidity layer instead of building its own L2 or L1? What makes this design the best choice for Aave?

Stani Kulechov:

First, I want to clarify that while we are indeed developing V4, it has not been officially launched yet. We submitted the relevant proposal last year, and we are now nearing the final stages. Our core idea is that as more value flows on-chain, we need a way to isolate the risks of different collateral and markets while avoiding the dispersion of liquidity. Concentrated liquidity is key to achieving economies of scale.

Aave's architecture introduces the concepts of "Liquidity Hub" and "Liquidity Spokes." The Liquidity Hub is where the main liquidity is stored, while the Liquidity Spokes can be configured according to different needs, such as using different collateral assets or risk parameters. For example, one spoke can focus on conservative assets, while another spoke can support higher-risk assets. The Liquidity Hub is similar to a central bank, providing credit support to these spokes. This way, whenever new innovative demands arise, like when Sam proposes a new idea, he can quickly create a spoke and obtain initial credit support from the Liquidity Hub. This design provides flexibility for future diverse innovations while simplifying the user experience.

Additionally, V4 introduces a risk premium mechanism that dynamically adjusts borrowing costs based on the risk level of the collateral or portfolio provided by users. For example, if a user provides low-risk collateral and borrows USDC, they will enjoy a lower interest rate; while a high-risk collateral portfolio will incur an additional risk premium. This mechanism allows for more precise pricing of borrowing and ensures that users do not have to bear the costs of high-risk users' behaviors. These improvements will provide users with a better experience while enhancing Aave's flexibility and adaptability.

Stani Kulechov:

After hearing these details, I want to share an innovative idea I recently thought of, which could serve as a great demonstration case for Aave. We plan to launch a rewards program in the Fraxnet fintech application, where users can earn yield simply by depositing FRAX USD into a non-custodial wallet. I want to extend this plan further, for example, by allowing users to deposit FRAX USD into Aave, so they can earn deposit yields while also leveraging Aave's lending mechanism to amplify returns. Imagine FRAX USD as a fully redeemable legitimate digital dollar; by depositing it into Aave, users can simultaneously earn rewards from Frax and lending yields from Aave. This would further solidify Aave's core position in DeFi, as it is already seen as the closest place to risk-free yield.

If we can combine this rewards program for FRAX USD with Aave's Liquidity Hub, it would create a very powerful collaborative model. This would not only allow digital dollars to integrate more widely into DeFi but also combine risk-free yields from traditional finance (like the Federal Reserve's short-term rates) with innovations in DeFi. I believe this will be a very promising direction.

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