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 reflect the views of PANews.

Key Points:

• Market cap of $276 million / circulating market cap of $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 U.S. stablecoin legislation, and FRAX has a certain degree of regulatory alignment.
• Asymmetric positioning: favorable regulatory environment + product-market-regulatory fit + undervalued token (often 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 restructuring: FXS has been renamed to FRAX, now serving as a gas, governance, burn, and staking token; the old frax dollar has been deprecated, now referred to as frxUSD.
• Undervalued valuation: compared to similar projects like Ethena ($6.1 billion), the circulating market cap of about $304 million is the best liquidity token exposure in the stablecoin narrative—USDC/USDT lacks tokens (private companies), while Maker/Curve are not direct enough.
• Real-world integration has launched: custody services provided through BlackRock/Superstate, with partners including Stripe and Bridge.

First, let's address the obvious issue. The first reaction people have when they hear FRAX is hesitation—often because it seems too complex, trying to do "too many things," or because their previous experience trading FRAX was poor.

Before reading this article, I urge you to completely discard any past biases against FRAX and approach it with as open a mind as possible. Pretend this is your first time learning about it—Frax has fundamentally changed and become a completely different application, with significant transformation that has completely altered its previous direction.

1. FRAX is poised to capture the upcoming stablecoin wave

The stablecoin narrative is well-known among crypto enthusiasts, who recognize its enormous potential market (TAM). However, few discuss the "GENIUS & STABLE Acts"—two landmark bills proposed by the U.S. Congress that define stablecoin legislation. Why is that? Because politics is an extremely difficult process, filled with obstacles. People have low expectations for the outcome, viewing it as trivial. Most believe these bills are quite important but lack a basic understanding of their significance. Optimistically, they think it would be good if the stablecoin bills pass smoothly; pessimistically, they expect many delays and ultimately no resolution.

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

There are two very important aspects to these bills:

First, they legally define payment stablecoins. The "GENIUS Act" will officially allow issuers of payment stablecoins (PS) to issue legally compliant digital dollars as a medium for bank settlements, used for interbank payments in the U.S. and globally.

Payment stablecoins represent the largest structural change, 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 $200 billion stablecoin market cap only accounts for 1% of the M1 money supply. The U.S. stablecoin bill establishes payment stablecoins as legitimate 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 federal standard regulation of stablecoins, and more importantly, it will become the global standard for stablecoin issuance. Currently, stablecoins exist in a legal gray area—there is no real regulatory framework for stablecoins in the U.S. This hinders traditional participants from truly integrating stablecoins and makes it difficult for existing participants to fully realize their potential. This bill changes all of that, thus it will truly ring in the great era of stablecoins.

Today, several crypto enthusiasts in Washington, D.C. are helping to draft this landmark bill—Frax's Sam Kazemian is one of them.

This is no longer just a DeFi protocol; it is a monetary institution that has incorporated compliance considerations even before relevant regulations have passed. Frax is now ready for legal expansion on a legal, institutional, and global scale.

FRAX: Bringing global M1 currency into stablecoins

Next, let's talk about the current developments at Frax. Frax is not just building a stablecoin; it is constructing 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 building a vertically integrated architecture covering issuance, yield, and settlement (the three pillars of the modern banking system), consisting of three parts:

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

1. frxUSD: Legal digital dollar

frxUSD is Frax's flagship stablecoin—a digital dollar fully backed 1:1 by short-term U.S. Treasury bonds and cash equivalents. It is important to note that this is completely different from Frax's previous stablecoin—frxUSD aims to comply with the requirements of the "GENIUS Act" to become a payment stablecoin (which is also why Sam spends a lot of time in Washington).

frxUSD is fully backed by cash and short-term Treasury bonds, custodied through BlackRock and Superstate (BUIDL and UStb). frxUSD is committed to becoming the first payment stablecoin in the U.S. with legal currency characteristics, compliant reserve structure, and institutional integration.

2. FraxNet: Bank

If frxUSD is the dollar, then FraxNet is the bank interface. FraxNet is essentially a stablecoin banking application—fully KYC compliant, meeting custody compliance requirements, 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 yield back to your Fraxtal address in real-time.

The goal here is simple: to 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, featuring native bridging capabilities like Circle's CCTP, and optimized for frxUSD as the accounting unit.

Fraxtal also uses FRAX (formerly known as FXS) as its gas token—this means that every application built on Fraxtal, from FraxLend to FraxSwap to Frax Name Service, will require FRAX to operate. Moreover, 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 as a legally compliant stablecoin
• FraxNet as the institutional bridge and user onboarding layer
• Fraxtal as the global execution layer

This is a fusion of cash flow, utility, and growth. And what’s most exciting is the effort Sam has put in to ensure compliance. Currently, no other decentralized stablecoin issuer has taken this compliant, transparent, and legal path.

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

This is the embodiment of product, market, and regulatory fit.

2. The Reconstruction of FRAX

Now let's discuss some subtle changes that FRAX has recently undergone, which add more momentum to the protocol. This section mainly covers 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—representing the entire protocol with a single core asset.
• veFXS has been renamed to veFRAX, wFXS has been renamed to wFRAX, and so on.
• However, this transition requires time as exchanges are working to support it.
• FRAX will become the gas for Fraxtal, replacing frxETH. Now, all on-chain interactions use FRAX as gas. 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 3% floor. Issuance is now distributed through the FXTL points system, a rewards system for protocol-compliant behavior.
• You can use Flox Capacitors to increase conversion rates, which requires staking FRAX. The goal here is clear: to reward long-term users who lock, stake, and actively participate in the ecosystem.
• This also means there will no longer be FXS gauges—no more profit-driven LP mining; no more excessive token issuance to maintain TVL—everything relies on earnings.
• Frax is no longer a bribery game—it is now more akin to an L1 token that generates monetary premiums, burns, yields, and utility, rather than a bribery + mining token—this qualifies FRAX for repricing.
• sfrxUSD is now the yield-generating layer—it derives yield from the underlying Treasury bonds supporting frxUSD.

Of course, there are 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 receive it. Future validator staking? Requires FRAX. Governance? veFRAX. Most importantly, FRAX is now an L1 token, as 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 to understand that this is not just a simple rebranding. Frax is becoming the most regulatory-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. It is well-known that stablecoins are the most popular products in the crypto space, serving the largest potential market—namely, the global market. The narrative around stablecoins is very clear; however, there are very few investable tokens available to seize this opportunity.

I personally believe that 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 stablecoin value chain.

The reason is simple: compared to other participants (whether DEXs, lending markets, or payment applications), issuers can capture the largest economic share. Controlling issuance is a massive 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—unfortunately, they lack tokens. Below is a comparison table 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, with a market cap of less than $500 million.

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

4. Trading Risks

Now that we've discussed the upside potential, let's talk about the risks. In fact, the risks here are quite simple:

1. The stablecoin bill is delayed, not passed, or changes affecting FRAX occur

In reality, this 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, he stated: "It's not as serious as people say. We never expected it to pass before Congress goes on recess in late July. This is part of the political process, and it can't be passed three months ahead of schedule. I'm an optimist, but not that optimistic. Everything is still on track, and I expect it to pass in July, which has always been my expectation."

July will be a critical month; if it still hasn't passed by then, we can start worrying. But until then, keep a calm mindset.

2. Why has there been so much talk about the "GENIUS Act" and so little about the "STABLE Act"? What if the "STABLE Act" passes?

Similarly, according to Sam, that's not the case—both bills could 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" more than the "STABLE Act," and that is the key point.

3. What is the worst-case scenario?

Both bills fail to pass—this scenario would likely 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 the situation does not entirely depend on the bills themselves—Frax has already shown tremendous influence in improving the protocol, and I believe this is a sufficient 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 extremely low.

Conclusion

FRAX is no longer the "half-hearted" algorithmic stablecoin of 2022 that many remember. It has evolved into a full-stack monetary system built around regulatory clarity, institutional collaboration, and vertical integration. The founder is 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—as gas, governance, burn mechanisms, and more.

Currently, it represents the purest bet on stablecoins in the crypto space—and such opportunities are rare. A token trading below $16 is directly linked to the largest potential market in the crypto space—the dollar itself. Looking forward to the future of FRAX.

Related reading: Latest developments in the stablecoin sector: USDT market cap surpasses $150 billion for the first time, fierce competition among financial and tech giants, Tether and Circle consolidate their "moat"

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