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 only represents Kyle's personal views and does not represent the views of PANews.

Key points:

Market cap of $276 million / circulating market cap of $304 million; Frax provides an excellent asymmetric opportunity for staking 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 involved in drafting U.S. stablecoin legislation, and FRAX has a certain degree of alignment in regulatory aspects.

Asymmetric Layout: Favorable Regulatory Environment + Product-Market-Regulatory Fit + Undervalued Tokens (Highly Criticized)

FRAX has now become a vertically integrated stablecoin stack: frxUSD (stablecoin), FraxNet (banking interface), Fraxtal (L2 execution layer)

frxUSD is fully backed by US 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 discontinued, now it is frxUSD.

Undervalued: Compared to similar projects like Ethena (6.1 billion USD), with a circulating market cap of about 304 million USD, and being the best liquidity token exposure in the stablecoin narrative - USDC/USDT has no tokens (private company), while Maker/Curve is not direct enough.

Integrated with the real world is now online: Custody services provided by BlackRock/Superstate, with partners including Stripe and Bridge.

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

Before reading this article, please completely discard any past biases you may have towards FRAX and approach it with an open mind as much as possible. Pretend this is your first time learning about it — the entire Frax has undergone a complete transformation, becoming a completely different application, and its transformation is significant, having fundamentally changed 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. Here is a comparative summary of the two bills:

These two bills have two very important contents:

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

Payment-related 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 $200 billion market capitalization of stablecoins accounts for only 1% of the M1 money supply. The U.S. stablecoin bill formally establishes payment-related stablecoins as legitimate M1 digital dollars. In other words, the great era of stablecoins is about to begin.

Secondly, the bill is of great significance as it creates a framework for federal standard regulation of stablecoins, and more importantly, it will become the global standard for stablecoin issuance. Today, stablecoins are in a legal gray area—there is currently no real regulatory framework for stablecoins in the United States. 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, and therefore, it will truly ring the bell for 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 incorporated compliance considerations before relevant regulations have been passed. Frax is now ready for legal expansion on a legal, institutional, and global scale.

FRAX: Bringing global M1 currency into stablecoin

Next, let's talk about the current construction situation of Frax. Frax is not just creating a stablecoin; it is building a complete monetary system that integrates TradFi and DeFi into a unified system, aiming to capture the global M1 money supply. Frax achieves this goal by constructing a vertically integrated architecture that encompasses issuance, yield, and settlement (the three pillars of the modern banking system), which consists of three parts:

frxUSD – fiat digital currency

FraxNet – Bank

Fraxtal - Channel

1. frxUSD: fiat currency digital dollar

frxUSD is the flagship stablecoin of Frax - a digital dollar fully backed 1:1 by short-term U.S. Treasury bills and cash equivalents. It is important to note that this is completely different from Frax's previous stablecoins - frxUSD is designed to meet the requirements of the GENIUS Act and to serve as a payment-type stablecoin (which is also why Sam spent a lot of time in Washington).

frxUSD is fully backed by cash and short-term government bonds, and is custodied by BlackRock and Superstate (BUIDL and UStb). frxUSD aims to be the first payment stablecoin in the United States 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 basically a stablecoin banking application - fully KYC compliant and compliant with custody requirements, but native 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 what makes Frax exciting - a stablecoin pegged to real-world assets, aimed at 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 and has native bridging capabilities like Circle's CCTP, optimized for frxUSD as the accounting unit.

Fraxtal also uses FRAX (previously known as FXS) as its Gas token - this means that every application built on Fraxtal, from FraxLend to FraxSwap to Frax Name Service, requires FRAX to operate. Moreover, the fees generated by these applications will be directly used to purchase and destroy FRAX.

FRAX may have shed its old identity as a decentralized stablecoin. Instead, FRAX is building a complete stack monetary system that includes:

frxUSD is a legal and compliant stablecoin.

FraxNet is an 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 that 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 focuses on stablecoins, the next wave of mass adoption (the real wave, reaching a 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 boardrooms and say, "Yes, this complies with U.S. law."

This reflects the alignment of products, markets, and regulation.

2. The 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 introduces the changes made in FIP-428.

In short:

The old version of the Frax stablecoin has been deprecated and is now renamed as Legacy Frax Dollar. The new stablecoin is now called frxUSD.

FXS has been renamed to FRAX - representing the entire protocol with only one core asset.

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 for 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 - Issuing 8% per year, decreasing by 1% each year until reaching a lower limit of 3%. The issuance is now distributed through the FXTL points, which is a points system that rewards compliant protocol behaviors.

You can use Flox Capacitors to increase the conversion rate, 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 large-scale token issuance to maintain TVL - everything relies on earning.

Frax is no longer a bribery game—now it resembles more of an L1 token that gains currency premiums, burns, yields, and utility, rather than a bribery + mining token—this qualifies FRAX for repricing.

sfrxUSD is now the layer that generates returns - it derives 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 will benefit. 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 simple rebranding. Frax is becoming the most regulatory-compliant, yield-generating, vertically integrated dollar stack in the cryptocurrency 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 of stablecoins is very clear; however, there are very few tokens available for investment to seize this opportunity.

Personally, I believe that Frax is the best liquidity token betting on the stablecoin narrative, with tremendous upside potential. In addition to the "North Star" upgrade and building an entire banking system, Frax is positioned optimally within the value chain of 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 richest profits – as the saying goes, whoever controls the distribution channel is the winner.

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

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 others, they all show a certain degree of disdain. But everyone is wrong – seeing such charts, I am not surprised at all; this is precisely the reason to buy – at the current price point, this is an asymmetrical 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 have discussed the potential for an 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 US Senate. However, quoting Sam, who has been working with these people for the past few months, Sam said: "It's not as serious as people say. We never expected it to pass before Congress recesses in late July and August. This is part of the political process, and it can't pass three months earlier than expected. I'm an optimist, but not that optimistic. Everything is still on track and is expected to pass in July, which has always been my expectation."

July will be a key month; if it hasn't passed by then, start worrying. But until then, maintain a calm mindset.

2. Why has there been a lot of discussion about the "GENIUS Act" while the "STABLE Act" has been mentioned very little? What would happen if the "STABLE Act" were passed?

Similarly, according to Sam, that is not the case - both bills may 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 key point.

3. What is the worst-case scenario?

Both bills failed to pass - this situation would probably only occur in the event of a major disaster, such as a global financial collapse, at which point the efforts of all parties would be completely set aside.

But the situation is not entirely dependent on the bill itself—Frax has already shown significant influence in improving the protocol, and I personally believe this is ample reason to bet on them.

4. Failed to fulfill 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 very low.

Conclusion

FRAX is no longer the "half-baked" algorithmic stablecoin of 2022 in memory (partially supported and partially unsupported). 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 custodially managed by institutions. The token is gaining real utility - used for Gas, governance, burn mechanisms, and so on.

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 dollar itself. Looking forward to the future of FRAX.