The battle for the right to print money: the trillion-dollar game between banking giants and crypto upstarts

In the era of rapid development of cryptocurrency and blockchain technology, Frax Finance founder Sam Kazemian and Aave founder Stani Kulechov are undoubtedly two leading figures in the stablecoin field. In the latest exclusive conversation with The Rollup, they shared the rapid growth of the stablecoin industry, the innovative journey of their own projects, and their views on upcoming regulatory changes, especially how stablecoins became the industry focus after the crypto market volatility in 2022.

Today, their focus is on the GENIUS Act, a landmark legislation that could elevate stablecoins to legal tender and fundamentally change the global landscape of the US dollar. This article will delve into Sam and Stani's insights into the stablecoin market, their expectations for the bill, and how stablecoins might shape the future financial ecosystem. PANews has compiled this conversation into text.

Stablecoin Boom and Legislative Momentum

Host: The stablecoin industry is currently booming, with multiple versions being advanced in the House and Senate. Although the market share is currently only 1.1% of the US dollar M1 supply, the entire industry seems to believe that "this is just the beginning". As core players in the industry, how do you view this timing?

Sam Kazemian:

Frankly, I can hardly contain my excitement. Every day I read investment reports and ETF briefs, and without exception, they list "AI" and "stablecoins" as the two hottest fields in today's world, with no other industry comparable. As a founder of a stablecoin protocol, it feels amazing to see this industry finally being understood and accepted worldwide.

We spent years researching and building Frax, which started as an experimental "hybrid model" and has now transformed into a "digital dollar" route that policymakers are willing to legislate support for - this leap is enormous.

Stani Kulechov:

I completely understand Sam's feelings. Stablecoins are an extremely intuitive and easy-to-understand tool, especially in regions with financial turmoil and local currency depreciation - such as Argentina, African countries, and certain Middle Eastern regions - where the financial stability provided by stablecoins is far more attractive than their local currencies.

But even in Western countries, the value of stablecoins is not just in "stability" itself, but in making DeFi yields something mainstream users can understand and use. This is the natural evolution of financial technology from "paper money → digital currency → on-chain assets". It truly opens up a new paradigm of cross-border value transfer.

Although regulatory approval in the stablecoin sector may seem reasonable at first glance, the key lies in the potential restrictions these regulations might bring, especially in terms of innovation. Before entering DeFi, I worked in fintech, where P2P lending and crowdfunding platforms were initially very active, but subsequent regulatory frameworks forced many small startup teams to exit because they couldn't afford the high compliance costs.

Therefore, the key is for the GENIUS bill to set clear but inclusive rules. Innovation should not be stifled due to excessive caution. Fortunately, there are now a group of very professional legislative representatives working hard to promote this process.

Will multiple entities issuing dollars compete with each other?

Host: JP Morgan, Citibank, and other traditional banks are planning to issue their own stablecoins. Will there be competition between stablecoins in the future, or even the issue of "dollar inflation"?

Stani Kulechov:

We actually don't see this as "competition". In our view, stablecoins are more like "payment channels" or "tracks" - each user chooses the most suitable track based on the scenario, such as USDC, GHO, frxUSD, etc. In the Aave ecosystem, many users hold stablecoins for over 6 months, which shows they are not just a medium of circulation but also a long-term store of value.

In Aave V4, we have also designed the "GSM" (GHO Stability Module: an important functional module aimed at ensuring the 1:1 convertibility of Aave's native stablecoin GHO with other assets) to accept these stablecoins as underlying collateral, such as USDC and USDT, which are already integrated. In the future, Frax can also be included through governance processes, enhancing the protocol's flexibility and risk resistance.

Sam Kazemian:

I completely agree. Digital dollars are a positive-sum game. The global M1 market is $20 trillion, and the current total market cap of on-chain stablecoins is only 1%. This means the industry's penetration is still extremely low.

frxUSD was launched just three months ago and is currently applying for Aave ecosystem integration. I believe more compliant stablecoins will join DeFi in the future, making the entire digital dollar system more diverse and robust. Frax's goal is to become the "foundational digital dollar" in this system.

New Digital Dollar Landscape: Frax and Aave

Host: Sam, you recently shifted Frax from L2 to L1 and even restructured the original governance token FXS. Is this preparing for "stablecoin compliance" in advance?

Sam Kazemian:

Completely correct. Our overall architecture has transformed from an "algorithmic stablecoin protocol" to a "digital dollar issuance and settlement network". The previous Frax Share (FXS) has been renamed to Frax, becoming the gas and governance token; while frxUSD is a new, legally compliant payment stablecoin.

We would call this the "correct version of the Libra blueprint". Libra initially tried to build a globally universal digital currency but failed due to political resistance. Now, with the right timing and policy support, we choose to aim at "compliant USD issuance", implementing stablecoin issuance, cross-chain settlement, and value transfer on the high-performance Fraxtal EVM chain.

Host: Stani, Aave didn't choose to build an L1 or L2, but instead created a "unified liquidity architecture" in V4. Why did you choose this path?

Stani Kulechov:

Although V4 has not been launched yet, the related proposal was passed last year, and development is now near completion. We believe that on-chain asset types will be extremely diverse in the future, and risk curves will be extended. Therefore, V4 introduces a "Liquidity Hubs + Spokes" design. Different asset categories (such as RWA, high-risk DeFi assets, etc.) can be allocated to different "branch markets" but still centrally manage liquidity through the "hub".

This way, user experience becomes simpler, capital utilization efficiency is higher, and system risks are effectively isolated. We have also introduced a "risk premium mechanism" where high-risk collateral will pay higher interest rates, thereby optimizing the overall lending cost structure.

Frax and Aave Collaboration Concept: Enabling "Digital Dollars" to Directly Participate in DeFi Yields

Sam Kazemian:

So I'll make a "public proposal" once. We plan to launch the FraxNet Rewards Program in the Frax Fintech App, where frxUSD holders can obtain risk-free yields at US Treasury levels in non-custodial wallets.

But I want to go further - allowing frxUSD holders to directly deposit assets into Aave and earn yields through real lending markets. This will turn the combination of "digital dollars + on-chain yields" into reality and make Aave the first DeFi yield platform to interface with legal dollars.

Stani Kulechov:

This idea is fantastic and demonstrates Aave V4's modularity and composability. We look forward to Frax's assets joining the governance proposal process and are willing to provide relevant support to make this "on-chain dollar yield" a real scenario.