Frax co-founder Sam Kazemian believes that the current stablecoin supervision is too strict

For various reasons, stablecoins or encrypted assets that link their value to less volatile fiat currencies are useful tools. They can be used to cash out crypto investments, send or receive stable funds abroad, and pay for daily consumption transactions without worrying about fluctuations.From the most recent estimate Bank for International SettlementsOr BIS, which sets the total supply of stablecoins at approximately US$150 billion.

However, the central bank, as the global issuer of traditional legal tender, does not seem to be a loyal supporter of stablecoins.Sharp increase in supply Lack of relevant regulations Causes people to worry that these stable blockchain assets may threaten Current financial order. Fiat currency stable currency, such as the stable currency created by Circle (USDC) And tether (USDT), you may need a bank license to operate in the future. However, so far, regulators are not keen on targeting algorithmic stablecoins, which are controlled by the automatic expansion and contraction of the money supply.

In an exclusive interview with Cointelegraph, Sam Kazemian, co-founder of the Frax stablecoin protocol, discussed in detail the regulatory prospects of the industry and algorithmic stablecoins.

The growth of cryptocurrency activity | Source: Bank for International Settlements

United Telegram: There are many algorithmic stablecoins on the market, such as Terra USD, Ampleforth, etc. In your opinion, what makes Frax different?

Sam Kazmian: The uniqueness of Frax is that we have a system where our agreement expands and shrinks the supply in various places in the blockchain protocol, and targets the exchange rate of Frax stablecoins on the open market. We like to compare it to the central bank. When it issues a currency, it never says, “Hey, you can redeem it with this amount of gold, or you can come to the central bank to redeem it with something pegged to the U.S. dollar.” They don’t say that anymore. Therefore, what the central bank does is a currency that targets the exchange rate of the open market.

If the central bank links its currency to gold, what they will do is look at the price of gold relative to the national currency. If it is lower than what they want, they will buy back some currency. If the other party is higher than the price they want, then they will print more currency. Frax uses this approach. This is how we developed the algorithmic stablecoin paper, and it worked very well.We never break our nails, even in [the major market crash in] possible.

Stablecoin market value statistics | Source: US Treasury Department Stablecoin Report

CT: Do you think that the stablecoin industry is about to see a potential blow? In order to comply with relevant stable currency regulations, what did Frax do?

SK: This has two parts. I don’t know if I would call it a crackdown, but I do see at least a lot of regulation on fiat currencies because they are backed by traditional financial assets; such as cash equivalents, or actual cash in deposit accounts. I don’t know that this will affect a truly decentralized stablecoin. I believe that Frax is not only compliant, but through existence and complete decentralization, it will continue to comply with all requirements.

The second part of your question is interesting because I think the current stablecoin regulation they proposed is a bit reactionary. The current situation is that people say that stable currency issuers like Circle and Tether need to have a bank license. This is dialogue. But it doesn’t make sense to think about it, because even the traditional financial sector allows a lot of experimentation. There is no bank license for things like money market funds. This is not a bank.This is not the Federal Deposit Insurance Corporation [Federal Deposit Insurance Corporation] Insured. People either did not realize this or were not informed.

Money market funds are regulated in the sense you need [and disclose] Cash equivalents.But they are not as strict as they currently propose [for] Stable currency. This does not apply to fully decentralized companies, such as Frax, which have absolutely no requirements for real-world assets, and even promote any form of redeemability. The whole point of Frax is that our protocol works by targeting open market exchanges. I think I am open to the belief that the regulatory part will resolve itself.