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Algorithmic stablecoins have become a popular topic of discussion with some declaring it a future cornerstone of finance while others have called it another fad
I was lucky enough to have a front-row seat to the creation of $FRAX which has been in the making for over 2 years
I was lucky enough to have a front-row seat to the creation of $FRAX which has been in the making for over 2 years
It all started at the beginning of 2018 at the top of the last crypto cycle. I was working at Everipedia and we were all still grinding and living out of our Westwood apartment/headquarters. Here is a pic of what our setup looked like at the time.
As Everipedia raised $30 million to build a decentralized encyclopedia, @samkazemian saw another trend budding in the distance, the algorithmic stablecoin. Needless to say, Sam became obsessed with the idea which he would take on as his next big project.
To Sam, it would only make sense that the algorithmic stablecoin would come into being. USDT and other stablecoins proved in the last cycle and throughout the bear market that stablecoins provide a major backstop for the natural volatility in crypto.
Yet the weak points of USDT, USDC, and other fully-collateralized stablecoins are that users are susceptible of being blacklisted and are forced to trust the controlling centralized entity.
Fully-collateralized stablecoins are only a stepping stone and not the final end game.
Fully-collateralized stablecoins are only a stepping stone and not the final end game.
DAI and sUSD are multi-collateralized stablecoins that are minted permissionlessly but over-collateralization means they are limited in how they can scale. Both are at the mercy of market volatility and the users who mint them.
For a stablecoin to truly take on titans like USDT and USDC, they would need to be flexible and decentralized enough in nature to do so. Enter the algorithmic stablecoin as the logical solution to this. Sam had this hindsight years before the vast majority of people.
Back in Westwood in 2018, I have clear memories of Sam explaining seignorage shares to us and even remember him watching Robert Shiller's Yale economic lectures on YouTube as one of the many ways he prepared himself to develop his algorithmic stablecoin.
At the time, the pieces were coming together for stablecoins to take off. USDT reached billions in market cap. Also, the algo-stablecoin project Basis raised over $130 million yet would fold months after which they blamed on "regulatory constraints" https://www.coindesk.com/basis-stablecoin-confirms-shutdown-blaming-regulatory-constraints
Towards the end of 2018, Sam was giving lectures at UCLA and explicitly mentions that the next big wave coming to crypto was decentralized networks that behave like trustless p2p central banks that produce a stable unit of account.
Throughout the 2018-2019 bear market, Sam and several devs were hard at work developing their stablecoin which was aptly first called Decentral. In June 2019, former Fed Chair nominee Stephen Moore was brought onto the project as the Chief Economic Officer https://www.theblockcrypto.com/linked/28784/stephen-moore-joins-decentralized-central-bank-decentral
Now what I have learned in life is that the universe is all about time and place. You could have the best idea in the world but if you don't position yourself correctly (as Basis learned) then failure is nothing but certain. It is better to wait for an idea's time to shine.
For algorithmic stablecoins, that time proved to be in 2020. When Sam started developing FRAX, yield farming did not exist. Yet when it became all the craze last year, it became the perfect bootstrap mechanism for FRAX to launch.
In addition, more algo-stablecoins with their own special twist on the concept such as ESD and Basis Cash launched, validating the idea.
It seemed like years later, Sam's call of algorithmic permissionless stablecoins becoming the next big wave was finally coming true.
It seemed like years later, Sam's call of algorithmic permissionless stablecoins becoming the next big wave was finally coming true.
FRAX itself launched less than a month ago but its underlying principles have so far proven to be solid. Compared to other algo-stablecoins, it is the only one to have maintained its peg.
If you want to learn how FRAX works, then I recommend a number of Twitter threads out there that do a beautiful job of explaining it including one by the founder of CoinGecko, Bobby Ong. https://twitter.com/bobbyong/status/1345575096702779395?s=20
Here is another one from DeFiDegen https://twitter.com/DegenFi/status/1346922046589177856?s=20
In conclusion, I believe that algorithmic stablecoins are just getting started and will be one of the foundational pillars of crypto, finance, and beyond. FRAX has been in development for YEARS and currently is in my opinion in the best position to lead the pack.
DISCLAIMER: I hold FRAX Shares (FXS), the governance token of FRAX. Please DYOR. This thread was only written to give context to the development of FRAX.
