Arrangement Compilation: Shenchao TechFlow
In a recent episode of the Bell Curve Podcast, hosts Mike and Myles joined Frax Finance founder Sam Kazemian to explore FRAX’s innovative journey from a decentralized stablecoin to Liquid Stake Tokens (LST) and Liquid Stake Derivatives (LSD). Sam shared insights into algorithmic stability mechanisms, decentralized trust, DeFi domination plans, and FRAX V2 decentralization.
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The following is the main content of this dialogue, which was translated and organized by Shenchao, and the main points were output:
Host: Mike Myles, Bell Curve
Speaker: Sam Kazemian, Founder, Frax Finance
Original title: Fraxs Alternative Approach to Scaling LSTs
Video Attribution: Bell Curve Podcast
programme:Link
Published: August 15
Frax Finance’s development history and ecosystem
Sam describes the evolution of Frax. He mentioned that Frax was originally a hybrid algorithm and collateralized stablecoin, released in December 2020. Since launch, the Frax ecosystem has gradually grown and now resembles more of a multifunctional ecosystem with multiple components.
Sam explained that Frax is not just a stablecoin, but also includes Frax Ether (a liquidity collateralized token also known as LSD), FPI (a stablecoin tied to the Consumer Price Index), and a series of products called sub- Protocol tools such as Fraxland (an independent lending marketplace) and Frax Swap.
The host asked Sam about the sequence and logic of product expansion, specifically moving from stablecoins to liquidity collateral tokens.
Sam gave examples of the similarities between cross-chain bridge protocols and liquid staking tokens and stablecoins. Sam Many DeFi projects are actually stablecoin issuers, but they may not realize it. Both LSD and stablecoins involve balance sheet management and the issuance of debt to match deposits. Sam explains why people want LSD because they allow them to make extra money without taking on too much extra risk.
Sam explains how he decides on product expansions by thinking from first principles. He believes that the most important monetary units are the US dollar, Ethereum, Bitcoin and non-national currencies linked to the Consumer Price Index (CPI). Frax aims to provide stablecoins for these monetary units.
Sam mentioned Frax Chain, a hybrid roll-up that will be released at the end of the year and will be the largest launch since the release of Frax Ether and USD-anchored stablecoins.
Sam emphasized their view on stablecoins, arguing that stablecoins should be fully decentralized and automated. Their goal is to build a fully decentralized ecosystem that does not require trust in the core team to manage and run the protocol.
Sam also mentioned the role of Fraxland and the FXS token in the overall ecosystem. Fraxland is a sub-protocol of the Frax protocol and an independent lending market. The existence of Fraxland enables the Frax ecosystem to better manage collateral and issue debt that matches deposits. Fraxland’s largest pairing is Stake Frax Ether, a liquid staking token (LSD). Through Fraxland, the Frax protocol can leverage its own LSD as collateral to back its USD-pegged stablecoin.
The FXS token is the governance token of the Frax protocol. FXS token holders can participate in the protocol’s governance decisions and receive rewards from the protocol’s earnings. Sam mentioned that FXS token holders can capture value on multiple levels. For example, they can earn from interest paid by borrowers, from increases in the total supply of Frax Ether, and from protocol fees paid by POS validators. Both components are important parts of the Frax ecosystem and contribute to the stability and sustainability of the protocol.
Frax’s governance strategy logic for expanding product line
The host asked Sam what he thought about the competitive strategy with Lido and Eigen, specifically regarding how to expand and scale market share.
Sam analyzed two aspects: governance and decentralization, and the scope of the work they do. He fully agrees with Lido that everything should be as trustless and autonomous as possible. Frax’s goal is to launch a fully decentralized protocol, and they are working hard to achieve this vision.
Sam explained Frax’s governance and decentralization strategy, including the new Frax Gov module, a fully on-chain, decentralized, multi-signature-free way to run the entire Frax ecosystem. Sam believes that as the project gets bigger, they will have to expand into many different areas if they have ambitions to continue growing in a decentralized manner.
Sam mentioned MakerDAO’s expansion plans, including a possible Maker Chain. He emphasized the need to do it in a decentralized manner when scaling.
Sam also mentioned that Vitalik Buterin might release a video called"Roll Up"A new token for scaling Ethereum. But Vitalik didnt do that because he chose not to go that route.
Sam and Vitalik have similar views. They both believe that centralization should be minimized. Sam mentioned FPI (consumer goods price index-linked stablecoin), which has a separate governance token. But as the risk to FPI and the entire Frax ecosystem gradually decreases, Sam believes that it is possible to merge the FPI tokens back into Frax tokens.
Sam introduced their long-term goal to make FXS a top five digital asset. They are working systematically to achieve this goal.
Frax V2 Competitive Advantages and Challenges
The moderator mentioned the plans for Frax V2 and liquidity staking, and asked about the specific content of V2 and the difference from the current state.
Sam introduced the Frax V2, a completely redesigned version that is very different from the V1. In V1, validators were run by the core team, while in V2, anyone can run validators in a permissionless manner.
Validators simply submit some Ethereum as collateral and pay an open market rate to borrow a validator and control it. This open market mechanism encourages competition, as validators need to provide the best services and interest rates to attract users.
Sam explained the motivation for this design, arguing that it is the most versatile way to build a fully decentralized LSD system. He compares it to other protocols such as Rocket Pool and Lido and explains the similarities and differences between them.
Similarities: Sam Kazemian mentioned that Frax V2, Rocket Pool and Lido are all LSD (liquidity collateralized token) systems that allow users to mortgage ETH into the protocol and receive a token representing the collateral. These tokens can be traded on the market and used in other DeFi protocols. In all three protocols, users can earn validator rewards by staking ETH.
Differences: The main difference between Frax V2 and other protocols is the selection and management of validators. In contrast, Lido has a curated list of validators that are selected and managed by the core team. Rocket Pool allows anyone to become a validator, but it has a different market mechanism and governance structure.
Sam Kazemian also discusses the advantages and potential challenges of this design. He believes that this design can achieve complete decentralization and trust minimization. This market-driven approach ensures the efficiency of validators, because only the most efficient validators can stand out in the open market.
But it may also put pressure on small validators and amateurs because they may not be able to compete with large validators. Sam responded that while this is a challenge, market mechanisms ensure fair competition as all validators have an equal opportunity to attract users.
Sam emphasized their view on stablecoins, arguing that stablecoins should be fully decentralized and automated. Their goal is to build a fully decentralized ecosystem that does not require trust in the core team to manage and run the protocol.
Chain Aggregation VS Wallet Abstraction
Sam and Mike discussed two different aggregation models:
1. Aggregate all activities into their own chain, that is, aggregate the data and functions of multiple blockchains into a single chain, allowing users to access and use different blockchains and protocols on a unified interface;
2. Or abstract the chain at the wallet layer, that is, abstract different blockchain technologies and protocols into a unified interface, so that users do not need to care about the underlying technical details.
Sam and Mike discuss how the concepts of chain abstraction and aggregation layers impact user experience and market dynamics. Chain abstraction and aggregation layers can simplify the user experience, allowing users to easily use different blockchains and protocols without knowing the underlying technical details. This can also promote competition in the market, as users can switch between different blockchains and protocols more easily.
These two models, which aggregate all activities into their own chain, can simplify the user experience and allow users to easily use different blockchains and protocols without knowing the underlying technical details. However, this model can lead to centralization since all data and functionality are concentrated on one chain.
Models with chain abstraction at the wallet layer can remain decentralized because users can directly interact with different blockchains and protocols. However, this model may increase complexity for users as they need to manage multiple wallets and interfaces.
