Viewpoint: Why is FRAX the best investment target for the stablecoin narrative?

Original Title: “$FRAX - The Stablecoin Play No One Is Looking At”

Author: Kyle, Crypto KOL

Compiled by: Felix, PANews

Key Points:

• Market cap of $276 million / circulating market cap of $304 million; Frax provides an excellent asymmetric opportunity for betting on 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 regulatory alignment.
• Asymmetric positioning: favorable regulatory environment + product-market-regulatory fit + undervalued token (often criticized).
• FRAX has now become a vertically integrated stablecoin stack: frxUSD (stablecoin), FraxNet (bank interface), Fraxtal (L2 execution layer).
• frxUSD is fully backed by U.S. Treasury bonds and cash.
• Token restructuring: FXS has been renamed to FRAX, now serving as the gas, governance, burn, and staking token; the old frax dollar has been deprecated, now referred to as frxUSD.
• Undervalued: compared to similar projects like Ethena ($6.1 billion), with a circulating market cap of about $304 million, and is the best liquidity token exposure in the stablecoin narrative—USDC/USDT have no tokens (private companies), while Maker/Curve are not direct enough.
• Real-world integration has launched: custody services provided through BlackRock/Superstate, with partners including Stripe and Bridge.

First, let’s address the obvious issue. The first reaction people have when they hear about FRAX is hesitation—usually because it seems too complex, trying to do "too many things," or because their previous experiences trading FRAX were poor.

Before reading this article, I urge you to completely discard any past biases against FRAX and approach it with as open a mind as possible. Pretend this is your first time learning about it—Frax has completely transformed into a wholly different application, and its transformation is significant, fundamentally changing its previous direction.

1. FRAX is Poised to Capture the Upcoming Stablecoin Wave

The stablecoin narrative is well-known and recognized by every crypto enthusiast as having a massive potential market (TAM). Nevertheless, few people discuss the “GENIUS & STABLE Acts”—two landmark bills proposed by the U.S. Congress that define stablecoin legislation. Why is that? Because politics is an extremely difficult process, filled with obstacles. People have low expectations for the outcome, viewing it as a trivial matter. Most believe these bills are quite important but lack a fundamental understanding of their significance. Optimistically, they think it would be good if the stablecoin bills pass smoothly; pessimistically, they expect many delays and ultimately a failure to pass.

However, these bills are crucial for reshaping the future of stablecoins. Here’s a comparative summary of the two bills:

These two bills contain two very important elements:

First, they legally define payment stablecoins. The “GENIUS Act” will formally allow issuers of payment stablecoins (PS) to issue legally compliant digital dollars as a medium for bank settlements and for interbank payments in the U.S. and global financial systems.

Payment stablecoins represent the largest structural change, providing a fair competitive environment for innovation and opening the entire multi-trillion-dollar U.S. banking sector to stablecoin startups. Currently, the $200 billion stablecoin market cap only accounts for 1% of the M1 money supply. The U.S. stablecoin bill establishes payment stablecoins as legitimate M1 digital dollars for the first time. In other words, a great era of stablecoins is about to begin.

Secondly, the bill is significant 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 exist in a legal gray area—there is currently no real regulatory framework for stablecoins in the U.S. This hinders traditional participants from truly integrating stablecoins and makes it difficult for existing participants to fully realize their potential. This bill changes all that, thus truly ringing the bell for the great era of stablecoins.

Today, several crypto advocates in Washington D.C. are helping to draft this landmark bill—Frax’s Sam Kazemian is one of them.

This is no longer just a DeFi protocol; it is a monetary institution that has incorporated compliance considerations even before relevant regulations are passed. Frax is now ready for legal expansion on a legal, institutional, and global scale.

FRAX: Bringing Global M1 Currency into Stablecoins

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

1. frxUSD -- fiat digital currency
2. FraxNet -- bank
3. Fraxtal -- channel

1. frxUSD: Fiat Currency Digital Dollar

frxUSD is Frax’s flagship stablecoin—a digital dollar fully backed 1:1 by short-term U.S. Treasury bonds and cash equivalents. It is important to note that this is completely different from Frax’s previous stablecoin—frxUSD aims to comply with the requirements of the “GENIUS Act” and become a payment stablecoin (which is also why Sam spends a lot of time in Washington).

frxUSD is fully backed by cash and short-term Treasury bonds, custodied through BlackRock and Superstate (BUIDL and UStb). frxUSD aims to be the first payment stablecoin in the U.S. with characteristics of fiat currency, a compliant reserve structure, and institutional integration.

2. FraxNet: Bank

If frxUSD is the dollar, then FraxNet is the bank interface. FraxNet is essentially a stablecoin banking application—fully KYC compliant and meeting custody compliance requirements, but natively on-chain. Imagine logging into your account, checking your Goldman Sachs money market fund holdings, minting frxUSD with it, and then streaming the yield back to your Fraxtal address in real-time.

The goal here is simple: to convert every dollar of traditional money market funds (MMFs) 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 what makes Frax exciting—a stablecoin linked to real-world assets, targeting 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, featuring native bridging capabilities like Circle’s CCTP and 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, will require FRAX to operate. Moreover, the fees generated by these applications will be directly used to buy and burn FRAX.

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

• frxUSD as a legally compliant stablecoin
• FraxNet as the institutional bridge and user onboarding layer
• Fraxtal as the global execution layer

This is a fusion of cash flow, utility, and growth. And what’s most exciting is the effort Sam has put in to ensure compliance. Currently, no other decentralized stablecoin issuer has taken this compliant, transparent, and legal path.

At a time when everyone is focused on stablecoins, the next wave of mass adoption (the real, trillion-dollar wave) 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 is the embodiment of product, market, and regulatory fit.

2. The Reconstruction of FRAX

Next, let’s discuss some subtle changes that FRAX has recently undergone, which add more momentum to the protocol. This section mainly covers the changes made in FIP-428.

In short:

• The old Frax stablecoin has been deprecated and is now renamed Legacy Frax Dollar. The new stablecoin is now called frxUSD.
• FXS has been renamed to FRAX—only one core asset is used to represent the entire protocol.
• veFXS has been renamed to veFRAX, wFXS has been renamed to wFRAX, and so on.
• However, this transition will take time as exchanges are working to support it.
• FRAX will become the gas for Fraxtal, replacing frxETH. Now, all on-chain interactions use FRAX as gas. There are also plans to eventually support validator staking using FRAX, which will greatly enhance the token's utility.
• New tokenomics: tail issuance plan—8% issuance per year, decreasing by 1% each year until reaching a 3% floor. Issuance is now distributed through FXTL points, a points system that rewards compliant behavior within the protocol.
• You can use Flox Capacitors to increase conversion rates, 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 gauges—no more profit-driven LP mining; no more massive token issuance to maintain TVL—everything relies on earning.
• Frax is no longer a bribery game—it is now more akin to a token that earns currency premiums, burns, yields, and utility as an L1 token, rather than a bribery + mining token—this qualifies FRAX for repricing.
• sfrxUSD is now the yield-generating layer—it derives yield from the underlying Treasury bonds backing frxUSD.

Of course, there are some other key 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 to the token; Fraxtal’s fees? Burn FRAX. FXTL issuance? Only users holding and staking FRAX can earn. Future validator staking? Requires FRAX. Governance? veFRAX. Most importantly, FRAX is now an L1 token as it is the native gas token on-chain.

Frax has essentially created a monetary cycle with internal demand, utility, and consumption mechanisms. I believe the key here is to understand that this is not just a simple rebranding. Frax is becoming the most regulatory-compliant, yield-generating, vertically integrated dollar stack in the crypto space.

3. Among All Liquidity Tokens, FRAX is the Best Choice

Finally, let’s discuss its advantages. It is well-known that stablecoins are the most popular products in the crypto space, serving the largest potential market—the globe. The narrative of stablecoins is very clear; however, there are very few tokens available for investment to capture this opportunity.

I believe Frax is the best liquidity token to bet on the stablecoin narrative, with enormous upside potential. Besides the "North Star" upgrade and building the entire banking system, Frax is in the best position within the value chain of stablecoins.

The reason is simple: compared to other participants (whether DEXs, lending markets, or payment applications), issuers can capture the largest economic share. Controlling issuance is a massive value driver that can yield the richest profits—whoever controls the distribution channel is the winner.

This is why USDC/USDT are the most popular products on the market from an investment perspective—unfortunately, they have no tokens. Below is a comparison table with other liquidity tokens, illustrating why Frax is the best token representing the stablecoin concept in today’s liquidity market:

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 people, they often show some degree of disdain. But everyone is wrong—seeing such charts, I am not surprised at all; this is the reason to buy—in the current price point, this is an asymmetric investment with enormous 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’ve discussed the upside potential, let’s talk about the risks. In fact, the risks here are quite simple:

1. The stablecoin bill is delayed, not passed, or changes affecting FRAX occur.

In reality, this is already happening—just a few days ago, the bill failed to pass in the U.S. Senate. However, quoting Sam, who has been working with these people for the past few months, he stated: “It’s not as serious as people say. We never expected it to pass before Congress breaks in August at the end of July. This is part of the political process, and it’s impossible to pass three months earlier than expected. I’m an optimist, but not that optimistic. Everything is still on track, and I expect it to pass in July, which has always been my expectation.”

July will be a crucial month; if it has not passed by then, we can start worrying. But until then, keep a calm mindset.

2. Why has there been so much talk about the “GENIUS Act” and so little about the “STABLE Act”? What would happen if the “STABLE Act” passes?

Again, according to Sam, that’s not the case—both bills could pass in their respective chambers, followed by a coordination period during which a compromise final draft would be submitted to the president for signature. The final draft is likely to resemble the “GENIUS Act” more than the “STABLE Act,” and that’s the key.

3. What’s the worst-case scenario?

Both bills fail to pass—this scenario would likely only occur in the event of a major disaster, such as a global financial collapse, at which point all efforts would be completely shelved.

But the situation does not solely depend on the bills themselves—Frax has already demonstrated significant influence in improving the protocol, and I believe this is ample reason to bet on them.

4. Failure to deliver on promises

Given that Sam has been fully committed to playing the role of founder in Washington D.C., the likelihood of this happening is extremely low.

Conclusion

FRAX is no longer the “half-hearted” (partially supported, partially unsupported) algorithmic stablecoin of 2022 in memory. It has evolved into a full-stack monetary system built around regulatory clarity, institutional collaboration, and vertical integration. The founder is assisting policymakers in Washington D.C. This stablecoin is backed by U.S. Treasury bonds and is institutionally custodied. The token is gaining real utility—as gas, governance, burn mechanisms, and more.

Currently, it represents the purest stablecoin bet in the crypto space—and such opportunities are rare. A token trading below $16 is directly linked to the largest potential market in the crypto space—the dollar itself. Looking forward to the future of FRAX.