Sam Kazemian - Frax v3

now we have H fra co-founder Sam kazemian presenting fra V3 the final stable coin Round of Applause uh really happy to be here at uh stable Summit uh unstable Summit hopefully it's not bad luck it's called unstable Summit but um really happy to give this talk it's on bra V3 and I'll give a short presentation about our idea and philosophy behind designing the newest version of fra and how it works but first I want to go over the way that we thought about frax V3 which is basically looking at things from first principles and so this slide is the actual US dollar balance sheet so when we designed for ax V3 the first thing we thought of is let's actually go back and look at how the US dollar actually works you know not like reading tweets about people saying it's a Ponzi or anything but actually just look at how it works and so on on the right is the actual liabilities of the Federal Reserve you can actually see it's 5.8 trillion uh right there at the top the monetary base the MB uh as it's called and then on the left side is the collateral the weekly balance sheet that the Federal Reserve actually uh publishes every every week on its site and so at the very very bottom you could see it says 6.01 trillion so if you actually look at the way that the Federal Reserve does its balance uh balance sheets you could see that they consider the dollar actually completely collateralized and even slightly over 100% collateral ratio which is a defi term that that people like to use right uh the main thing though here is what is most of that 6.01 trillion collateral right we know that it's actually us treasury bills the Federal Reserve actually announces that it's treasury bills and so what are treasury bills structurally what actually is the the US bill right and so the US bill right it's just a promise to repay dollars out into the future at at some rate right and so this is the US treasuries yield curve right which is the actual price of treasuries based on their their maturity rates and what the dollar actually is structurally in in terms of how it works is that there's some socially expected value uh that that the FED tries to keep the dollar at right everyone knows the the CPI plus 2.5% Target that that the fed's Mandate is in terms of keeping the the US Dollars purchasing power right and the entire essentially balance sheet of the FED other than mortgage back Securities and and some other debt is US T bills it's actually the debt of the US government itself right and so the the dollar is essentially something that's backed by its own debt and that's its actual stability mechanism right its stability mechanism is the future promise to repay it its own uh its own debt and so this is actually uh really interesting and in handy plot for the the US dollar Peg um people don't call it a peg because people don't speak in defi terms and and everything but the main thing that I always like to say is the the US dollar is a stable coin it's actually pegged to CPI plus 2.

5% that's actually the the actual fed's mandate and so when people say inflation is super high that's just defi speak for saying the US dollar is deped right and so in this chart you can actually see for most of the actual past 30 years the US dollar has been pretty good at keeping its peeg other than one maybe small blip at you know 2008 uh and obviously the huge huge blip at uh covid in 20120 right and as you can see in the chart actually here the the actual rate is now parallel back to the the the flat 2.5% so it is technically uh back or very very close to Peg uh again other than the time where it was heavily deped so another way to say it is if the US dollar was actually a St coin it would have been deeg to 95 cents on curve for like the past two 2 and a half years right uh that's kind of the defi translation of it so with that kind of insight what we thought of with frax V3 is what if we could actually bring the whole yield curve uh on chain right what if we could actually bring both short-term yield and long-term yield into the frax V3 protocol and actually make it so that that's how frax actually works and so there's two things we we designed one of them being fra bonds that we call fxbs and what they are is they're not real world assets they're not tokenized t bills that give you the right to redeem for some custodian somewhere they're just utility tokens that basically give you the right to actually take fracks from the the maturity contract when the actual Bond tokens timestamp it actually comes due so there's FR bonds of various maturities there's 2-year 5 year there can be anything that governance actually passes and the idea behind this is the same exact structure as as the US dollar right and so when when you think about the whole concept of the the US dollar the reason people actually save in it the reason people actually use treasury bills as savings Vehicles is is not what you hear most of the time on on Twitter it's not because the US is the biggest army it's not because you can you can pay taxes in it and and things like that it's because of the socially expected value that the government can actually make to keep the dollar pegged at the the fed's Mandate right and everything else is kind of Downstream of that obviously if you have the biggest army maybe you can conquer uh bunch of countries with oil and and and buy back the dollar and keep the peg or if you actually have a large economy your your tax bill can actually contract the supply of the monetary base right from the first slide but the value of the dollar doesn't actually come from any of those things it comes from theed commitment to actually keep that value the the peg intact that's that's basically the the real the real value of the US dollar right if you think about paying taxes right people in Venezuela have to pay taxes in boulevards that doesn't make it not uh you know hyperinflate people flee the the actual value until they have to pay taxes right it's it's the entire ability to keep the dollar at Peg and the credible commitment of it that actually brings value to the the US dollar and so we tried to structurally design this as a defi protocol with frax V3 we tried to actually bring the entire yield curve to the the def ecosystem and so you can see the fra balance sheet on on fra uh fax. fr. finance and the thing is it's updated in real time as governance issues fra bonds and and and uh fra Supply expands you can actually see the uh liabilities and and the actual assets and the interesting thing about this is that it looks exactly like how the FED does its accounting directly when there's bonds the the bonds itself are both assets but then the backing of it is is basically the most important thing to see how the bond will be repaid the same way that if the Federal Reserve says it has 6.01 trillion in assets you want to see that when it repays th those Bonds in dollars the dollar actually is at Peg and so that's exactly what we try to show with the fra V3 balance sheet and this is just something that I think is a highlevel concept that is a a good idea to to convey especially at uh stable Summit which is the the classic uh stable coin trilemma design which is the the best design actually is is not necessarily a stable coin that is coming out and saying we've we figured out the trilemma we figured out exactly how to do scalability decentralization and and Peg tightness but it's it's one that actually solves the trilemma in a reasonable way and structurally looks similar to the asset that it's underlyingly trying to Peg and so that's why from first principles we went and actually looked at how the actual fed conducts monetary policy and why the US dollar itself is actually uh valuable and another Point here uh to to make with frax V3 is that when we try to bring the entire yield curve on chain there's uh two parts of the yield curve that's super important right there's uh the the short data yield curve right which is short-term rates and the long part of the the yield curve and so with frax V3 we actually have an ability to bring the short-term yield rates with uh Stak fra and that Stak fra actually has the yield coming from Shore data treasuries and rwa partners and then the long-dated bonds which are the fxbs that we were talking about we have the ability to mirror them with the same te bills that essentially can make sure that these bonds are are repaid and the frax is peeg is credible when the actual uh fxb has come due so uh that's the most important thing with with fra V3 which is to basically understand that the the design and the motivation for us was to bring the entire yield curve on chain and this is one thing that I think is very different and sets fra apart from kind of a lot of the uh new rwa projects and everything that focus on just the the short-term yield rates because during low rates right when if if the Federal Reserve actually Cuts short-term rates uh later this year next year all t- Bill projects basically become Fiat coins right they all everyone that comes out with high yields they all become usdc whether they like it or not right because they're just tokenized short-term treasury bills but if they offered the full yield curve when short-term rates go down long-term rates actually go up and become more valuable and and and more enticing right and so we wanted to think ahead of the curve so to speak and so when the long-term rates are are very very attractive maybe next year then a lot of fxbs can be issued and and people can actually start saving in in fxb is debt that's actually denominated in fracks that'll get repaid and people can use those across all of Defi and overall I think it's super important for everyone to consider that you know this this time during 5.

4% interest rates it's pretty temporary right this is not going to be the case forever and so what we wanted to do and accomplish was to design essentially what we call the final stable coin the design that in every single yield curve situation from high rates to low rates from you know large expansion of Supply to contraction of Supply uh frax V3 can actually solve that and be something that people use and and can rely on for for sa safety yield and uh overall rates so thank you and I always end on this slide because uh everything is always just stable coins to us so same thing with the dollar if there's one thing to take away from it uh the dollar is just a stable coin everything is just a stable coin lsds are stable coins as well so thank [Applause] you