Crypto fear factor is exaggerated, according to Stablecoin boss
Frax CEO Sam Hamidi-Kazemian has revealed why public fear of stablecoins and the wider crypto market is overblown.
Speaks exclusively to Be[in]CryptoHamidi-Kazemian explained why the chances of a Terra-style implosion hitting another stablecoin like Frax, USDC or DAI are next to impossible.
The stablecoin boss was also quick to acknowledge that despite this, the damage caused by Terra’s mismanagement and its monumental collapse may take some time to heal.
In a wide-ranging discussion, we also asked for Hamidi-Kazemian’s opinion on upcoming legislation in the US that would see the Commodity Futures Trading Commission (CFTC) break regulatory control from the Securities and Exchange Commission (SEC), and found out how changes could affect stablecoin- suppliers in the future.
Hamidi-Kazemian further revealed to us three components of the “DeFi trinity” and why every company in the space will rally around each other as they race to capture them all.
Crypto CeFi projects suspended
For starters, we tried to get Sam Hamidi-Kazemian’s perspective on the past few months, which have been tough for so many. Celsius, Voyager, and a number of other centralized finance (CeFi) projects have suspended withdrawals as crypto winter bites, stretching the meaning of words like “temporary” and “pause” to near breaking point.
With many crypto companies and investors struggling, we invited Hamidi-Kazemian to look back at the first dominoes in the chain: Luna (UST) and Terra.
“I don’t think most people thought that something this big would collapse to nothing,” Hamidi-Kazemian said. “There were definitely people who said it was unsustainable, and credit to them, but there were a lot of big bets like 3AC [Three Arrows Capital] on Luna. It was a very big surprise how everything went to zero, that the ecosystem went ‘poof’ like there was nothing there but hot air.”
The big bets, including from 3AC, turned out to be poor. Today, Terra’s dollar-pegged stablecoin is almost worthless. The very depth of Terra’s misfortune has led to broader misunderstandings about stablecoins, the market and the possibility of a repeat.
UST had no assets outside the ecosystem
“UST was a purely algorithmic stable coin with no exogenous assets, except for the Bitcoin they tried to buy in the last few weeks, and it was too late,” he says. “It literally went to zero, and I think there’s this psychology of people thinking ‘What happens if USDC or Frax or DAI breaks the link, what happens if something like UST happens’?”
According to Hamidi-Kazemian, USDC or Frax or DAI could break the link, but the fact that they have exogenous assets makes a crash to zero Terra-level catastrophe “literally impossible.”
Still, the fallout from Terra will stay with us for a while,” especially with all the CeFi defaulters like Voyager and Celsius. You have to let these traumas heal. Let these bankruptcy processes go through and hopefully people will get their deposits back. It’s a macro painful environment,” he acknowledges.
Hope is ahead of us
Hamidi-Kazemian believes in a very bright future for the market, and part of that will be due to clearer regulation and better supervision. The proposed Lummis-Gillibrand bill, should it pass, is a path toward a better framework for cryptocurrency in the United States
“I’m a pretty big supporter of the Lummis-Gillibrand legislation,” says Hamidi-Kazemian. “I think it’s very well done, and I think if it passes in any of its current form, it’s a big win for the US stablecoin industry.”
Besides providing the guidance that will allow stablecoins to flourish in the US market, Hamidi-Kazemian believes another benefit of the legislation will be to break cryptocurrencies from the Securities and Exchange Commission (SEC) and give more power to the Commodity Futures Trading Commission (CFTC). .
“I think the main thing is that there’s kind of a battle in the US between the SEC and the CFTC. I think it would be great if the CFTC has more control over digital assets… I hope that something like the Lummis-Gillibrand bill, which gives a lot power to the CFTC, victory.”
As for Frax, would it comply with the legislation in its proposed form?
“Yes. I think Frax would comply,” says Hamidi-Kazemian. “It’s a very good bill.”
The Crypto-DeFi Trinity
During our discussion, we delved deeper into broader market forces in DeFi and learned why the industry is moving towards what Hamidi-Kazemian refers to as the trinity.
“We have this view that I think the whole DeFi ecosystem is moving towards this concept that I call the trinity, which means that basically all of DeFi is a three-point system called something like ‘lending, liquidity and stablecoins.’
In Hamidi-Kazemian’s opinion, “the whole stack in all the different products you see in DeFi, they’re just different flavors of AMMs [automated market makers] or liquidity, lending and leverage like Compound and Aave and these other lending products, and stablecoins like Frax and DAI.”
Over time, DeFi projects will plug the gaps in their offerings, and “everything will trend in this direction,” seeking to capture the entire DeFi stack of lending, liquidity, and stablecoins.
“Which means if you’re a lending application like Aave, you want to issue a stablecoin and later start experimenting with AMMs… if you’re an AMM, and you’re coming at it from the liquidity side, you’ll want to release a stablecoin also to capture the monetary layer.”
Curve and Aave to launch their own stablecoins
As Hamidi-Kazemian points out, this paradigm is already emerging before our eyes. Aave CEO Stani Kulechov proposed the launch of a dollar-pegged stablecoin (GHO) in July, and community governance has already reacted positively to the plan.
Curve founder Michael Egorov has also confirmed that AMM will soon launch its own stablecoin. Frax is another DeFi player that is quickly moving into its own trinity.
“We are actually building Fraxswap which is our AMM in the protocol, and then Fraxlend which is our lending and leverage system within the Frax economy.”
Frax launched Fraxswap around two months ago, and AMM has already made significant progress with nine-figure liquidity. BeInCrypto understands that the launch of Fraxlend is imminent and, as Hamidi-Kazemian says, “will complete our trinity vision.”
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