FRAX & the 4pool Curve Takeover | Sam Kazemian

Stablecoins are one of the three uh trillion dollar narratives of crypto. And I think that three trillion dollar narratives are Bitcoin, ETH, and stable coins.

Hey Bankless Nation, we've got a fantastic episode for you today. This is the stable coin wars. We're talking to Sam from Frax, who is deep in the stable coin wars. He's he's one of them, uh, actually, and you know his framing is maybe not so much wars, but uh we're gonna talk all about algo stable coins. We're gonna talk about um UST, the four pool uh curve pool that was just launched, what all this means, how it uh it turns into. Actually, we are pre recording this entire episode, so we've already had our conversation with Sam, and it's a fantastic conversation. David, what were some of your takeaways?

Well, first off, Sam Sam starts the uh this the conversation with a story about central banking, kind of a kind of a a made-up story, a parable, uh, but really uh grounds we we like to say uh a number of times before in Bankless that uh crypto is just speedrunning the history of money and finance. And so Sam speedruns through the history of central bank management, right? Uh in a very fantastic story that really frames the whole rest of the conversation. And I had a fantastic time just sitting and listening to that story and had so much to learn just in that one story. And I kind of understood exactly how the rest of the conversation was going to unfold because of that story. So uh I'm excited for listeners to be able to because that's where this conversation starts first, but then we even get to uh lean into again the the four pool, the USC, the Doquan spiciness, and and how Frax has gotten caught up in the middle of this to Frax's benefit.

But yeah,

Um

I'm gonna be honest, David. I walked away from this conversation really bullish on Fracks.

yeah.

Like, really actually excited. Um, it's been a while since the project was just like, wow, this is really neat. And so we were in uh we were in education mode that that entire time, actually, like on the receiving end learning. Um, guys, we're gonna get to that conversation. One one quick announcement though. We've been telling you for the last week or so about these MAC NFTs from Consensus, Keith Herring NFTs. We're telling you that that was released, would be released on April the 10th, which is National HIV Youth Awareness, uh HIV and AIDS Awareness Day. Those NFTs have been released, okay? A whole bunch of them are sold out. Uh, I managed to get my Keith Herring red just now because I think the yellows are sold out, but the reds, there are still some reds left, at least right now. I minted this baby. I actually you could pay in credit card, David. So I didn't have to spend any ETH on this. What? No gas fees, just paid with a credit card.

You didn't have to spend any ETH.

Yeah, dude. So I no gas fees. I just like and um it's minted on Polygon, so this is it. This is my OpenC account. It says the floor price is 179, okay? But there's I'm sure there's no liquidity on this. Uh these red you pay $25 for. And of course, all of the proceeds go to 100% of the uh the revenue, I should say, go to support national uh go to support AIDS and HIV youth affected by by that disease. So super cool there. And uh there's still time.

There's 195 owners of it, and there's and there's 250 total left. So that's 55 of these ones left. And you say there's no liquidity you want it, but that's because no one's buying a $180 NFT that they can go and buy for $150, right?

Yeah. Yeah.

That's no liquidity.

Well, there you go. So uh anyway, there's still an opportunity to do that. And just enter your email address. Again, no gas fees. Uh so quick PSA there. That's the status. David, I want to ask you the question I asked you before all of these episodes, which is what is the state of the nation today?

Oh, the state of the nation today, Brian, is learning. We are learning. We're learning every single bankless episode, but we're learning a lot. Sam had a lot to teach us. He's a great teacher, he's a great orator. Uh, and so the uh I just felt like I was uh in the middle of like just a both a history lesson and a lesson in in finance and economics, and it's my favorite type of show. When when uh I uh I am not only learning, but also being entertained at the same time. And so um the state of the nation today, Ryan, is learning.

Alright, great episode. Learn with us, guys, on the state of the nation. We'll be right back with Sam. But before we do, we want to thank the sponsors that made this episode possible. Bankless Nation, we are super excited to introduce our next guest, uh, Sam Casmian. He's the founder of Fra Frax Finance. A lot of F's there. Uh, he previously got into crypto, same way David Hoffman, my co-host, did, via GPU mining. He also worked on the decentralized Wikipedia project Everpedia. But in 2019, he started this really interesting algorithmic slash hybrid stablecoin project called Frax Finance, which is the topic of today's show because we're gonna talk about stable coins, maybe some of the stable coin wars that are going on and what Sam thinks of the situation. Sam, welcome to Bankless. How are you doing?

I'm doing great. Thanks for having me. This is uh awesome. Uh huge uh listener and um, you know, excited to be on and discuss everything. Stablecoins, crypto economics.

Awesome. Well, we're gonna get, I think, in the back half of this conversation to some of what people are calling the stable coin wars, uh, with the introduction of this four-pool on curve and sort of what that means. But um I get-I I think we should start with maybe uh maybe maybe the top, explaining fracks a little bit. Um but before we do, I want to talk, maybe get some context on why the stable coins are in fo in the focus of all of crypto right now. So there seems to be like this narrative of stablecoin wars and uh a lot of conversation around UST these days and algorithmic stable coins. This wasn't the case in 2019 when you started FRACs, right? Like stable coins weren't as talked about, and certainly algorithmic stable coins weren't in the limelight. Why do you think everyone is having this conversation now, Sam?

Yeah, definitely. That's a great question. So, like you said, I've been in the crypto space for uh while kind of like how uh David got into it. It got in around 2013, 2014-ish. Um, you know, I was at UCLA a college student and uh I started kind of just mining uh cryptocurrencies. Dogecoin was actually the first one uh I started mining. I still remember uh you know being like one of the first people to sign up for the uh ETH newsletter when it was announced in like 2014. When uh when you know Vitalik started talking about uh ETH, and back then it was uh counterparty and colored coins were the thing, right? As you guys probably remember. Um, and stable coins were not even in the conceptual like framework back then, right? The earliest thing that's kind of, I think I like to call the uh stablecoin white paper is uh Robert Sam's signage shares white paper, which some people might have read. Uh I actually like to call it like it's one of the most kind of like important pieces in in like stablecoin design because it introduced the two token system of you know, you have a stable coin on a blockchain and then you have a share token or like you know the volatile token that represents you know future cash flow or signage or whatever, and you could try to stabilize these things. And that was even before you know smart contracts came out. His thing, his his white paper was about uh proof-of-work blockchain. You just have a proof-of-work blockchain, and and you know, you have two tokens in it instead of you know one, one volatile one. Um, and so the industry has come a really, really long way, right? And and just like how there's uh really important trends that you know you know grow exponentially, like DeFi summer 2020, right? Like all of the yield farming, DeFi primitives and all these things, and then NFTs, I think the next big thing is is uh stable coins. And the reason for that is I think the the infrastructure and the ability to launch your own, you know, uh stable asset is finally mature enough to have that kind of Cambrian explosion, right? Like I actually like to kind of say there's you can now uh there's like a WordPress of stable coins now, right? You can you can create your you just you need like a deep curve pool or Univ3 pool or something, some really concentrated liquidity. You have to make sure to give enough yield uh there. And it's like a cookie cutter playbook now, right? The infrastructure is there, just like how the infrastructure for NFTs with OpenC and minting and and generative art and stuff uh was there, and then you have this kind of curve, right? We're we're at the point where you have the infrastructure to kind of cookie cutter uh stable coins. So there's gonna be a Cambrian explosion of uh these kinds of things, I think, in the next, you know, from now until the next like 12 months, basically.

Do you do you think um we had a guest recently who said uh stablecoin is crypto's killer app? Would you go as far as to say that? Like stablecoin is the big thing that um yo crypto is meant to deliver.

I think stablecoins are one of the three uh trillion dollar narratives of crypto. And I think the three trillion dollar narratives are Bitcoin, ETH, and stablecoins.

That's that's my that's my uh view. And so that's why I got really interested in stable coins. That's why I've like kind of uh I look at it from a historical point of view, like you know, the first you know, stablecoin white paper, you know, this and where Frax falls in line in Maker and all these things. I try to actually almost study it like a like uh uh evolution, right? And um I think it is a trillion dollar narrative. And so uh I actually am uh the of the belief, like for example, Bitcoin is is a different kind of asset, and ETH is a different kind of asset, and stable coins are a different kind of asset. And all three have such large uh potential that they're the three, in my opinion, multi trillion dollar you know narratives, the T, the T uh size uh narratives of crypto.

People have spent their entire careers focusing in on stable coins. When there's so much to pay attention to in the crypto industry, sometimes people just get compelled by stable coins, and that's just the thing that they are interested in. And in it inside of that, algorithmic stable coins have had their own very rich history in the crypto industry. There's plenty, plenty of uh history lessons to learn as algo stable coins have tried to get out the door. There's uh there's the the uh story of basis, uh then there's like it the exploding stable coins of empty set dollar and dynamic set dollar. Uh and it really took a while for the algo stable coins to really get their engine revving. Uh I think Frax being one of the first models of the stable coins that the uh kind of algorithmic stable coins that really started to work, and then UST being the second one. But uh correct me if I'm wrong, Sam, but we've never seen a pure algo stable coin actually work. Um uh Frax has algorithmic components, UST has algorithmic components, but they all step away from the purely algorithmic stablecoin model. And I'm wondering if you think that the algo stablecoin model is actually impossible, um, just based on perhaps some of the design decisions of that goes into algo stable coins. Like, do you think it's at all possible to produce a purely algorithmic stablecoin?

Uh that's a good question. In fact, I think uh a short story uh about central banking is is like uh a good way to frame this conversation. And uh I actually got this short story from uh JP Koning's blog, who's like a money blogger. But basically, uh this should kind of answer your question. Um this is like a short story about a central bank. Uh so it goes like this at the beginning, there's a central bank and they issue pieces of paper that say one ounce of gold on them, right? And everyone's familiar with this, right? And every single day there's a redemption window at the central bank physically, right? And people are able to come and give their pieces of paper uh to the central bank and get an ounce of gold for each one, okay? And the the next part of the story goes that uh the central bank says that, hey, there's a two-month renovation at the central bank, and so we have to close the redemption window. Uh, but the gold is all there for every one piece of paper that says an ounce of gold, there's an ounce of gold at the central bank, but we're closing redemptions for two months because the central bank has uh renovations and it's gonna open after two months. Okay. After two months, the central bank officials come and say, Okay, actually uh the renovations are taking much longer than we thought. Uh it's gonna take six months more, and the central bank is still closed, but we can't just have these pieces of paper that say they have one ounce of gold written on them, not trade for uh an ounce of gold, right? Uh especially because you know there haven't been redemptions for two months. So, what we're gonna do is every day the central bank officials are gonna go in the central bank, grab some of the gold, go out into the trading markets, and and buy and sell the pieces of paper for an ounce of gold from the gold that they take out of the central bank, aka they're going to provide liquidity at the exchange rate of these pieces of paper. And every day they're gonna go back and get more gold if they need to, or they're gonna buy more of the piece of paper for an ounce of gold to make sure that the exchange rate of the pieces of paper that say an ounce of gold stay there, but no redemptions, right? This the central bank is under construction, no redemptions, no one to one uh getting from the central bank. But the gold is still there, it's all it's all one to one backed by gold. Uh okay, so after the six months of the renovation uh turnaround, and and six months later, the central bank comes out and says, Okay, look, uh

There's actually not one-to-one gold in the central bank. We actually lent it out during construction and uh sold some of it, but we have assets. We've we've sold it out for uh loans, bonds, and these things. Uh we have some gold, which is what we were continuing to go every day and and market make the pieces of paper so that they are always worth an ounce of gold per per piece of paper. But we don't have one ounce of gold for every single piece of paper in the open market. So construction's done, but no more redemptions. We don't, there's no more redemption window. No one can come to the central bank and actually ask to be redeemed for, but we will keep doing the thing we're doing. Whereas we take some of the gold we have and we're gonna go buy and sell the pieces of paper for an ounce of gold. We have a commitment where a central bank we're the largest market player in the entire economy. We will make sure those pieces of paper trade at an exchange rate of an ounce of gold per piece of paper.

And so

After a while, right, the final part of this story, and and one one thing I actually want to say here is uh the the gold standard that everyone talks about, right? Like 19 uh 72 when Nixon took uh the dollar off the gold standard, the gold standard everyone really likes is this part of the story right now, where there's you can't redeem dollars for for the the actual backing because there isn't one-to-one. At Fort Knox, there isn't enough gold ever, right? But the government has a complete uh you know duty to maintain the exchange rate of of the piece of paper as best they can, right? Uh so where does our story end, right? The the final part is after a while, right, the central bank says, okay, look.

is really hard to

Uh keep these pieces of paper that say an ounce of gold pegged at an exchange rate of an ounce of gold with very little gold. We we sold most of the gold. We have a bunch of loans that are making money, but but that's not gold, right? The prices of those things change and stuff. So what we're gonna do is forget that one ounce of gold per piece of paper. We we're no longer gonna market make at that price and guarantee that. What we're gonna do is that we realize that an industrialized economy, the most important thing is not that our pieces of paper are you know pegged to an ounce of gold. What we have to make sure to do is the people that are getting paid in these pieces of paper, we need to make sure what is the most important thing in an industrialized economy that people need, such as food, such as rent, medical care, cars, electronics, you know, just good consumer items, right? Things that keep your standard of living the same. You need to be able to afford medical care, rent, all of this stuff. And what we're gonna actually do is we're gonna compile all the prices of those things against this piece of paper. And uh if the price of those things are going up, right, then what we're gonna have to do is we're gonna have to buy some of the piece of paper back uh with the assets that we have, which is very little gold, but a bunch of other stuff, right? And if the economy is becoming more and more productive, so more food is being produced and and more cars and all these things, and the and the prices of those things are going down, actually, uh what we'll do is we'll just print more pieces of paper, right? To make sure the price actually uh stays uh the the same, right? And so we'll buy more balance sheet assets. Forget the the gold exchange rate, right? And that's what happened after 1972, right? And uh I wanted to tell this this story to actually frame this this full conversation about stable coins because obviously uh this is actually the full true story of central banking evolution, right? You you start with one-to-one redemption, and then you you stop the redemption. You say you can't actually come to the central bank and get stuff from us, and then that's when the central bank can be like, we can sell some of it, right? One-to-one, we can invest it in stuff and make money, but we have to make sure we have some to market make and make sure the exchange rate is always the same thing we want. And then you start realizing, or the the con the government starts realizing like, holy crap, it's really hard to keep the uh peg of something when you don't have a lot of that thing, right? And then they're like, it's actually much better to just peg to a consumer basket of items, and that does actually have obviously certain advantages, right? But

Back to the stablecoin question. The reason I I I wanted to say this is that

Every financial thing, including stable coins, evolves somewhat similarly and has properties of these things. You look at, for example, Tether, right? Tether started out as saying, look, we have pieces of paper, they're called USDT tokens, and each of them have one dollar behind them, right? After a while, Tether was like, okay, uh, actually you can't redeem them anymore, because like you just promise that that we will keep the exchange rate the same, but you can't redeem them from us, only some people can or whatever. And then after a while, they're like, actually, we don't have one-to-one uh like dollars for the pieces of you know paper or USDT tokens, right? It all looks the same, and obviously, like there's there's like laws that uh are passed as a society where people are like, uh, look, if you issue pieces of paper that say like there's something behind them, right? You need at least 10% of that thing, at least, right? Otherwise, uh you're committing a crime, right? That's called reserve requirements, right? And so um back to your question, uh, I think it's interesting because at first people thought that you could have algorithmic stable coins with absolutely no anything, right? Like, like the equivalent of this would be a the the central bank with zero gold, with them saying uh the the pieces of paper have to have one ounce of gold like you know, exchange rate. That's that's not gonna happen, right? Like that, so the answer to that I think is is no unless there's you know a lot of market making going on, so someone's gotta pay for it, right? And so that's actually where Frax falls in line here, is like we like to call ourselves the inventor of the the fractional stablecoin, right? And the the thing is Frax is named after that. The name is a portmanteau of the word fractional and algorithmic, right? And the idea behind it is it actually sits right in the the kind of uh second to last point, which is

You can have a fractional banking system that works pretty well. Obviously, there's constraints, right? If you don't have enough of the thing, things start to fall apart, right? But most of our financial system revolves around the fact that if you keep a currency stable, you need some of it, right? You need some of the gold if you're pegging to gold. You need something very, very, very, very similar to uh dollar equivalents if you are pegging to a dollar, but you can have an algorithmic, you know, supplier expansion, contraction kind of thing. And that's what Frax did. Frax actually invented that before Frax, no one else was talking about that. Uh, and you know, I think if there's one thing uh in terms of crypto economic design that you know uh we're hopefully going to be known for is that uh we invented the fractional you know algorithmic design. And one thing is that we've never broken our peg, and our definition of the peg is one cent uh of uh one cent on each side, so one dollar and one and ninety-nine uh zero cents. And we only look at like on-chain stuff because all of our liquidity is on-chain, so like centralized exchanges can trade whatever they want, but on Uniswap, on Curve, which were the largest pool on uh Uniswap were number five or six, uh we have never broken our pick, and we have billions of dollars of liquidity uh on chain. So, like that's one thing we're very proud of that we've uh we've designed. So that's kind of where Frax falls along.

Sam, I think we want to get into the design of of uh Fracks a little bit uh more, but that was a really, really interesting story. And I think for for a lot of people, yeah.

Really enjoyed that. That was lovely.

Um JP Koning, by the way, is um you know really fantastic on this space. Interesting. Sometimes JP Koning is um crypto skeptical, which I actually enjoy as well. But you know, uh the story also reminded me of um this this chart from Ray Dalio. I don't know, Sam, if you've ever seen this, right? It's like he's like the the macro cycles of money where you start with the hard money, like metal coins, and then society inevitably goes to claims on hard money. So from type one, hard money to type two claims on hard money, which is banknotes, and then you get to type three, which is which is fiat money, which is the US dollar today, where it's not really backed by any claim on hard money. It's certainly not hard money. And it strikes me in crypto, we have all three of these experiments kind of brewing at the same time. We have the hard money, which would be, you know, the the first two pillars of of trillion dollar use cases, you might say, which is the Bitcoin and ETH, and there are maybe some other examples in crypto of hard money. And then you've got the claims on hard money, and then you've got like fiat money. And I'm wondering like what what what what fracks is in this? Is it sort of a a type two claim on hard money, would you say? It's it's certainly not full um type three uh fiat money, where it's you know more kind of algorithmic. Uh is it something more like uh, you know, a claim on hard money?

Yeah, so this is actually a a great uh thing as well. The the the cool part about the story, like uh you're saying, is we can actually ask that question, right? Like where in the story that we just talked about is does this fiat money come into play? Is it where you can no longer redeem the uh pieces of paper that say, you know, an ounce of gold for gold from the issuing entity? Or is it when uh you know the issuing entity says that they no longer have one-to-one behind it, but they'll do everything they can with the assets that they have to maintain the exchange rate in the open market? Is that where fiat money is? Or uh I think personally, so uh for from the question, I think it's when you as as like a government say, okay, uh, we're no longer maintaining even an exchange rate to something that's hard, right? Something that is, you know, something like gold, and doing something like the basket of uh consumer goods. Because that like when people talk about the gold standard, right, when Nixon took us off and stuff.

The US government did not have enough gold for the circulating supply of like the the the money stock, right? The monetary base. There's uh and so the way they were doing it is they're just stabilizing the exchange rate, right? And I think that right now most people would think that fiat money is when you just completely float against an exchange rate of like any hard asset, right? And so uh that's interesting because as you guys uh probably know and we'll talk about we have Frax is a two stable coin system, right? There's the Frax Price Index that we actually released last week. Uh but I think that Frax basically right now is um partial hard uh claims on on like hard money, right? Because we have hard assets, right? And we try to keep an exchange rate to the dollar.

Can we actually look at this? I know David David wants to get to like more talk about stable coins in general. There's more triangles, more trilemmas ahead of us. But um just really quick so we understand. So I'm I'm pulling up uh app.fracks.finance. This is sort of a chart of fracks and FXS and a few other things. Wondering if you could just kind of decompose us a little bit. So we see here Fracks, we see this number market cap of $2.6 billion. We see this other uh number over here of 85% collateralization ratio. We also see this other asset called FXS, which is a 1.8 billion um market cap. Can you explain some of the things that we're seeing on the dashboard so that folks can understand fracks with the numbers and what it's actually composed of?

Yeah, definitely. So Frax launched with just two tokens, Frax and FXS, all the way until last week, actually, when we launched the the Frax Price Index stablecoin. So Frax is just the dollar stablecoin. Each Frax is is one dollar, super simple. Uh price is great. Um Frax Shares is the uh governance token of the Frax ecosystem. And it's actually named after the Robert Sam's white paper that I think is his historical one because it's called signer and shares. We named this Frax Shares. Um and so that's just the governance token. The collateral ratio there is actually the hard assets that are in the reserve or in the smart contracts in the series of you know system smart contracts. Uh we started out 100% as you can see, and then quickly kind of stabilized or kind of moved around between 90 to 80. Uh, and those are the hard assets that the protocol can can lay claims to. A lot of them are curve LP tokens, as you could see right on under the uh value there. A lot of them are collateral from lending operations, which we call uh AMOs, algorithmic market operations. Those are just very similar to maker DAO, right? You you have a bunch of fracks that you can uh borrow, right, and and you collateralize it with uh over collateralize it with ether or everything else, right? So that's kind of like the the maker DAO die kind of system. The algorithmic section is the section that is kind of the supply is expanded and contracted based on minting uh or burning uh frackshare tokens, right? Like the the actual governance token. Some people like to call it um.

Frax is a hundred percent collateralized, but there's just some of it that's collateralized by its own governance token.

These are it it's it's not just uh semantic, but I think it's important to think about like I would never say like something is necessarily backed by itself because like you can't say like the dollar is collateralized by other dollars at the Federal Reserve. I don't know, it's just it seems a little nonsensical.

Help us understand that again. So these curve AMOs, these are curve LP tokens, right? So these would be composed of other stable coins, basically.

Basically it's a yield bearing stablecoin position, right?

Yes, exactly.

So DI, USDC, uh US like Tether, that sort of thing.

Plus trading fees and curve.

Exactly, and and CRV emissions and CVX emissions.

Got it. And this liquidity AMOs, you said that was more like maker DAO collateral. So

Those are like protocol on liquidity. So like we have like you know some ETH as collateral that we we don't keep idle in a smart contract. We actually like deploy in like a you know Uniswap pair or other places in a frax.

Dive Uniswap V3 LP positions.

Exactly, exactly. And so there's a lot of protocol owned liquidity just outside of curve. Um and and we're on many chains. So a lot of these are actually on different chains that are like natively protocol owned liquidity fraxes, uh mintable and issued on 12 different chains, a lot of them EVM and L2s, um, like Arbitrum, Optimism, Polygon, uh, Moonbeam, you know, Phantom, all of these things. So a lot of that is on those other chains as well.

cool. And this this algorithmic section, which is about like, I don't know, 15% or so. Is that about right? That's that's

That's the unbacked side, or it's or it's backed by the value of X uh FXS, which is the basically the FRAC's governance token. Um, now if you were to contrast this with like UST, for example, UST would be like almost entirely this algorithmic type section, which is like all kind of Luna tokens, aside from maybe you might start to count the the reserves, the Bitcoin reserves that the LFG group purchased recently. Is that the contrast?

Yes.

Yeah, I I would say that that's that's correct. Like in fact, you know, um I think a lot of stablecoin projects, especially Terra, which is like the the largest decentralized one currently, are seeing there's a lot of you know important strengths to the fractional model, right? So yeah, I think that basically before the Bitcoin announcement, this if you were to make this chart with with Terra, most of it would be black, right? Most of it would be algorithmic, right? And now there would be a big slice. Uh I'm not actually exactly sure, I think it's like anywhere between 10 to 30 percent or something like that, would be Bitcoin, right? It would basically uh there would be a slice of of Bitcoin.

It's funny because we see UST moving in your direction. They're moving more in the like fractionalized direction and less algorithmic. So it's almost like I I don't know if Fracks is moving more algorithmic, but they're certainly coming more towards your design.

Yeah, I mean so we so like I said, one our our name is literally after the fractional stuff we we invented, but I don't really even think we we like own the idea or anything. I think what's interesting is like I said, financial evolution has the same kind of uh evolutionary pressures, it's just economic, right? So I like as as things progress, right, and in like an economy, they start looking the same in terms of what the the kind of right answer is in terms of efficiency and and kind of like how everything will work. I think I think most things will look a lot like this. The only difference is like what collateral ratio they'll they'll keep stuff at, right? And in fact, you know, you you could argue that you know, maker DAO, for example, is is not algorithmic, it's it's over collateralized. But the other way that I like to compare, you know, maker DAO actually is that going back to our kind of central bank story, right?

MakerDAO started with a very fundamentally sound thing, right? They were like, we're gonna issue pieces of paper that uh say a dollar, but like we can't actually hold dollars, right? So what we're gonna do is we're gonna back the pieces of paper with like two dollars worth of other stuff. For every one dollar that we have, uh piece of paper that needs to be a dollar, we're gonna have two dollars of other things, right? Or like a loan on two dollars basically. Um after a while, again, everyone, whether you come from the algorithmic side of like 0% or the maker Dow side of like over-collateralized, the theme here is you start realizing it's extremely difficult to issue pieces of paper that have an exchange rate for something without holding a substantial amount of that thing, right? And so that is part of the reason why you know the closest thing to you know dollars, uh USDC is is both maker has exposure to it and as as do we, right? Like you can you can look and there's there's curve LP tokens in this stat. And so, for example, even Terra, right? Like Terra works with uh Jump and all of the largest market makers, right? If you don't have the you know the actual asset in your central bank, you know, inside of the building or whatever, right? You have to at least pay someone that does to go out into the market, right? And and like, you know, make sure that the unit is is trading at uh that amount, right? And so it's like like jump is absolutely massive, right? They're absolutely huge. Like if you recall the wormhole, like uh the unfortunate, which was really, really unfortunate. I was saddened to see that, but the wormhole hack of like what was it, 300 million or something, ETH, uh jump was like, I no problem. Here's 300 million, uh, let's let's you know uh let's make everyone whole, which was great and respectable. The same place where all that money comes from is also the same place that you know market makes the the biggest of uh stablecoin markets, right? And so the thing is if you want to actually autonomously and internally be a central bank, which I think Terra's gonna be the biggest and most impressive one with Fracts and probably Maker, right? And and us, you know, these are the big three right now, you need to actually have uh stuff to to to go out and do that, right? You need to have the the actual assets, the hard assets, rather than uh having other people kind of do it. And I think that's where the evolution of this stuff is going, right? Where that's what we're seeing both honestly, both with Maker, right, with with Frax, with Terra, with with everyone, right? And that's that's the honest truth.

Sam, so there's a bunch of different collaterals uh in the the Frax reserves, right? And this is the the ammo that that Frax has to defend the peg, right? So going back to your story about the credit window, right, where I've got my Frax tokens and I go to this to the Frax D central bank on Ethereum and I say, hey, I would like some assets. Uh do I get to pick like which of the assets I redeem for? Or how does the peg get defended when I come and come with my stable coins of Frax tokens and I I would like to redeem them? Like how how does that work?

Yeah, when the when the redemption window is open, which is like if the peg is even one third of a cent off, so like literally point uh three three of one cent, right? You can actually go and redeem them on on the redemption tab. And what it is is that