Dialogue with Leaders in the Stablecoin Industry: Future Outlook and Industry Insights

In the current era of booming cryptocurrency and blockchain technology, two important figures in the stablecoin space—Frax Finance founder Sam Kazemian and Aave founder Stani Kulechov—recently shared their insights on the stablecoin industry. They discussed the rapid growth of stablecoins, the innovation journey of projects, and their views on the upcoming regulatory changes, especially how stablecoins have become the focus of the industry following the volatility in the crypto market in 2022.

They pay special attention to the GENIUS Act, a landmark piece of legislation that could elevate stablecoins to legal tender, fundamentally altering the global landscape of the US dollar. This article will delve into Sam and Stani's insights into the stablecoin market, their expectations for the bill, and the prospects of how stablecoins will shape the future financial ecosystem.

The Boom of Stablecoins and Legislative Trends

When asked about the rapid development of the stablecoin industry, Sam Kazemian expressed his excitement. He mentioned that various investment reports and ETF briefs list "AI" and "stablecoin" as the two hottest fields in today's world. As the founder of a stablecoin protocol, he feels very invigorated to see the industry finally understood and accepted by the whole world.

Sam reviewed the development of Frax, from the initial experimental "hybrid model" to now becoming the "regulated digital dollar" path that policymakers are willing to legislate support for. This transformation is significant.

Stani Kulechov also expressed a similar view. He emphasized that stablecoins are a very intuitive and understandable tool, especially in regions of global financial turmoil and fiat currency devaluation, where the financial stability offered by stablecoins is more attractive than local currency.

Stani also pointed out that even in Western countries, the value of stablecoins lies not only in the "stability" itself but also in its ability to transform the profitability of DeFi into a form that mainstream users can understand and use. He believes this is a natural evolution of financial technology from "paper money → digital currency → on-chain assets," opening up a new paradigm for cross-border value transfer.

The Impact of Stablecoins on the Dollar's Status

Regarding how stablecoins affect the status of the US dollar in the global monetary system, Sam Kazemian believes this is a misunderstanding of the role of stablecoins. He emphasizes that stablecoins are actually an "extension" of the US dollar, a global extension of the dollar's influence.

Sam divided the development of stablecoins into two stages: the first stage is the ideal phase of "decentralized algorithmic stablecoins," which ultimately ended in a collapse; the second stage is the realism phase we are now entering, which is to gain recognition from the U.S. government, allowing stablecoins to have "dollar legal status."

Stani Kulechov pointed out that the US dollar is a simple and effective tool for transaction settlement, and the proliferation of the internet has instead expanded global dollar trade. He anticipates that a similar situation will occur for stablecoins in the future, as the coverage of the internet will be even broader.

Stani also predicts that in the next 2-3 years, stablecoins will become the largest asset class on the chain, and within 5-7 years, security tokens will surpass the total of stablecoins and crypto-native assets. He believes that traditional assets going on-chain benefit RWA (real-world assets), which strengthens the concept of dollar-settled transactions, but this is not necessarily the final form of the future financial system.

The Future of Security Tokens

Stani Kulechov further explained his prediction that security tokens will become the largest asset class on the blockchain. He pointed out that RWA (Real World Assets) actually also includes security tokens, which can range from publicly traded company stocks, private equity, and debt instruments, to potentially structured financial products in the future.

Stani believes that as on-chain interest rate tools mature, traditional assets with higher returns and more complex risk layers will also be brought on-chain. DeFi provides a globally accessible liquidity network that can liberate these assets from a "closed" financial structure, allowing them to be priced and traded directly on-chain, which will reshape the entire capital market structure.

Core Impact of the GENIUS Act

Sam Kazemian elaborated on the potential impact of the GENIUS Act. He pointed out that the act allows non-chartered banks to issue M1 currency under strict regulations for the first time. These regulations require that stablecoins must be backed by high-security assets such as money market fund securities, Treasury bills, Federal Reserve reverse repos, and FDIC-insured certificates of deposit.

Sam believes that this development has not yet been fully priced in by the market, and it may gradually be recognized in the coming months with more news about banks issuing legitimate stablecoins.

Stani Kulechov emphasized the importance of regulatory balance. He pointed out that the GENIUS Act needs to establish clear and inclusive rules, and should not drive innovators away due to excessive caution.

The Impact of Multiple Entities Issuing Dollars

Regarding the possibility of multiple institutions issuing stablecoins in the future, Stani Kulechov believes that this is not a competitive relationship. He compares stablecoins to "payment channels" or "tracks," allowing users to choose the most suitable stablecoin based on the scenario.

Sam Kazemian also agrees with this view, believing that the digital dollar is a positive-sum game. The global M1 market size is $20 trillion, while the current total market value of on-chain stablecoins only accounts for 1%, which means the overall industry penetration rate is still very low.

Development Strategy of Frax and Aave

Sam Kazemian introduced the latest developments of Frax, including the shift of focus from L2 to L1 and the reconstruction of the original governance token FXS. He stated that the overall architecture of Frax has transformed from an "algorithmic stablecoin protocol" to a "digital dollar issuance + settlement network."

Stani Kulechov explained the "unified liquidity architecture" of Aave V4. He believes that the types of on-chain assets in the future will be extremely diverse, and the risk curves will also be elongated. Therefore, V4 introduces the design of "liquidity hub + risk branches" to optimize user experience, improve capital utilization efficiency, and effectively isolate systemic risks.

Finally, Sam Kazemian proposed the idea of a collaboration between Frax and Aave, hoping to allow frxUSD holders to deposit assets directly into Aave to earn returns through the real lending market. Stani Kulechov welcomed this proposal, believing it demonstrates the modularity and composability of Aave V4.

Overall, this conversation reveals the rapid development and future potential of the stablecoin industry, as well as the in-depth thoughts of industry leaders on regulation, innovation, and collaboration.