Frax, a fractional reserve-backed stablecoin today announced that one of Donald Trump’s economic advisors and former Federal Reserve nominee, Stephen Moore, and a former Reagan deputy general counsel, Ralph Benko, have officially joined the executive team of the company. Moore joins Frax as co-founder—alongside Sam Kazemian, who also co-founded Everipedia—and Benko as general counsel.
Frax is a stablecoin, set to launch early next year, that’s built on a decentralized fractional reserve system: a type of banking system whereby banks can loan out customer funds, and only hold a small proportion on-site for customers to withdraw. But unlike banks that hold fiat currencies, Frax’s reserve assets are Frax tokens, a stablecoin that tracks the dollar, but isn’t backed by it.
Its protocol hopes to use existing DeFi products, like compound.finance and dYdX to loan out DAI and Tether as collateral, and will adjust the price of interest payments to make adjustments to the value of the currency. These interest payments go back into the Frax smart contract, which buys back or rebalances the supply of Frax in the market to keep each Frax token at $1. To reduce risk, Frax—previously called Decentral Bank—will hold close to 100 percent of funds in its reserves when it launches, and will slowly hold fewer funds in its reserves as the network becomes more popular.
Why bother? Well, Frax says its tokens will be held in a non-custodial manner on the blockchain, ensuring confidentiality over how funds are spent. And unlike Facebook’s stablecoin project, Libra, where power is evenly distributed between more than twenty large companies, Frax is completely decentralized. But the broader goal, according to Moore is to end the world’s dependence on the Fed-controlled US dollar.
Moore was one of the economic advisors for Donald Trump’s 2016 election campaign, and a long-time conservative commentator for the Wall Street Journal. Like his former boss, the President, Moore is critical of overbearing central banks: “Central banks will soon feel the competition from private currencies such as Frax. The days of government monopoly of currencies by central bankers is coming to a screeching halt,” he said in a press release.
“Currencies are intended to retain their value over time, but given the wild gyration in values of currencies and the struggle in many countries with hyperinflation, we need a global currency that has a stable value to benefit consumers, businesses and investors,” he said.
Moore’s comments are in sharp opposition to central bank concerns over stablecoins. The G7—which comprises major western economies and Japan, released a report last week warning against the release of stablecoins until certain concerns were addressed. Chief amongst these concerns? Stablecoins “undermine monetary sovereignty.”
Ralph Benko, the other new hire, previously provided advice to former US President, Ronald Reagan. Reaganomics, the term to describe Reagan’s economic policy, is characterized by reduced government spending and fewer regulations—too much regulation from central banks could prevent a project like Frax from taking off.