Trump Advisor and Former Fed Nominee Launches Fractional Reserve Stablecoin

Stephen Moore, Trump’s initial nominee for the post of Federal Reserve Chairman and close campaign advisor, has announced his latest venture – Frax – that runs a U.S. dollar stablecoin. Unlike USDC, DAI, and Paxos, which are all fully backed by dollar reserves, Frax aims to maintain its peg by loaning out a portion of their money and using the future cash flows, along with hard reserves, to back the stablecoin, as reported by Fortune, October 21, 2019.

Crypto Goes Old School

Stephen Moore has been involved the monetary policy and economics for the last 30 years and he claims that the government’s monopoly over money is dangerous, which he believes can be remedied by private currencies that can help restore balance.

Frax is co-founded by Moore and Sam Kazemian, an entrepreneur building a blockchain-based Wikipedia competitor. The project will bootstrap itself as sources close to Fortune reckon no outside investment has been made.

Fractional reserve banking has – for long – been considered one of the prime reasons for weakness in the banking system. Bank’s inability to provide full liquidity poses many risks from the viewpoint of an Austrian school.

Not many Bitcoiners will be stoked at the idea of a stablecoin that is openly fractionally backed. However, the loans to deposits ratio at large banks in the United States is between 80-90 percent, which Frax would mimic. In short, Frax will be backed by more hard reserves than Tether.

How Can Frax Thrive?

It has been established, thus far, that stablecoin dominance is gauged by ease of access and market reach. The more major exchanges and wallets the coin can be listed on, the more application it can garner.

Markets don’t seem to lose faith in stablecoins when their peg breaks, or else Tether would’ve had a confidence run when it fell by nearly 14 percent on certain exchanges.

Honestly, Frax can work if the total reserves backing the supply works out to 100 percent. That means the cash they hold plus the risk-adjusted cash flow from the loans they give up should be equal to or more than the circulating supply of the Frax token.

Taking the founder’s ties to the government into account, integration might prove to be simple as Moore leverages his political connections to let Frax flourish.