Fractional-Reserve Stablecoin To Be Released By Former Fed Nominee
- Stephen Moore plans to release a stablecoin, Frax (FRX), with its value fixed to the dollar, but not backed 1:1 by it.
- The “algorithmic, fractional-reserve stablecoin” will use on-chain lending to create interest cash flow, which will maintain the price of FRX.
Stephen Moore speaking with attendees at a fundraiser for the ASU Center for Political Thought & Leadership at the Country Club at the DC Ranch in Scottsdale, Arizona. Gage Skidmore
Stephen Moore, a former Federal Reserve Board of Governors nominee, is planning to support a new type of stablecoin based on fractional reserve, Fortune reported on 21 October.
The stablecoin, called Frax (FRX), will be pegged to the value of the dollar, but will not be backed 1:1 by it.
The new digital currency will use a system similar to a fractional-reserve banking, which through algorithms will loan its reserves, and gain interest on it, in order to make sure the value of the currency is fixed to the dollar.
Moore has stated his belief that the new cryptocurrency can be an alternative to state-backed currency, saying:
“I’ve followed monetary policy for 30 years and always been troubled by the government monopoly on currency, which is unhealthy for markets. If I had been on the Fed, I would like to have seen encouragement for the development of cryptocurrencies like Frax. It can be a check and balance against runaway currencies.”
In September Moore’s partner Sam Kazemian, the CEO of Everpedia, explained how the Frax cryptocurrency will work.
Calling it a “algorithmic, fractional-reserve stablecoin”, Kazemian said that it will use on-chain lending to create interest cash flow, which will be used to buy back FRX if its price starts to drop.
He said:
“This is similar to how a central bank buys back currency with bonds by issuing debt.”
While Moore has expressed his belief that stablecoins can be beneficial, some financial authorities are disagreeing.
Last week the Financial Stability Board released a report, which concluded that “global stablecoins” could pose a risk to the global financial system.
The report further stated that even if all regulatory concerns could be addressed, that would not necessarily be a “guarantee of regulatory approval for a stablecoin arrangement”.
- The Federal Reserve and FDIC have issued a joint letter demanding the crypto lender remove “false and misleading” statements that it was FDIC-insured.
- The two regulators alleged that this claim “likely misled and were relied upon by customers who placed their funds with Voyager “.
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- Custodia had already received confirmation from the Kansas Fed that its application was complete and had “no showstoppers”, but is yet to receive approval even after 19 months.
- Custodia’s complaint notes that a master account, which provides institutions with direct access to the Fed’s payment system, is “vital” for its business.
- The current head of the OCC has been in talks with the FDIC and the Federal Reserve about setting up an “interagency policy sprint team” focused entirely on crypto.
- The Federal Reserve Vice Chairman of Supervision, Randal Quarles, said the agencies are already engaged in a “joint effort” to come up with definitions related to crypto.