The Optimist Twitter Spaces - A Fraxtal Masterclass w/ Sam Kazemian

In The Optimist’s Twitter Spaces which took place on February 23, 2024, Charlie hosted Sam Kazemian from FraxFinance to discuss Fraxtel’s strategy, composability challenges, advanced technologies, strategic implementation of zk-Rollups, stablecoins in DeFi, and more! Read our notes below to learn more.

Background

Charlie (Host) – Co-Leader at The Optimist

Sam Kazemian (Guest) – Founder of Frax Finance

FraxFinance – an on-chain protocol that mints and manages the $FRAX stablecoin

Fraxtel’s Strategic Approach to Dominating DeFi

Charlie talks about DeFi macro trends, seeking Sam’s insight on the proliferation of new blockchain networks and questioning whether innovation is keeping pace with the number of emerging chains.
Sam agrees with the observation of rapid growth in blockchain networks, comparing the emergence of new chains to the earlier boom in smart contracts. He stresses Frax‘s success on the Ethereum mainnet and its position as a top protocol in DeFi, aiming to ensure Fraxtel becomes a leading chain in the era where chains are the new smart contracts.
Sam mentions the importance of Fraxtel differentiating itself in a market flooded with app chains and roll-ups. He introduces the concept of fractal scaling, explaining Fraxtel’s aim to be a general-purpose, modular rollup rather than just another app chain.
This approach is part of a broader strategy to position Fraxtel as a critical, top-tier network in a future crowded with thousands of chains, drawing on Frax Finance‘s experience in achieving a top ranking among DeFi protocols.
Charlie discusses the challenges and potential of composability in a modular world, highlighting the importance of connecting different blockchain chains amidst the fragmentation in the Ethereum ecosystem.
Sam explains how Fraxtel addresses the modular versus monolithic thesis in blockchain technology by breaking down the blockchain components into execution, data availability, and consensus. Fraxtel allows for the separation of these components, enabling flexibility in data posting and development environments.
Sam highlights Fraxtel’s adoption of the OP stack for its execution environment, offering compatibility with Ethereum EVM chains and simplifying the development process with tools like Etherscan.
Sam discusses the interoperability challenges among different rollup providers and how Fraxtel aims to serve as a universal settlement layer without being opinionated in its interoperability approach. This involves creating a system with good incentives and modularizing components to allow Fraxtel to interact with various blockchain ecosystems effectively.

Exploring Fraxtel’s Vision for Cross-Blockchain Integration and Scalability

Charlie asks about the potential for integrating various blockchain technologies beyond Ethereum’s layer 2 solutions, including non-EVM and non-Solidity-based networks, to achieve a kind of fractal scaling.
Sam says that the vision extends to various blockchains, including Cosmos chains and Solana, highlighting the revolutionary potential of fractal scaling.
Sam highlights the need for decoupling settlement, execution, and data availability, aiming for a modular approach that supports integration across diverse ecosystems. He mentions using Celestia and Near‘s data availability functions to facilitate broader ecosystem integration.
Sam discusses the goal of enabling L3 chains to leverage Fraxtel’s infrastructure for settlement and data availability, providing them with flexibility in choosing their data availability layers.
This approach aims to create a powerful value proposition by ensuring compatibility across multiple blockchains.
Charlie asks about the inclusion of zero-knowledge rollups and technology in Fraxtel’s stack.
Sam mentions the strategic importance of incorporating zk technology for aggregating validity proofs, enabling the verification of large transaction volumes across networks. He hints at future plans to integrate zk proofs into Fraxtel’s settlement technology, potentially even before the end of the next year.
Sam explains that $frxETH is the Ethereum-pegged stablecoin of Frax Finance, designed to increase the yield of its liquidity provider tokens as Fraxtel’s usage grows. This mechanism is expected to make gas fees cheaper, fostering the development of diverse applications within the Fraxtel ecosystem and offering competitive advantages over existing L2 solutions.
Charlie highlights the benefits of taking $frxETH off the market, mentioning the two-token $frxETH and $sfrxETH system, and explaining how it contributes to high yields for $sfrxETH due to the demand for $frxETH.
Sam confirms Charlie’s points, noting historically higher yields for $sfrxETH compared to Lido and Rocket Pool, highlighting the lack of additional risk and the building of monetary premium as key factors. He explains the two-token model’s similarity to $DAI and $sDAI, aiming for widespread use of the unit for payments and savings, which in turn increases yield.
Sam introduces the concept of the stablecoin, a maximalist-centric view of the world, aiming for Fraxtel to become a systemically important issuer of major units like $ETH, $BTC, and $USDC. He stresses the importance of making Frax widely used as money to secure its monetary premium.
Sam explains the concept of block space incentives or Flox, which reward contracts or EOAs based on their gas usage and popularity, encouraging value creation on Fraxtel. He details how the Flox algorithm works, including how it distributes points based on contract activity and gas usage, aiming to incentivize a vibrant ecosystem on Fraxtel.

Advancing DeFi Through Automation and Strategic Incentivization

Charlie appreciates the innovative drive in aligning the app layer with the execution layer in DeFi, highlighting the continuous system’s automation and programmability. He highlights the desire for a system that reduces human decision-making in favor of mathematical and market-driven outcomes.
Sam shares that the goal was to integrate such a system within the blockchain, noting the high interest from various projects. He explains that this system is continuous and not bound by manual deadlines or events, promoting a more dynamic and accessible DeFi environment.
Charlie asks about the challenge of incentivizing appropriate activities without encouraging manipulative behaviors like wash trading.
Sam explains their approach to prevent gaming of the system by introducing an algorithm that assesses the genuine popularity of contracts, similar to Google’s page rank. This method discourages manipulative practices by making it exponentially difficult and costly, ensuring that rewards are distributed based on genuine usage and interactions.
Charlie appreciates the game theory aspect and notes that Flox is transparent to everyone, including protocols, which can use this data to incentivize active participants beyond just rewards.
Sam says that protocols can indeed use the data from Flox to incentivize and understand active participants. He highlights that Flox enriches contract data on Fraxtel, allowing for future developments and innovative uses of historical data. The system goes live on March 13th, 2024.
Sam explains that on March 6th, 2024, a significant initial distribution of Fraxtel points will be awarded to veFXS stakers through an airdrop. He highlights the ongoing importance of veFXS for obtaining Fraxtel points and additional boosts for active participation on the chain.
Sam encourages builders to add their applications to the Frax ecosystem and shares his enthusiasm for DeFi yield apps and projects like Llama, and Lens. He also teases a new project called BAM, combining an AMM and lending system, promising a significant impact for traders.

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Show Information

Medium: Twitter (Audio)
Show: The Optimist Twitter Space
Show Title: A Fraxtal Masterclass w/ Sam Kazemian
Show Date: February 23, 2024