Dialogue with Aave Founder: The GENIUS Act has been passed, and stablecoins will ultimately become the cornerstone of the financial system.

Organized & Compiled: Deep Tide TechFlow

Guest: Sam Kazemian, Founder of Frax Finance; Stani Kulechov, Founder of Aave

Host: Robbie

Podcast Source: The Rollup

Original title: How The Genius Act Could Change The Dollar Forever - Sam Kazemian & Stani Kulechov

Release date: May 29, 2025

Key Points Summary

Sam Kazemian (, the founder of Frax Finance ), and Stani Kulechov (, the founder of Aave ), recently participated in a discussion about the GENIUS Act. This crucial legislation could officially establish stablecoins as legal currency, which is significant.

The US dollar is accelerating its “on-chain” adoption, and this trend is changing the landscape of traditional finance. We delve into the implications of this shift, why banks are opposed to it, and how Frax and Aave are preparing for this transformation.

In the discussion, Sam provided a detailed introduction to FrxUSD and explained why stablecoins and artificial intelligence (AI) are currently the most talked-about fields. Stani shared his perspective, believing that security tokens may become the largest asset class on-chain. Although stablecoins currently account for only 1.1% of the dollar circulation, this ratio may soon see significant changes.

Highlights of Key Points

Stablecoins, DeFi, and other technologies will ultimately become the cornerstones of the financial system.

Simple things are easier to scale, and this applies in the field of cryptocurrency as well. The concept of stablecoins is very straightforward, which is also one of the important reasons it can change people’s perceptions of cryptocurrencies.

As long as the U.S. government supports stablecoins, stablecoins will only enhance the influence of the dollar, rather than weaken it.

In the field of cryptocurrency, we need to ensure that innovation does not disappear due to regulation. I remain optimistic about the future. As long as we can find a balance between regulation and innovation, we can build a more transparent and efficient financial system that provides better services for global users.

The global M1 money supply of $20 trillion can be completely converted into digital form through stablecoins. Currently, we have only achieved about 1% of the conversion from the traditional financial world of Web 2 to the digital dollar of Web 3. Therefore, the key lies in establishing a foundational digital dollar system, such as FRX USD, USDC, or bank-issued stablecoins.

Adoption of large-scale stablecoins

Robbie:

Hello and welcome to Roll Up. Today we are pleased to have two experts in the stablecoin space – Sam of Frax and Stani of Aave. Stablecoins are on the rise at a rapid pace, and I think it’s one of the few products in the crypto space that has really found a market fit. We have seen the rapid advancement of stablecoin-related regulatory bills in both houses of the U.S. Congress, which currently account for 1.1% of the U.S. dollar in circulation, and will only continue to grow in the future. What are your thoughts on the current state of the stablecoin space?

Sam Kazemian:

I have actually been working hard to control my excitement, and the current situation makes me feel incredibly thrilled. I never expected the development of stablecoins to reach such heights today; the two most eye-catching industries globally right now are artificial intelligence and stablecoins. In the current market environment, no other industry can compete with these. It’s truly gratifying to see the field I have worked hard in for many years reach such a peak. One could say that the world has finally begun to pay attention to and recognize all of this.

I know that Stani is known as the “godfather” of DeFi, and he may have experienced this sense of accomplishment for a long time. When you’ve been in the DeFi space for years, and eventually the whole world is on your side, it must feel different. After the passage of the Genius Act this Monday, the most uncertain and difficult part of the stablecoin space has passed. The U.S. political and legislative system is so complex that many people don’t really know how it works. Congress’s bicameral legislature requires multiple rounds of voting, often confusing, such as “How about another round of voting?” "But eventually, unless there is a major change, such as a shift in Republican priorities (which is highly unlikely), some form of stablecoin bill or its House version will pass.

So while some bills have been passed in the Senate at the moment, that doesn’t mean they’ve become law and still need the president’s signature. However, this is undoubtedly a historic moment, and everyone is looking forward to it. Next week, I’ll be joined by Senators Bill Hagerty (Bill Hagerty) and Tom Maeber (Tom Member) to discuss stablecoin legislation and its implications once it goes into effect. I’m very excited about that. When I think about Aave’s launch at DeFi Summer, I can imagine the exhilarating feeling.

Stani Kulechov:

I completely agree with Sam’s point of view; it’s really interesting to work in this field. You might not have expected things to develop to the scale they are today, but deep down, there is always a belief that technologies like stablecoins and DeFi will eventually become the cornerstone of the financial system.

This shift is natural, like the transition from paper to digital payments, and now that we are moving towards a whole new world of finance, the process will take time. Back in the early days of our partnership with Aave, there was almost no concept of stablecoins on Ethereum. A few years later, stablecoins have become an essential infrastructure for liquidity and yield, a format that is intuitive and accessible to both institutional and mainstream users.

I have always believed that simpler things are easier to scale, and this applies to the crypto space as well. The concept of stablecoins is very straightforward, which is one of the important reasons why it can change people’s perceptions of cryptocurrencies. In the past, when mainstream discussions mentioned cryptocurrencies, they were often associated with speculative trading, as most users encountered these assets through exchanges, which often lacked practical use. However, stablecoins have opened up entirely new use cases for mainstream users, such as cross-border payments and value transfers, which did not exist before.

Of course, for regions with less stable financial systems, such as Argentina, some countries in Africa, as well as certain areas in the Middle East and Asia, the “stability” of stablecoins is particularly important. In the Western world, such as Europe and the United States, the role of stablecoins is more reflected in providing DeFi opportunities, liquidity access, and yield extraction. I think these are all very interesting application scenarios. In addition, the potential of stablecoins in payments and borderless value distribution also excites me.

Of course, the legislative details are crucial for the future development of this field. Even if stablecoins are regulated, we need to ensure that these regulations are reasonable and make compromises when necessary.

Stablecoin vs US Dollar

Robbie:

Stani, an important value proposition you mentioned, as well as Sam, is to extend the influence of the U.S. dollar to markets where currency is scarce and high-quality currency is hard to obtain. For example, the places you mentioned like Argentina, some African countries, and parts of the Middle East and Asia, are generally facing issues of hyperinflation. Therefore, there is a very strong demand for the U.S. dollar, as it is one of the most stable currencies in the world.

The first step is to bring US dollars into these markets through stablecoins, helping people protect their wealth from the devaluation of their local currency. The next step is to provide income opportunities in these regions through stablecoins, allowing them to not only preserve value but also appreciate.

Regarding the impact of stablecoins on the global status of the US dollar, I have heard different opinions. Some people are concerned that stablecoins may threaten the dollar’s dominance in the world. However, I believe everyone here would agree that stablecoins actually strengthen the dollar’s position in the global market. What do you think about this criticism?

Sam Kazemian:

This issue requires some background knowledge. I have more than ten years of experience in the cryptocurrency field, having started mining back in college, even before projects like Ethereum.

Regarding the development of stablecoins, I like to divide it into two stages, just like history is divided into BC and AD. The first stage is the initial concept of stablecoins: can we combine the decentralization and trust mechanism of Bitcoin to create a stable asset pegged to the US dollar? This idea is similar to the pursuit of the “Holy Grail”. Algorithmic stablecoins are an embodiment of this concept, attempting to achieve infinite expansion and contraction through on-chain mechanisms without the need for bank accounts or fiat reserves to maintain stability. This design combines the advantages of both Bitcoin and Ethereum.

However, practice has shown that this design is not perfect, and may even be unfeasible. Similar to the concept of a “perpetual motion machine,” this model violates the fundamental laws of economics and physics. Therefore, the industry began to shift towards more realistic designs. Taking FRAX’s V1 version as an example, it attempted a hybrid decentralized model, but ultimately found that achieving stability pegged to the US dollar still requires support from the state and legal recognition.

But now this possibility has really emerged. The U.S. government may legally recognize certain stablecoins as equivalent to the U.S. dollar, which was unimaginable a few years ago. This is also why FRAX’s new roadmap still centers around stablecoins. Our goal is a market size of trillions of dollars, which requires a realistic and feasible design. Looking back in history, we gradually realize that a fully decentralized stablecoin that can scale to $20 trillion is impossible. But if we can get the Federal Reserve and the U.S. government to support these digital assets, that would be the most exciting thing. This is exactly the direction FRAX is currently heading.

As for whether stablecoins threaten the status of the US dollar, I believe that as long as the US government supports stablecoins, they will only enhance the influence of the dollar, rather than weaken it.

Stani Kulechov:

I completely agree with Stani’s point of view. The US dollar is essentially a simple and efficient transaction tool, and the emergence of the internet has not weakened the dollar’s position; instead, it has expanded its global influence. I expect stablecoins to have a similar effect, as they broaden the reach of the dollar.

In terms of scale, I also very much agree with Stani’s view. Achieving a fully decentralized global currency system will take a long time and a large amount of user adoption. However, for the time being, the technological potential of stablecoins is more reflected in expanding the existing financial system.

In the coming years, I believe stablecoins will become the largest asset class on the chain. Furthermore, security tokens may surpass the total of stablecoins and other crypto assets, becoming the largest asset class on the chain. This transformation process is very important because it not only strengthens the role of the dollar in transactions but also lays the foundation for the future financial system.

Ultimately, we hope to build a more decentralized, fair, and efficient global financial system, but before that, stablecoins are an important step towards achieving this goal. I am very excited to see more and more traditional financial institutions and tech companies entering the stablecoin space. This indicates that people’s acceptance of stablecoins is increasing and the industry is rapidly evolving.

Stablecoins, Real World Assets ( RWAs ), Security Tokens

Robbie:

Stani, your previous predictions have been validated multiple times, such as the success in the decentralized finance (DeFi) lending sector, which may be one of the most important aspects of DeFi. Now, stablecoins have also welcomed their moment in the spotlight. You have made two correct predictions, and now you mention that security tokens will become the largest asset class on-chain, even surpassing the total of stablecoins and crypto assets.

Can you explain to us what security tokens are? Do they refer to equity? For example, we saw Kraken’s recent announcement, and Robinhood has also launched tokenized equity. Are these what you mean by security tokens? Why do you believe security tokens can surpass stablecoins and other crypto assets to become the largest asset class on the chain?

Stani Kulechov:

First of all, my predictions are not always correct. But in terms of security tokens, or more broadly, we can use the term “real-world assets (RWAs)” to describe it, which has a very wide scope.

Security tokens can include equity, such as shares of publicly traded companies, as well as shares of private companies. These assets are not easily accessible to everyone in the traditional financial system, and typically only a few institutions or individuals can participate.

In addition, security tokens can also cover debt assets. A typical example is government bonds (T-Bills), which have begun to be introduced on-chain through tokenization. When DeFi interest rates are low, these assets are particularly attractive because they can bring low-risk assets from traditional finance into the on-chain ecosystem.

As time goes on, we will also see more high-risk, high-reward investment opportunities being introduced on-chain, such as corporate bonds or other high-yield assets. This trend not only expands the variety of assets on-chain but also allows many assets that lack liquidity in traditional finance to find new value. For example, some assets are not illiquid due to a lack of attractiveness, but rather because of high investment thresholds or complex trading processes. The advantage of DeFi is that it can concentrate a large amount of liquidity and connect capital with these financial opportunities through efficient interoperability.

In a sense, stablecoins can also be regarded as a type of RWAs. The difference is that stablecoins typically do not directly provide returns to end users, making them more like a B2B tool. However, their emergence indicates that blockchain systems can attract significant inflows of value from the traditional financial system, and this trend will only continue to expand.

Robbie:

I fully agree. I think you painted a very clear picture that shows the tremendous potential of bringing these assets onto the chain. This is not just about transforming these assets into productive assets, but also fully leveraging the opportunities brought by the interoperability on the chain and the combinability with traditional financial systems.

Yield and liquidity are key factors. These assets require liquidity and yield, and the on-chain ecosystem is able to meet these needs. You mentioned government bonds, and I believe they have become an important component of the reserve assets for many stablecoins, further demonstrating the appeal of on-chain finance.

Sam, you mentioned that next week you will be discussing with Hagardy and other legislators in Las Vegas. You noted that once the relevant bill is signed into effect, it could open up many new opportunities. Currently, we all know the state of the stablecoin market, so what new developments and opportunities can we expect after the bill is signed?

Sam Kazemian:

This bill is significantly different from the EU’s stablecoin (such as the Mika bill) or other regional stablecoins. In the UAE, there is a Virtual Asset Regulatory Authority (VAR), and Japan also has a similar stablecoin licensing system. For example, Circle announced a few months ago that they obtained a stablecoin issuance license in Japan. However, the key point of this bill is not obtaining some kind of license or guidance, but rather that it involves the issuer of the dollar—the U.S. government itself.

Currently, over 95% of stablecoins in the global stablecoin market are pegged to the US dollar. Therefore, the attitude of the US government towards these stablecoins is crucial, as it is not just a regional issue but has global implications. In other words, if a stablecoin can be recognized by the US government as an asset equivalent to the US dollar, it has the potential to be widely accepted in the global financial system.

For example, Arthur Hayes once mentioned, “This bill is only aimed at the US market.” But in reality, this viewpoint is incorrect, as it involves the legal status of the dollar. Once a certain stablecoin is recognized as a unit of the dollar, it can circulate in all areas that accept the dollar. Even banks in the European Union may be willing to accept these stablecoins, provided they can connect via blockchain, rather than relying on the traditional SWIFT system.

From a legal perspective, the significance of this bill lies in the fact that it does not legalize stablecoins, but rather directly grants them the legal status of the US dollar. For example, in different jurisdictions, as long as the US dollar is a legally circulating currency, then such stablecoins can operate freely in those areas. This shift has led banks to seriously consider issuing their own stablecoins; for instance, large banks like JP Morgan and Citibank are exploring the formation of consortia to jointly launch legal stablecoins. Although I cannot disclose more details due to a confidentiality agreement, we are indeed engaged in in-depth discussions with these banks. This is a very important event.

In addition, with the launch of FRX USD and other payment stablecoins, I believe Circle’s USDC is also closely monitoring this trend. Tether’s Paulo has also been active in Washington recently, clearly realizing the significant implications of this bill. This is not just a matter of regional regulation, but a major issue concerning the future development of the global stablecoin market.

Robbie:

Indeed. This bill redefines the relationship between the US dollar and stablecoins. In the past, the issuance of dollars was controlled by a single entity, but now multiple institutions may participate in the issuance of dollars, such as JP Morgan and Citibank, which are exploring the possibility of jointly launching stablecoins. Hearing that you have already negotiated with these banks and signed a confidentiality agreement indicates that substantial progress is being made. This is indeed very exciting.

Expand US Dollar Credit

Robbie:

Now we see many companies starting to explore issuing stablecoins, like Meta indicating it may launch its own stablecoin, and Apple is also considering it. More and more financial, tech, and DeFi entities are trying to issue stablecoins. These stablecoins are essentially a form of the dollar, as long as they can be labeled as “1 dollar”, they meet the regulations and fall into this category. This is indeed a systemic change. In the past, the issuance of the dollar was controlled by a single entity, but now multiple companies and organizations can participate in the issuance of the dollar. In my opinion, this change may lead to the decentralization of dollar issuance.

Ultimately, what kind of impact might this trend bring? What economic ripple effects might occur when different companies are able to issue dollars? For example, could multiple dollar issuers drive a more localized credit market? This way, more issuers can participate in loan issuance, thereby expanding the supply of dollars. What are your thoughts on this?

Sam Kazemian:

What you mentioned is very critical. In fact, the Federal Reserve has long defined different forms of the dollar, such as M1, M2, and M3. These definitions reflect different types of dollar assets in the financial system. Some assets look like dollars but are not actually real dollars. For example, we have also seen similar situations in DeFi, such as Terra’s stablecoins, which were once considered dollars but later collapsed and lost their value.

M1 money is the most basic form of currency, which refers to assets that can be immediately used in the economy, such as bank deposits or money market funds. These assets can be converted into cash at any time, directly serving economic activities; whereas M2 includes higher-risk dollar-denominated assets.

Regarding the Genius Act and payment stablecoins, the core significance of this bill is that it allows non-bank entities to issue M1 currency for the first time. In the past, only chartered banks could issue M1 currency in the U.S. financial system, and they were subject to strict regulation. The passage of this bill may break this monopoly and allow other institutions to innovate and issue M1 currency.

Of course, such issuances must comply with strict rules, such as being supported by money market funds, government bonds, and federal reverse repos. These assets are almost equivalent to money, thus meeting the Federal Reserve’s definition of M1 money. FRAX USD is striving to become the first entity to obtain a payment stablecoin charter, which will be a historic moment.

Stani Kulechov:

I completely agree. The details of this bill are very important, as they not only affect the regulation of stablecoins but may also determine the space for innovation. Looking back at the history of the fintech sector, such as the rise of P2P lending, we can see that regulation often follows quickly and imposes restrictions on innovation. This situation may make it difficult for small teams and startups to compete, as they cannot afford the high compliance costs.

In the cryptocurrency space, we need to ensure that innovation does not disappear due to regulation. The European Mika legislation is an example. While it establishes some rules to regulate the operations of cryptocurrency companies and stablecoins, the legislative process is more focused on stablecoins, which does not entirely apply to the current cryptocurrency industry. Therefore, legislation needs to pay more attention to the actual needs of the industry rather than hindering innovation.

I remain optimistic about the future. As long as we can find a balance between regulation and innovation, we can build a more transparent and efficient financial system that provides better services for global users.

Response to the Genius Act

Robbie:

From an external perspective, the U.S. government seems to be trying to relax regulations on the financial industry. A key point mentioned by Sam is that in the past, the issuance of the dollar has been monopolized by banks, and only chartered banks could issue dollars, which is also part of M1 money. However, through the Genius Act, although regulation has increased, it has actually broken this monopoly, extending the right to issue dollars to more institutions and entities, allowing them to participate in the issuance of dollars as well. This regulatory approach helps the industry develop while lowering the barriers for emerging companies to enter the market for innovation.

Sam Kazemian:

The point you mentioned is very critical. This specific regulation and legislation is indeed positive, as small businesses often oppose regulations, as Stani said, due to the lack of resources that large companies have. People generally believe that regulation only strengthens the monopoly position of existing businesses, making it harder to break. However, the opposition of banking lobby groups and the traditional financial system to this legislation just proves this point. This is one of the few pieces of legislation that truly opens up the competitive playing field.

Ideally, regulation should be able to promote more innovation in competition, while also encouraging and incentivizing entrepreneurs and innovators to enter specific fields, and establishing clear rules for everyone to follow. Such examples are rare, and if I were to ask you what the last similar example you know is, entrepreneurs would say, “Yes, we need more regulation,” while existing businesses would prefer not to have more regulation. Such situations are very rare, which is why this bill is particularly important in this field, as it completely overturns people’s views on traditional regulation.

Robbie:

As more and more issuers enter this competitive field, we are also beginning to see more varieties of stablecoins. I am curious how existing businesses like yours are adjusting their positioning in the environment of these emerging stablecoins and issuers? We also talked about some large banks entering the stablecoin space. What is your view on the interaction between FRAX and the stablecoins issued by these banks, as well as with other stablecoins like Meta? Are these stablecoins complementary, or will they create a new competitive landscape?

Stani Kulechov:

I don’t think there is direct competition among stablecoins. In fact, I prefer to see them as different payment paths. It may sound a bit strange, but when people choose to use GHO or USDC, they are actually choosing a method of payment. I believe this logic applies to almost all stablecoins.

From Aave’s perspective, stablecoins are crucial to lending protocols. We maintain a good partnership with stablecoin issuers because DeFi not only enables earnings and consumption but also supports the demand for long-term holding. For example, in the Aave protocol, about half of the users hold their stablecoins for more than six months, which is very beneficial for stablecoin issuers.

From the perspective of GHO, GHO primarily uses native crypto assets such as Ethereum and Bitcoin as collateral, while it can also be minted through other stablecoins to achieve economies of scale.

For example, in the GHO ecosystem, we have introduced a stability module (GSMS), currently supporting USDT and USDC, with potential expansion to more stablecoins in the future. This module allows users to mint GHO by collateralizing these assets, thereby expanding the range of collateral.

Sam Kazemian:

I totally agree with Stani that liquidity leads to more liquidity. The economy doesn’t have to be a zero-sum game, sometimes it’s positive-sum, and we don’t need to take a slice of someone else’s pie, but can expand the whole pie through cooperation. That’s why I’ve often mentioned that the world’s $20 trillion M1 money supply can be converted into digital form entirely through stablecoins. At the moment, we have only achieved about 1% of the conversion from the traditional financial world of Web 2 to the digital dollar of Web 3. Therefore, the key is to establish a basic digital dollar system, such as FRX USD, USDC, or bank-issued stablecoins.

FRX USD is still very young, having only been launched for three months. We are currently going through the listing and KYC process with Aave, and we hope that in the future it can become a stability module to support the minting of stablecoins like GHO, as FRX USD is fully redeemable and is a legal digital currency issued by FRAX. This is a great example of the symbiotic relationship between stablecoins rather than a competitive one.

Interestingly, digital dollars like FRX USD, USDC, and USDT cannot directly compete with higher-yield investment tools. Their value must always remain stable at 1 dollar and be fully redeemable. However, through innovation, we can offer users additional yield programs. For example, Coinbase offers a yield program for USDC, and we will also launch a similar service called FRAX Net. Users can register a fintech account, connect their Web 2 bank account or brokerage account, mint FRAX USD, and manage it while also earning risk-free yields.

In this way, stablecoins can not only increase the liquidity of digital dollars but also enhance their usage in the decentralized finance ecosystem. Ultimately, these different stablecoins will complement each other and collectively promote the development of the digital dollar ecosystem.

Transition from L2 to L1 by Frax

Robbie:

I am very excited to hear about your progress. We mentioned that stablecoins or circulating dollars currently account for only 1.1% of the M1 money supply. This indicates that we are just getting started. As more liquidity enters the blockchain, these funds will gradually spread to other areas, such as Aave, the DeFi money market, and various trading platforms and DeFi applications. This is a critical moment for the industry to prepare for the on-chain liquidity explosion.

You are making many innovations for your protocol so that when institutions start paying attention to these protocols, they can conduct due diligence. Sam, I heard you are transitioning from L2 to L1. Is this part of preparing for the influx of institutional funds? What is your thought process? What changes will occur when liquidity starts flowing into L1?

Sam Kazemian:

This is indeed an important decision, and it is also very complex, both technically and structurally. We have upgraded the old FXS token. This token was originally Frax’s governance token, and it has now been redesigned as the gas token and measurement unit token for L1.

We have also renamed the Frax Share token to Frax, as the new stablecoin is FRX USD. Now, the functions of these two tokens are completely separate. The Frax on L1 is a scarce asset primarily used for paying gas fees. Of course, users can also earn rewards from the Frax ecosystem by staking Frax.

When mentioning Libra, this is a good analogy. Frax is realizing the vision of Libra at the right time and place. By establishing its own L1 blockchain, Frax has become a center for the issuance and settlement of stablecoins, focusing on supporting the FRX USD in the United States. For FRX USD to truly become a “good currency,” it needs to circulate across multiple ledgers and platforms. We achieved this through Frax L1.

This can be understood as our Frax L1 being similar to Circle’s CCTP, but it is fully programmable. CCTP is a cross-chain transfer protocol that allows users to transfer USDC on a one-to-one basis to different blockchains. Frax L1 further expands this capability and currently supports liquidity across 14 to 15 chains including Solana, Ethereum, and L2. If running validation nodes, these features will be fully available in the next hard fork.

In the long run, the vision of this chain is to become a core infrastructure for stablecoins, providing support for the payment and settlement of digital dollars. A similar concept can be seen in Hyperliquid. Hyperliquid is an L1 blockchain focused on perpetual contracts and high-performance trading. Frax’s Frax L1 focuses on payments and establishing standards for digital dollars.

In the future, this L1 structure will combine with trillions of dollars of markets to promote the adoption of the digital dollar. I believe Libra was the first project to attempt to realize this vision, while Frax is the second. Through FRX USD and Frax L1, we are working towards a more decentralized and efficient financial ecosystem.

AAVE V4 Proposal

Robbie:

Stani, you are about to launch V4, and I heard there are many exciting architectural innovations this time. One highlight is the unified liquidity layer, which provides greater adaptability for different modules. Why did Aave choose to adopt this unified liquidity layer instead of building its own L2 or L1? What makes this design the best choice for Aave?

Stani Kulechov:

First of all, it should be clarified that while we are indeed developing V4, it has not been officially launched yet. Last year, we submitted relevant proposals, and we are now close to the final stage. Our core idea is that as more and more value flows onto the chain, we need a way to isolate the risks of different collateral and markets while avoiding the dispersion of liquidity. Concentrated liquidity is key to achieving economies of scale.

Aave’s architecture introduces the concepts of Liquidity Hub (Liquidity Hub)" and “Liquidity Spoke (Liquidity Spokes)”. A liquidity center is where the main liquidity is stored, while the liquidity spokes can be configured according to different needs, such as using different collateral assets or risk parameters. For example, one spoke can focus on conservative assets, while the other can support riskier assets. Liquidity centers are similar to central banks, providing credit support to these spokes. In this way, whenever a new need for innovation arises, such as Sam coming up with a new idea, he can quickly create a spoke and get initial credit support from the liquidity center. This design provides flexibility for future diverse innovations, while also simplifying the user experience.

In addition, V4 has introduced a risk premium mechanism that dynamically adjusts borrowing costs based on the risk level of the collateral or portfolio provided by the user. For example, if a user provides low-risk collateral and borrows USDC, they will enjoy a lower interest rate; whereas a high-risk collateral portfolio will incur an additional risk premium. This mechanism makes lending pricing more precise and ensures that users do not have to bear the costs of high-risk users’ behaviors. These improvements will provide a better experience for users while enhancing Aave’s flexibility and adaptability.

Stani Kulechov:

After hearing these details, I’d like to share a recent innovation that came to my mind that might be a good example of Aave. We plan to launch a rewards program in the Fraxnet fintech app where users can earn by simply depositing FRAX USD into a non-custodial wallet. I’d like to extend this plan even further, such as allowing users to deposit FRAX USD into Aave, so that they can not only earn deposit yields, but also further amplify returns through Aave’s lending mechanism. Imagine FRAX USD as a fully redeemable legal digital dollar, and users can earn both Frax reward yield and Aave’s lending yield by depositing Aave. This will further cement Aave’s core position in DeFi, as it is already seen as the closest venue to risk-free returns.

If we can combine this reward program of FRAX USD with Aave’s liquidity hub, it will be a very powerful collaborative model. This not only allows digital dollars to be more widely integrated into DeFi but also combines the risk-free returns from traditional finance (such as the Federal Reserve’s short-term rates) with DeFi’s innovation. I believe this will be a direction with great potential.