The successful strategies of Circle, how can Frax Finance innovate?

Original Title: From CRCL to FRAX: The Next GENIUS Act Play

Original author: @100y_eth

Original compilation: Luke, Mars Finance

Key Points

On June 5, 2025, USDC's issuer Circle successfully went public on the New York Stock Exchange (NYSE), injecting vitality into the entire stablecoin industry. Circle has attracted significant attention through its vertically integrated product strategy, combined with the crypto-friendly political environment in the United States.

With Circle drawing explosive attention, people naturally began to look for the next winner under the GENIUS Act. There is a stablecoin protocol that brings Circle to mind and leads the industry with a similar strategy: Frax Finance.

Frax Finance is a stablecoin protocol that issues frxUSD in compliance with the GENIUS Act. It is not limited to simple issuance but presents itself as a stablecoin operating system, providing FraxNet—a user-friendly front end for utilizing frxUSD—and Fraxtal—a high-performance blockchain that supports it.

The three components of the financial system are money, frontend, and backend. From the perspective of the development of the financial industry, the current inefficient backend systems will gradually transition to blockchain. In this trend, the three elements of a system based on stablecoin are stablecoin, frontend, and blockchain network. Frax Finance is one of the few projects that constructs all three elements, demonstrating the direction of vertical integration.

Frax Finance is at a significant turning point in its next chapter. From the political leadership of the founders on its original GENIUS Act draft, to the vision of vertically integrated products through a stablecoin operating system, and finally to a comprehensive transformation of the protocol through the Polaris upgrade, Frax Finance is more prepared than anyone for the future envisioned by the GENIUS Act.

1. What is the secret to the successful launch of Circle?

1.1 The Victory of the Stablecoin Industry

Source: CNBC

On June 5, 2025, Circle went public on the New York Stock Exchange (NYSE) under the ticker symbol CRCL. The IPO was priced at $31 per share, higher than the initial expectation of a range of $27 to $28, raising approximately $1.1 billion. On the first day of trading, the opening and closing prices were $69 and $83, respectively, and as of August 25, 2025, the stock price was around $135. This made Circle one of the most successful IPO cases.

Circle's listing on the NYSE is not just a milestone for the company itself. With the passage of the GENIUS Act, the easing of SEC regulations, and the Trump administration's crypto-friendly stance, it signals a pathway for crypto companies to enter traditional financial markets. Moreover, the warm reception from the public markets for Circle enhances confidence that stablecoin infrastructure can also thrive in traditional finance.

In other words, Circle's listing is not only a success for itself but also a victory for the entire stablecoin industry.

1.2 Circle's vertical integration strategy

Source: Circle

Circle is one of the largest stablecoin issuers in the world, offering USDC pegged to the US dollar and EURC pegged to the euro. Additionally, under its mission to build a new financial system based on the internet, Circle provides a range of products:

Circle Payments Network (CPN): Circle's global fund transfer standard, designed as a blockchain alternative to SWIFT. Financial institutions and companies using CPN can efficiently handle cross-border remittances and settlements through Circle's infrastructure and various public blockchains. For more details, see "CPN: Towards a Digital Native SWIFT."

Circle Mint: Integrated with traditional banking networks (such as wire transfers and SEPA), Circle Mint allows businesses and institutional users to instantly mint USDC and EURC, redeemable for fiat currency at a 1:1 ratio. It is important to note that Circle Mint is the only official channel for the direct issuance of USDC.

Circle Wallets: A wallet SDK service that enables Web2 companies to easily integrate their services into blockchain-based wallets. In addition to simple wallets, it also offers account abstraction, MPC-based security, RPC nodes for transaction broadcasting, compliance options, multi-chain support, and more.

CCTP: Due to USDC being natively issued on over 20 networks, liquidity fragmentation may occur. Circle's cross-chain messaging protocol CCTP enables the secure transfer of USDC between different blockchains through a burn and mint mechanism.

Circle Paymaster: Circle's account abstraction feature based on ERC-4337. Users do not need to pay blockchain fees with ETH; Circle Paymaster allows them to pay fees with USDC or have sponsors cover the costs, providing customers with gas-free transactions.

USYC: By the end of 2024, Circle acquired the issuer of USYC, Hashnote, and incorporated it into its product line. USYC is a tokenized money market fund composed of U.S. Treasury bonds and reverse repos. Institutional clients holding USYC can earn stable on-chain yields, and the token can also serve as collateral for margin on exchanges such as Deribit and Binance.

Arc: Announced in August, Arc is Circle's L1 network focused on USDC, utilizing a high-performance consensus algorithm to make USDC usage seamless and efficient.

In this way, Circle not only issues stablecoins but also builds the infrastructure that allows institutions and retail users to easily use stablecoins. Covering issuance, wallet infrastructure, cross-chain bridges, L1 networks, account abstraction features, and institutional solutions, this sets a benchmark for vertical integration of product strategies.

From the perspective of user experience, Circle's product lineup showcases its strength. Imagine a company leveraging Circle's products: it can mint and redeem USDC instantly at a 1:1 ratio through Circle Mint, provide its customers with easy access to stablecoin features even if they are not familiar with Web3 through Circle Wallets, Paymaster, and CCTP, utilize the Arc blockchain for the most seamless and efficient use of USDC, and rely on CPN for transactions and settlements with other financial institutions and companies.

The core of a stablecoin is not issuance, but usability. While it is important to securely issue stablecoins through collateral design and regulatory frameworks, issuance is meaningless without real-world use cases. Circle's vertically integrated product roadmap lays the foundation for the widespread adoption of stablecoins in the real world and on-chain ecosystems.

1.3 Why Circle is attracting attention

So, how has Circle gained such enthusiastic attention not only in the blockchain industry but also in the traditional financial markets? In addition to product factors, several other aspects, such as the current political climate and Circle's business model, also play a role:

The passage of the GENIUS Act: As the first federal law in the United States to explicitly regulate dollar-backed stablecoins, the GENIUS Act has the most direct impact on Circle and the entire stablecoin industry. It establishes the legal status of stablecoins, the obligations of issuers, and consumer protection requirements. This provides a legal foundation for U.S. institutions and companies to issue stablecoins. In fact, Circle's internal operation guidelines have been codified as legal standards, granting Circle legitimacy and compliance.

Trump administration's pro-crypto policy: From before his inauguration, the Trump administration announced strong support for crypto. On July 30, 2025, the presidential working group on digital asset markets released a 160-page crypto policy report. The report proposed a concrete roadmap for positioning the United States as the global crypto capital.

SEC: The new SEC Chairman Paul Atkins has also taken a pro-crypto stance, adopting a more lenient regulatory approach compared to Gary Gensler. Following the White House's release of a crypto policy roadmap, the SEC quickly announced an initiative called Project Crypto, which aims to clarify the regulation of the crypto industry in the U.S.

Market share: Circle issues USDC, the world's second-largest stablecoin. Currently, the supply of USDC is approximately $63 billion, accounting for about 30% of the total stablecoin market. Considering that USDT cannot comply with the GENIUS Act due to its collateral composition, USDC is the largest compliant stablecoin under U.S. regulation.

Business Model: Circle's main revenue comes from managing USDC reserves through tools such as government bonds and repurchase agreements. In the second quarter of 2025, Circle reported $658 million in revenue and $126 million in adjusted EBITDA, demonstrating an attractive revenue structure and robust operating profit margins.

The current political environment in the United States provides a perfect backdrop for Circle to gain attention, while also laying the foundation for the rapid growth of the entire stablecoin industry.

1.4 South Korean investors, LFG!

Interestingly, Circle's popularity is not only strong in the United States but also in other countries. In fact, looking at the ranking of the most purchased overseas stocks in South Korea in June 2025, Circle (CRCL) topped the list with a net purchase amount exceeding $600 million. This is 1.6 times that of the second place Tesla 2X ETF and four times that of the third place Coinbase, far surpassing Alphabet ($100 million) and Apple ($90 million).

Why is Circle attracting such strong interest in South Korea? Of course, many South Korean investors are actively trading US stocks, but a deeper reason is that the South Korean market itself is experiencing a surge of interest in stablecoins. In June 2025, President Lee took office and announced strong support for the legalization of stablecoins, which became a powerful trigger for Koreans' interest in the stablecoin industry.

Of course, due to strict foreign exchange laws, the conservative stance of the Bank of Korea, and the relatively small size of the short-term bond market, South Korea still faces many obstacles before fully legalizing stablecoins based on the Korean won. However, whenever a company or institution submits a trademark application related to stablecoins, its stock price skyrockets, indicating that interest in stablecoins extends beyond the blockchain industry and into the realm of ordinary stock market investors.

2. Find the next generation GENIUS Act winner

2.1 Who will take over CRCL?

With Circle's successful public listing, the company and investors naturally turned their attention to the stablecoin industry and began looking for the companies and protocols that could benefit the most after the GENIUS Act. Coinbase is often considered a beneficiary, as Circle shares nearly half of its USDC reserve income with Coinbase. In the second quarter of 2025, Circle's total reserve income was $634 million, of which more than half, $332.5 million, was paid to Coinbase.

Aside from companies like Coinbase that benefit indirectly, are there any publicly listed companies issuing stablecoins that comply with the GENIUS Act and receive direct benefits like Circle? Unfortunately, there are not. Among the companies listed on the U.S. stock market, none issue stablecoins that comply with the GENIUS Act. Paxos is the second largest stablecoin issuer in the U.S., but it is a private company.

2.2 Opportunities on the Chain

Even if you can't find the next Circle in the stock market, there's no need to be disappointed. Because there are protocols on-chain that issue dollar stablecoins compliant with the GENIUS Act. Currently, there are only two protocols in the market aimed at issuing stablecoins compliant with the GENIUS Act. One is Ethena, and the other is Frax Finance.

Source: Ethena

Ethena offers two stablecoins: USDe and USDtb. USDe does not comply with the GENIUS Act due to its reserves being based on delta-neutral positions in the futures market. However, the reserves of USDtb consist of MMF fund BUIDL and stablecoins. Additionally, the issuance of USDtb was previously conducted in the BVI, transitioning through Anchorage Digital Bank in July 2025 to prepare for compliance with the GENIUS Act.

Frax Finance issues the frxUSD stablecoin, which is backed by various USD-based MMF tokens and US Treasury fund tokens. Notably, Sam Kazemian, the founder of Frax Finance, is one of the key figures in promoting the landmark GENIUS Act stablecoin legislation.

In March of this year, Sam met with Senator Cynthia Lummis, a co-sponsor of the GENIUS Act, and provided suggestions and support for drafting the bill, which led to the successful establishment of a legal framework for the digital dollar.

Unlike other protocols, Frax Finance not only builds products that advance its core business but also actively participates in regulatory discussions, working closely with legislators to shape the regulatory framework. This is a proper example of policy entrepreneurship. Because the founders are personally involved in drafting the bill, Frax Finance understands the GENIUS Act better than anyone and is able to design frxUSD in accordance with the act.

3. frxUSD, the first stablecoin compliant with GENIUS

3.1 Frax's Stablecoin OS

The goal of Frax Finance is to issue stablecoins in a reliable manner and build scalable infrastructure for widespread use. To this end, Frax Finance has proposed Stablecoin OS, which provides its three core products: frxUSD, FraxNet, and Fraxtal.

frxUSD: A stablecoin compliant with the GENIUS Act, it is the core asset of liquidity in the Frax ecosystem.

FraxNet: A platform where users can issue and redeem frxUSD in various ways and earn stable returns from holding non-custodial stablecoins compliant with the GENIUS Act.

Fraxtal: A high-performance EVM L1 blockchain built for frxUSD, using FRAX as its gas token.

While issuance is important, the practicality of stablecoins is even more critical. Frax Finance not only issues frxUSD in a regulatory-compliant manner but also provides FraxNet—a front end that allows users to easily utilize frxUSD, as well as the Fraxtal ecosystem built specifically for frxUSD.

In this structure, frxUSD serves as the currency (money), FraxNet takes on the roles of fintech and banking, and Fraxtal acts as the backend of the financial system. The harmonious operation of these three products is the core engine of the frxUSD ecosystem.

In addition, Frax Finance also offers various services, such as Fraxswap for trading, Fraxlend for lending, and frxETH (Ethereum liquid staking protocol), thereby building a complete stablecoin and DeFi ecosystem. The complete story of the Frax Finance ecosystem and how it has developed to its current position will be presented in the next article.

3.2 frxUSD, the first stablecoin that complies with GENIUS

Source: GovInfo

Sam Kazemian, the founder of Frax Finance, was involved in the drafting of the GENIUS Act, which gives him and the Frax team a deep understanding of it. Based on this regulatory expertise, Frax Finance began issuing the regulatory-compliant frxUSD stablecoin this February. But what exactly makes a stablecoin compliant with the GENIUS Act? Does frxUSD truly comply with the GENIUS Act?

The full text of the GENIUS Act is easily accessible online, but due to its length, the following summarizes the key points. To issue a stablecoin that complies with the GENIUS Act, the following requirements must be met.

(In addition to the items listed below, there are also external accounting audits, capital adequacy ratios, AML compliance, and priority repayment requirements in bankruptcy, etc. Since these are related to internal operations, they will not be discussed here.)

3.2.1 Issuance Qualification

Only authorized issuers within the United States are allowed to issue, and authorized issuers are divided into three categories: the first category is subsidiaries of banks or credit unions, the second category is institutions approved by the OCC, and the third category is institutions approved by state financial regulatory agencies.

With the approval of the FIP-432 governance proposal, all responsibilities related to the issuance, reserve management, and regulatory compliance of frxUSD have been transferred to FRAX Inc. FRAX Inc is a company registered in the state of Delaware, USA, and must obtain approval from the OCC or state financial regulatory authorities to issue a stablecoin compliant with the GENIUS Act. According to the FIP-432 document, FRAX Inc is currently preparing to obtain a stablecoin issuance license.

3.2.2 Reserve Requirements

The core principle of the reserves under the GENIUS Act is complete 1:1 backing. In other words, the total supply of the issued stablecoin must be supported by at least an equal amount of reserves. The composition of the reserves is limited to the following high liquidity assets:

U.S. currency or Federal Reserve account balance

Demand deposits, withdrawable deposits, or insurance deposits and credit union shares

U.S. Treasury bonds with a remaining or original maturity of 93 days or less

The issuer, as the seller, participates in overnight repurchase agreements with government bonds that have a remaining maturity of 93 days or less as collateral.

The issuer participates as a buyer in the overnight reverse repurchase agreement, using U.S. Treasury bonds as collateral.

Securities registered under the Government Money Market Fund according to the Investment Company Act of 1940 or solely holding the above (i) to (v) assets.

Other assets directly issued by the U.S. federal government that have the same liquidity and stability as mentioned above.

The tokenization forms of the above assets (i), (ii), (iii), (vi), and (vii).

Source: Frax Finance

The frxUSD reserves issued by Frax Finance are composed entirely in tokenized form. The RWA tokens that make up the frxUSD reserves are as follows:

USTB: A tokenized form of the Superstate short-term U.S. government securities fund, investing in short-term U.S. Treasury bonds, issued by Superstate. Issued under Reg. D Rule 506(c) and the Investment Company Act 3(c)(7).

BUIDL: The tokenized form of the BlackRock USD Institutional Digital Liquidity Fund, investing in U.S. Treasury securities, cash equivalents, and repos, issued through Securitize. Issued under Reg. D Rule 506(c) and the Investment Company Act 3(c)(7).

WTGXX: The tokenized form of the WisdomTree Government Money Market Digital Fund, which invests in short-term U.S. Treasury bills and U.S. government agency bonds. This is a government money market fund formally registered under the Investment Company Act 2a-7.

USDB: A stablecoin issued by Bridge, acquired by Stripe.

USDC: A stablecoin issued by Circle.

Therefore, the reserves of frxUSD comply with the tokenized forms in (viii)'s (i) and (vi), with over 100% over-collateralization, meeting the reserve requirements of the GENIUS Act and maintaining stable value.

3.2.3 Profit Distribution?

According to the GENIUS Act, stablecoin issuers are not allowed to pay interest to holders solely for holding or using stablecoins. This provision aims to prevent similarities with deposits, avoid being misunderstood as investment assets, and ensure financial stability.

Since frxUSD complies with the GENIUS Act, users cannot earn interest just by holding frxUSD. However, if users hold frxUSD in FraxNet, they can receive stable returns from bonds. At first glance, this seems to violate the GENIUS Act, but that is not the case. How is this achieved?

This is because the issuer did not directly pay interest to stablecoin holders. Instead, the distribution platform provides rewards. FraxNet is operated by the independent legal entity Frax Network Labs Inc registered in Delaware, separate from the issuer. Therefore, only users holding frxUSD in FraxNet can receive yield rewards.

Of course, users holding frxUSD in personal wallets like MetaMask or on exchanges that support frxUSD will not earn interest, in accordance with the GENIUS Act. This structure is not unique to Frax Finance; Circle's USDC and PayPal's PYUSD also use a similar approach.

Coinbase pays about 4.1% interest to users holding USDC in the Coinbase app, while PayPal pays about 3.7% interest to users holding PYUSD in the PayPal app. This is possible because Coinbase and PayPal are separate legal entities from the issuers Circle and Paxos.

4. FRAX follows in the footsteps of CRC: Familiar yet innovative.

So far, we have explored how Circle achieved a successful listing and examined frxUSD from Frax Finance. But wait, did you feel a sense of déjà vu when reading about Frax Finance? The direction that Frax Finance is taking in building its stablecoin ecosystem is very similar to that of Circle.

4.1 The First Familiar Encounter: Currency

The first familiarity is in the issuance method of stablecoins. Circle and Frax Finance both aim to issue stablecoins that comply with the GENIUS Act, with reserves consisting of cash, short-term U.S. Treasury bonds, and repos. These stablecoins maintain a stable value, serving as the lubricant (money) for the next generation of financial systems.

In terms of the use of reserve interest income, Frax Finance may have more room than Circle to create a virtuous cycle within its ecosystem. While all interest income from USDC reserves belongs to Circle, the interest income from frxUSD reserves is used for users holding frxUSD in FraxNet and for team operations, with the remaining portion allocated to FRAX stakers, who are the core token holders of the Frax ecosystem.

This structure means that as more frxUSD is issued, the Frax ecosystem grows, which in turn increases the issuance of frxUSD, creating a positive feedback loop.

4.2 Déjà vu: Front-end

Circle provides a front-end with a high user experience, enabling USDC holders to easily use their stablecoin, such as 1) Circle Mint for easy issuance and redemption, 2) Circle Wallet for easy wallet integration, and 3) Circle Gateway for managing multi-chain balances.

Source: FraxNet

Similarly, Frax Finance offers a user-friendly front end called FraxNet, allowing frxUSD holders easy access to various financial activities:

Multi-asset issuance: Users can issue frxUSD not only with stablecoins such as USDC, USDT, PYUSD, and USDB, but also with bank wire transfers and even RWA tokens (such as USTB and WTGXX). This is similar to Circle Mint.

Embedded Wallet: Users can log in using accounts like Google, which automatically creates a blockchain wallet for them. This allows even users unfamiliar with blockchain to easily access frxUSD. This is similar to Circle Wallet.

Dashboard: FraxNet provides a dashboard that offers a comprehensive view of a wide range of assets across multiple networks and facilitates easy transfers. This is similar to Circle Gateway.

Passive Income: Users holding frxUSD in FraxNet can automatically earn stable interest income from bonds. Just like users holding USDC in the Coinbase app can earn yields, Frax Finance provides interest income for frxUSD holders on FraxNet.

Although multi-asset issuance or passive income is indeed a powerful feature, the four functions mentioned above can be seen as essential capabilities that modern financial services must possess. FraxNet further provides a more powerful vertically integrated product and user experience than Circle Mint through the following roadmap.

Virtual Visa Card: In partnership with Stripe and Bridge, the FraxNet project plans to launch a virtual Visa card connected to the Visa network. This will enable users to use FraxNet assets for real-world payments.

Virtual Bank Account: Frax Finance is partnering with Lead Bank to provide virtual bank accounts for each user, enabling deposits and withdrawals through the traditional banking network. Integration with existing infrastructure can enhance the user onboarding experience.

FraxNet Mobile: In 2026, FraxNet will launch an application that allows users to easily access FraxNet on mobile, providing them with a complete mobile banking experience.

The goal is not only to provide simple wallet, trading, monitoring, and yield opportunity services through stablecoin issuance protocols, but also to build a complete user interaction lifecycle by supporting real-life applicable cards, banking, and mobile services.

4.3 The Third Familiarity: Backend

In a financial system, the backend is just as important as the frontend. No matter how user-friendly the frontend is, if the backend efficiency for actual currency movement is low, users will not have a good experience.

To this end, in February 2024, Frax Finance launched its high-performance blockchain network Fraxtal. Fraxtal aims to optimize the Frax ecosystem, with the goal of serving as the rail for frxUSD.

In fact, providing an optimized backend for its ecosystem has made Frax Finance an industry pioneer. After Fraxtal, many stablecoin projects began to launch their blockchains optimized specifically for stablecoins:

Converge: Ethena is collaborating with Securitize to develop Converge, a high-performance blockchain aimed at connecting DeFi and traditional finance, centered around ENA and USDe.

Stable and Plasma: Tether has made a strategic investment in Stable and Plasma, a blockchain network focused on USDT transfers and payments.

Arc: Circle has recently launched a blockchain Arc optimized for USDC.

In the end, Frax Finance foresaw the direction of the industry. The launch of Fraxtal is not just another blockchain release, but a pioneering move towards the future of financial infrastructure.

4.4 Stablecoin Triples

The three elements of today's financial system are money, the front end, and the back end. Thanks to fintech companies providing convenient front ends that connect us to the complex back ends of payments, securities, and remittances, we can easily participate in economic activities.

From the perspective of the development of the financial industry, the current complex and inefficient backend will gradually transition to blockchain. In this trend, the three fundamental elements of a blockchain-based financial system are stablecoin, frontend, and blockchain network. This is the stablecoin trinity, and Frax Finance is one of the few projects that build all three elements, demonstrating a direction of vertical integration.

5. Towards the North Star

Source: Frax Finance

Since March this year, Frax Finance has been preparing for the GENIUS Act and is committed to the North Star upgrade, which will correspondingly transform the protocol. This upgrade includes renaming the legacy Frax protocol tokens FRAX and FXS to frxUSD and FRAX, changing the gas token of Fraxtal from frxETH to FRAX, and making other significant adjustments, such as the token incentive structure.

Frax Finance is now at a significant turning point in its next chapter. From the political leadership of the founder regarding the original GENIUS Act draft, to the product vision of vertical integration through Stablecoin OS, and finally to the comprehensive transformation of the protocol through the North Star upgrade, Frax Finance is more prepared than anyone for the future envisioned by the GENIUS Act.

Some may think that Frax Finance is merely following Circle's roadmap. However, the reality is quite the opposite. By introducing FraxNet (a comprehensive front-end platform that integrates all functionalities) and Fraxtal (a blockchain built specifically for backend infrastructure), Frax Finance proves that it not only keeps pace but is actively shaping the trajectory of the stablecoin industry. These innovations highlight Frax Finance's role as a pioneer, setting the tone for the direction the entire ecosystem may follow.

Just as sailors once followed the North Star to find their direction, Frax Finance is also upgrading to set the course for the industry through North Star. This is not just an upgrade. It is an act of establishing new reference points for the entire industry, ultimately positioning Frax Finance as a guiding light at the forefront of the industry, like the North Star.