Stephen Moore, a former campaign advisor to US President Donald Trump, is planning to launch a stablecoin backed with fractional reserves, Fortune reported on Monday,
Dubbed Frax, the proposed digital currency will not be backed by fiat on a one-to-one basis, unlike conventional stablecoins. Instead, only a fractional reserve of the US dollar will support the currency.
Based on the concept of federal-reserve banking, the project will rely on algorithms to loan out its reserves and collect interest in order to ensure the value of Frax remains pegged to a dollar.
However, a section of crypto experts argues against such a backing mechanism as they believe that the dollar-pegged coin could collapse with selling pressure in the market.
Former Fed nominee into crypto
Being nominated to join the Federal Reserve Board of Governors, Moore’s involvement in a cryptocurrency project is odd as the majority of the government is opposing any parallel currency system operated by private entities.
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“I’ve followed monetary policy for 30 years and always been troubled by the government monopoly on currency, which is unhealthy for markets,” Moore told Fortune. “It’s very healthy for private competitors to challenge central banks over the money supply.”
Moore joined the crypto project as a co-founder in partnership with Sam Kazemian, founder and CEO of a blockchain-based version of Wikipedia, Everipedia.
Frax is not the first digital currency project to bring the concept of fractional reserves backing in the industry as a project named Basis already raised $100 million last year for similar initiatives. However, the project turned out to be a massive failure, and the promoters are now in the process of refunding their investors.
Though no specific timeline has been set, the duo is planning to launch the project in a few months and are confident about their project despite the failure of Basis.
“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,” Moore added.