Is Frax Shares (FXS) Legal?

The protocol behind Frax Shares (FXS), CoinMarketCap’s 18th most trending cryptocurrency on 29 March 2023, could violate US law.

The Frax Protocol issues three stablecoins, two of which could be commodities under US law. For example, they peg the Frax Price Index (FPI) stablecoin to a basket of consumer goods. Thus, FPI is a commodities derivative or commodities future. Similarly, FraxEther (frxETH) is a synthetic investment or derivative they peg to Ethereum (ETH).

Frax could be in trouble because Commodities Futures Trading Commission (CFTC) lawyers consider crypto derivatives commodities. The Commodity Exchange Act (CEA) of 1936 gives the CFTC the power to regulate futures and derivatives trading in the United States.

Will the Binance Lawsuit destroy Frax Shares?

Under current regulations, only futures, derivatives, and commodities approved by the CFTC can trade in the United States. The CFTC is suing Binance (BNB) because that exchange sold crypto derivatives in the United States.

Binance violated the CEA by selling unapproved crypto derivatives, a complaint filed in the US District Court in Illinois alleges. A complaint alleges Binance’s products were illegal because the CFTC does not approve any crypto derivatives for sale in the United States.

Moreover, US Courts have not ruled on the legal status of crypto derivatives. Hence, crypto derivatives such as FraxETH and the Frax Price Index have no legal status in the United States. Thus, the CFTC could sue Frax Shares and try to shut it down.

Conversely, courts rule against and allow crypto derivative trading in the United States. However, it could take years for federal courts to rule on crypto derivatives’ legal status. Until then, FraxETh and FPI could have no legal status or value in the United States.

What is Frax Shares?

Frax operates decentralized finance (DeFi) on its blockchain. Those solutions include Frax, Fraxswap, Fraxlend, Fraxferry, a Gauge Rewards System, and Frax Share (FXS).

Frax (FRAX) is a US-dollar stablecoin. Like all stablecoins, Frax is a cryptocurrency that makes payment in US dollars when you spend it. CoinMarketCap gave Frax a 99.75 Coin Price, a $1.043 billion Market Cap, a $1.043 billion Fully Diluted Market Cap, a $12.426 million Decentralized Exchange (DEX) Volume, a $13,903Centralized Exchange (CEX) Volume, and a $12.454 million 24 Hour Market Volume on 30th March 2023. Frax was CoinMarketCap’s 208th ranked cryptocurrency on 30 March 2023.

Fraxswap is an automatic market maker (AMM). An AMM is an app that builds and operates markets for DeFi protocols. They claim Fraxswap is the first AMM with time-weighted average market maker orders. The Frax Protocol uses those orders for many transactions.

Fraxlend is the lending facility for Frax-based stablecoins. They claim Fraxlend builds permission-less lending markets that can provide liquidity for non-custodial loans. Fraxlend also onboards collateral assets to the Frax economy.

Fraxferry is an optimistic transfer protocol for Frax-based tokens. They claim Fraxferry can move Frax-issued tokens between blockchains.

The Gauge Rewards System is a governance mechanism that allows users to propose new strategies for stablecoins. veFXS stakers vote on gauges.

FraxShare (FXS) is a base layer governance token. FXS holders govern Frax by voting on fees, revenue, and collateral.

What Value Does FraxShare (FXS) offer?

The threat of CFTC legal action is not scaring speculators away from Frax Shares (FXS). Notably, FXS was CoinMarketCap’s 76th ranked cryptocurrency on 30 March 2023.

For instance, CoinMarketCap gave FXS an $8.41 Coin Price, a $598.401 million Market Capitalization, an $840.014 million Fully Diluted Market Cap, a $34.173 million 24-Hour Market Volume, a $27.749 million Centralized Exchange (CEX) Volume, and a Decentralized Exchange (DEX) volume of $6.4 million on 30 March 2023. They base those numbers on a Circulating Supply of 71.111 million FXS and a Total Supply of 99.823 million FXS.

I think speculators need to avoid FraxShare and other crypto derivatives and synthetic investments until US courts rule on their legality. Until then, a court ruling in the Binance (BNB) case could make all crypto derivatives illegal and worthless in the United States.