How Crypto Neobanks Work: Frax, Cards, and Visa’s Role

Crypto neobanks act as crucial bridges, enabling stablecoins to seamlessly interact with traditional finance and eventually replace legacy payment systems like Visa by facilitating direct on-chain commerce.

• Crypto neobanks bridge stablecoins to traditional finance, simplifying on-chain asset interaction.

• Frax aims to be the foundational digital dollar, powering neobanks and enabling broad stablecoin adoption.

• The proliferation of stablecoin spending via cards is a silent coordination mechanism to eventually replace traditional payment networks.

The rise of crypto neobanks is poised to reverse the traditional financial flow, making it intuitive for users to keep their net worth on-chain rather than moving it to conventional banks. These neobanks, such as EtherFi, use underlying infrastructure from protocols like Frax to enable spending stablecoins in the real world via cards, with the long-term vision of eliminating intermediaries like Visa by coordinating a critical mass of stablecoin payments. This shift promises a self-sufficient, bankless economy where value circulates entirely on-chain.

What is a Crypto Neobank

• 00:01:18 Neobanks are essentially 'wrappers' that offer superior fintech applications and user experiences on top of traditional banking licenses, which often have poor UX and innovation. In the crypto context, a crypto neobank like Frax aims to bridge the gap between stablecoins and the classical financial system, making stablecoins one-to-one with digital cash. This eliminates bottlenecks like centralized exchanges for on- and off-ramping, facilitating hundreds of thousands of smooth on-off ramps through branded stablecoins and issuance platforms like Fraxnet.

Frax's Role in Neobanking

• 00:06:06 Frax is strategically positioning Frax USD as a fundamental digital dollar, aiming for broad acceptance as real money rather than issuing its own consumer-facing card. Frax focuses on powering other neobanks and card teams like EtherFi, and working with banks like LeadBank, to serve as the underlying digital dollar infrastructure. Frax also offers a white-label issuance platform, Fraxnet, which allows other branded stablecoins to leverage its infrastructure for minting, burning, and cross-chain interoperability, aiming to connect various issuance platforms for greater industry-wide utility and economic alignment with partners.

Stablecoins vs. Traditional Payments

• 00:23:55 Crypto neobank cards that allow spending stablecoins are silently coordinating the transition to direct, peer-to-peer stablecoin payments, eventually bypassing traditional networks like Visa. While merchants currently receive fiat, the increasing use of these cards by millions of users means stablecoins are being spent without the merchant's immediate awareness. This gradual adoption is expected to create a critical mass where merchants will eventually accept stablecoins directly, leading to a self-sufficient on-chain economy where value recirculates within the crypto system without leaking back into traditional finance.

Stablecoin Categories & Future

• 00:49:56 The stablecoin market is evolving into distinct categories: 'payment stablecoins' optimized for wide acceptance and low risk, like Frax USD, and 'savings/yield-bearing stablecoins' like S-Frax USD, designed for holding and earning yield through various strategies. Ethereum is expected to remain the dominant chain for stablecoin issuance and savings due to its security, while specialized chains will handle the high-volume flows of payments. The growth will occur in significant, stepwise functions as large institutions and companies onboard cash on-chain, leading to a complete, bankless economic life cycle where individuals can save, spend, and participate entirely within the crypto ecosystem.