The Frax Finance community has officially opened voting on a proposal to adopt BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) as the backing asset for its proposed stablecoin, Frax USD (frxUSD). The vote, which began on December 26, is being cast by tokenholders of Frax’s decentralized finance (DeFi) lending protocol, FXS. So far, all votes and comments submitted in the discussion have been in favor of the proposal. Voting will remain open until January 1, 2025.
Benefits of BUIDL-Backed Stablecoin
The proposal outlines several potential benefits of backing Frax USD with BUIDL, including new yield opportunities, increased liquidity, better transfer options, and reduced counterparty risk, thanks to the backing of BlackRock’s institutional-grade assets. BUIDL is a tokenized real-world asset (RWA) fund that invests in U.S. government securities and is pegged 1:1 to the U.S. dollar, paying monthly dividends to investors through a partnership with Securitize.
In a December 22 discussion, a user named achaffee highlighted how tokenized RWAs, like BUIDL, could bridge traditional finance and DeFi. They argued that such tokenization brings institutional investments on-chain, which could help stabilize decentralized protocols and stablecoins.
“Major players, including DAOs and decentralized protocols, are exploring how to back their stablecoins with RWAs,” achaffee wrote. “These efforts represent a significant evolution in how decentralized systems manage their financial resources.”
BUIDL’s Rapid Growth and Industry Impact
BUIDL has seen impressive growth since its launch in March 2023, quickly surpassing $500 million in assets under management (AUM) within four months. As of now, the fund holds U.S. government securities and serves as a relatively low-risk asset within the crypto space. According to data from Dune Analytics, $3.4 billion worth of tokenized treasury funds are now on-chain, signaling growing interest in the tokenization of real-world assets.
Other DeFi Projects Eyeing BUIDL-Backed Stablecoins
Frax Finance isn’t the only DeFi project considering BUIDL as collateral for a stablecoin. Ethena Labs, the developer behind the USDe synthetic dollar, also unveiled plans for a BUIDL-backed stablecoin, USDtb, in late September. USDtb went live on December 16, and has already accumulated $89 million in total value locked (TVL), according to DefiLlama data.
As DeFi ecosystems continue to explore more stable, traditional-backed assets, the adoption of tokenized RWAs like BUIDL could play a significant role in the next wave of stablecoin innovation.
