The Frax community has made a significant decision by voting unanimously to pass FIP-418, which will utilize BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) as backing collateral for the Frax-USD (frxUSD) stablecoin. This move comes after six days of voting and marks a major step towards bridging traditional finance with decentralized systems.
Proposal Details
According to the proposal, which was put forth by Securitize, the brokerage firm responsible for managing the BUIDL fund, using BUIDL as collateral will provide frxUSD holders with potential yield-bearing opportunities. This is in line with the growing trend of creating yield-bearing stablecoins that offer investors a chance to earn financial rewards.
Why BUIDL?
The decision to use BUIDL as collateral for frxUSD is largely due to its reputation and stability. BlackRock, the company behind BUIDL, has over $10.4 trillion in assets under management, making it one of the largest asset managers in the world. This means that counterparty risk is minimized, providing a high level of security for frxUSD holders.
Benefits of Using BUIDL
The use of BUIDL as collateral offers several benefits to frxUSD holders. Firstly, it provides a potential source of yield-bearing opportunities, allowing investors to earn financial rewards. Secondly, it minimizes counterparty risk, making the stablecoin more secure and reliable.
Frax Finance Founder’s Statement
Following the vote, Frax Finance founder Sam Kazemia released a statement expressing his enthusiasm for the collaboration between BlackRock and the Frax community:
"FrxUSD combines the transparency and programmability of blockchain technology with the trust and stability of BlackRock’s prime treasury offerings. This collaboration is a significant step toward bridging traditional finance with decentralized systems."
Broader Trend Towards Yield-Bearing Stablecoins
The decision to use BUIDL as collateral for frxUSD is part of a broader trend towards creating yield-bearing stablecoins that offer investors financial rewards. This trend is expected to continue, driven by the increasing demand for stablecoins that provide interest opportunities.
BUIDL-Backed Stablecoins: A Growing Trend
The use of BUIDL as collateral is not new in the world of stablecoins. In December 2024, Ethena Labs announced the development of a BUIDL-backed stablecoin named USDtb (USDTB). The BUIDL-backed stablecoin debuted on Dec. 16 and has a current market capitalization of roughly $70 million.
Potential for Stabilizing Synthetic Dollars
Ethena Labs has suggested that the BUIDL-backed stablecoin could help stabilize synthetic dollars during times of negative funding rates and bearish markets.
Decentralized Exchange Curve Finance to Support BUIDL-Backed Stablecoins
In November 2024, decentralized exchange Curve Finance announced that users would be able to mint Elixir’s deUSD (DEUSD) yield-bearing stablecoin on the platform using BUIDL as collateral.
Expert Insights: Yield-Bearing Stable Assets
Reeve Collins, co-founder of WeFi, recently told Cointelegraph that yield-bearing stable assets will continue to see increasing demand as investors shift from traditional stablecoins that do not provide interest opportunities. He also suggested that this trend would be amplified by agent AI and account abstraction, which would simplify yield-accrual mechanisms for next-generation stablecoins.
Conclusion
The Frax community’s decision to use BUIDL as collateral for the upcoming stablecoin is a significant step towards bridging traditional finance with decentralized systems. The use of BUIDL offers several benefits, including potential yield-bearing opportunities and minimized counterparty risk. As the trend towards yield-bearing stablecoins continues, it will be interesting to see how this collaboration evolves and its impact on the wider cryptocurrency market.
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- BUIDL becomes collateral asset for stablecoins
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