The Frax Finance community has made a significant decision by voting to adopt BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) as a reserve asset for the proposed stablecoin, Frax USD (frxUSD). The vote has gone live and is currently open until January 1, 2025.
Background on the Vote
The vote was opened on December 26, and token holders of the decentralized finance (DeFi) lending protocol, FXS, have been casting their votes. As of now, all comments in the discussion are in favor of the proposal. This is a significant development for the Frax Finance community, as it has the potential to bring about several benefits.
Benefits of Passing the Proposal
According to the vote summary, passing the proposal for Frax USD may include creating yield opportunities, deeper liquidity, transfer options, and reduced counter-party risk due to the backing of BlackRock. This is a significant advantage, especially considering that BUIDL has already hit over half a billion dollars in assets under management (AUM) in less than four months after its launch on March 15.
The Role of Tokenized Real-World Assets
Tokenized real-world assets (RWAs) have been gaining popularity in the DeFi space, and this proposal is a testament to that. As explained by achaffee, a user with the handle, tokenized RWAs provide an excellent bridge between traditional finance and DeFi by bringing institutional-grade investments on-chain.
In the past 9 months alone, we’ve seen major players including DAOs and decentralized protocols put out large, public RFPs to explore how they can most effectively bolster their treasuries or back their stablecoins with RWAs. These early explorations mark a significant evolution in how decentralized players manage their financial resources and consider cross-industry asset strategies.
BlackRock’s BUIDL Fund
BUIDL is a USD Institutional Digital Liquidity Fund offered by BlackRock, one of the world’s largest investment managers. The fund invests in US government securities and pays daily accrued dividends directly to investors each month through a partnership with Securitize. As mentioned earlier, BUIDL has already hit over half a billion dollars in AUM in less than four months after its launch on March 15.
Tokenized Treasury Funds on-Chain
According to Dune Analytics data compiled by 21Shares, $3.4 billion worth of tokenized treasury funds are now on-chain. This is a significant milestone for the DeFi space, and it highlights the growing demand for decentralized financial solutions.
Other BUIDL-Backed Stablecoins in the Works
Frax isn’t the first to be mulling a potential BUIDL-backed stablecoin. Ethena Labs, the developer behind Ethena, responsible for the USDe synthetic dollar, said on September 26 that it had a BUIDL-backed stablecoin in the works. The stablecoin, dubbed USDtb, is a separate product offering from Ethena’s USDe and has accrued $89 million in total value locked (TVL), according to data from DefiLlama.
Conclusion
The Frax Finance community’s decision to adopt BlackRock’s BUIDL as a reserve asset for Frax USD is a significant development in the DeFi space. With its potential benefits, including creating yield opportunities, deeper liquidity, transfer options, and reduced counter-party risk, this proposal has the potential to revolutionize the way decentralized financial solutions are managed.
As the vote remains open until January 1, 2025, it will be interesting to see how the community responds to this proposal. Will they continue to support the idea of adopting BUIDL as a reserve asset for Frax USD? Only time will tell.
Sources:
- Source: Frax Finance
- Dune Analytics data compiled by 21Shares
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- Securitize Proposes BlackRock BUIDL Fund as Collateral for Frax USD
- Bitcoin Payments Are Being Undermined by Centralized Stablecoins
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