Vote to use BlackRock's BUIDL as backing asset for Frax stablecoin goes live

The Frax Finance community vote to adopt BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) as a reserve asset for the proposed stablecoin Frax USD (frxUSD) has gone live.

Opened on Dec. 26, votes cast by the decentralized finance (DeFi) lending protocol tokenholders FXS $4.00 have so far all been in favor of the proposal. All of the comments in the discussion are also in favor. The vote will remain open until Jan. 1, 2025.

Source: Frax Finance

According to the vote summary, the benefits of 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.

In the Dec. 22 discussion about the proposal, made initially by real-world asset tokenization platform Securitize, the broker-dealer for BlackRock’s BUIDL, a user with the handle achaffee said the move would help bridge traditional finance and DeFi.

According to achaffee, tokenized real-world assets (RWAs) “provide an excellent bridge” between traditional finance and DeFi by bringing institutional-grade investments onchain.

“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,” achaffee wrote.

“These early explorations mark a significant evolution in how decentralized players manage their financial resources and consider cross-industry asset strategies,” they added.

BUIDL hit over half a billion dollars in assets under management (AUM) in less than four months after its launch on March 15.

Its price is pegged 1:1 with the US dollar and it pays daily accrued dividends directly to investors each month through a partnership with Securitize. The fund invests in US government securities.

According to Dune Analytics data compiled by 21Shares, $3.4 billion worth of tokenized treasury funds are now onchain.

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 Sept. 26 that it had a BUIDL-backed stablecoin in the works.

The stablecoin, dubbed USDtb, is a separate product offering from Ethena’s USDe. USDtb went live on Dec. 16 and has accrued $89 million in total value locked (TVL), according to data from DefiLlama.