Frax Finance Eyes Blackrock’s BUIDL Token as Next-Gen Reserve Asset

Frax Finance, the issuer of the stablecoin frax usd (FRAX), which currently holds the ninth spot among fiat-pegged tokens by market capitalization, is weighing the addition of Blackrock’s BUIDL token as a reserve backing asset. A governance vote, scheduled to wrap up on Dec. 31, 2024, will decide the proposal’s fate.

FIP-418: Frax Finance Weighs Blackrock’s BUIDL as Reserve Asset

Identified as FIP-418, the proposal suggests integrating the Blackrock USD Institutional Digital Liquidity Fund Ltd. (known as BUIDL) as an onchain reserve for frax usd. This tokenized U.S. Treasury product aims to strengthen FRAX’s backing while bringing U.S. Treasury-backed liquidity into the decentralized finance (defi) ecosystem.

The proposed integration seeks to capitalize on the liquidity and stability of U.S. Treasury assets, coupled with the yield opportunities provided through decentralized finance. The initiative was introduced last week by tokenization firm Securitize, and voting commenced on Dec. 26. With all votes currently in favor, the proposal appears on track for approval as voting continues until year-end. Today, frax usd (FRAX) remains the ninth-largest stablecoin by market valuation.

FRAX’s market capitalization is $646 million, positioned below Tron’s USDD and above Usual’s SUSDS. FIP-418 highlights potential advantages of leveraging BUIDL, including yield generation, enhanced transferability, and reduced counterparty risks due to the involvement of trusted entities such as Blackrock, Bank of New York Mellon, and Securitize. The proposal also notes that BUIDL’s partnership with Circle could provide additional liquidity.

“By working with Securitize and Blackrock to use BUIDL as a backing asset for [frax usd, FRAX] will gain exposure to one of the most liquid assets in the world, while still reaping the benefits of yield-bearing, onchain efficiencies of defi,” Securitize’s FIP-418 proposal states.

This development comes on the heels of Ethena Finance taking a similar approach by launching USDTB, a stablecoin also backed by Blackrock’s BUIDL token. Unlike Ethena’s yield-bearing stablecoin USDE, USDTB is designed with a distinct “risk profile.” Historically, frax usd has been backed by a mix of collateral assets, such as USDC, with its collateral ratio determining the required reserves for minting or redeeming FRAX tokens.