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 is a testament to the community’s commitment to innovation and its desire to create a more robust and yield-bearing stablecoin.
Background on FIP-418
The proposal, which was passed after six days of voting, aims to leverage the potential benefits of tokenized funds by using BUIDL as collateral for frxUSD. By doing so, frxUSD holders will have access to yield-bearing opportunities, thereby increasing the returns on their investment.
Why BlackRock’s BUIDL?
BlackRock is one of the largest asset managers in the world, with over $10.4 trillion in assets under management. The company’s USD Institutional Digital Liquidity Fund (BUIDL) provides a high-quality and stable source of collateral for the Frax-USD stablecoin.
Benefits of Using BUIDL as Collateral
The use of BUIDL as collateral for frxUSD offers several benefits, including:
- Potential Yield-Bearing Opportunities: By leveraging the tokenized fund, frxUSD holders can access yield-bearing opportunities that would not be possible with traditional stablecoins.
- Minimized Counterparty Risk: The collateralization of the stablecoin with a fund from BlackRock minimizes counterparty risk, thereby providing an added layer of security for investors.
Frax Finance Founder’s Statement
Following the vote, Frax Finance founder Sam Kazemian stated: "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."
Growing Trend Towards Yield-Bearing Stablecoins
The Frax community’s decision to use BUIDL as collateral for frxUSD is part of a broader trend towards creating yield-bearing stablecoins that provide holders with financial rewards.
FIP-418 Passes Unanimously
- The proposal was passed after six days of voting.
- The vote was unanimous, demonstrating the community’s strong support for using BUIDL as collateral for frxUSD.
Securitize and the Development of BUIDL-Backed Stablecoins
Securitize, the brokerage firm for the BUIDL fund, initially proposed backing frxUSD with BUIDL on December 22. The upcoming stablecoin is pegged to the US dollar at a 1:1 ratio and backed by US government securities.
Ethena Labs’ USDtb Stablecoin
- Ethena Labs, the developer of the USDeUSDE synthetic dollar, announced the development of a BUIDL-backed stablecoin named USDtb (USDTB) in September.
- The BUIDL-backed stablecoin debuted on December 16 and has a current market capitalization of roughly $70 million.
Curve Finance’s Support for Yield-Bearing Stablecoins
- 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 in November 2024.
- This move demonstrates Curve Finance’s commitment to supporting the growth of yield-bearing stablecoins.
Expert Insights on Yield-Bearing Stable Assets
WeFi co-founder Reeve Collins 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.
The Role of Agentic AI and Account Abstraction
- Collins stated that this trend towards yield-bearing real-world assets would be amplified by agentic AI and account abstraction, which would simplify yield-accrual mechanisms for next-generation stablecoins.
- The integration of advanced technologies is expected to further enhance the functionality and usability of yield-bearing stablecoins.
Conclusion
The Frax community’s decision to use BUIDL as collateral for frxUSD is a significant step towards creating a more robust and yield-bearing stablecoin. As the demand for yield-bearing stable assets continues to grow, it will be exciting to see how this trend evolves in the coming months.
Subscribe to our Crypto Biz newsletter to stay up-to-date on the latest business trends in blockchain and crypto.
Stay Ahead of the Curve with Our Weekly Newsletter
- Receive valuable insights into key business trends.
- Get updates on regulatory shifts and market developments.
- Stay informed about emerging technologies and innovations.
- Subscribe now and gain a competitive edge in the ever-changing world of cryptocurrency.