Frax Community Approves FrxUSD Stablecoin Backed by BlackRock’s Buidl

The Frax community has made a groundbreaking decision by passing FIP-418, which will utilize BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) as collateral backing for the upcoming Frax-USD (frxUSD) stablecoin. This move marks a significant step towards bridging traditional finance with decentralized systems.

A New Era of Yield-Bearing Stablecoins

According to the proposal, BUIDL provides potential yield-bearing opportunities for frxUSD holders, allowing them to earn returns on their investments. The tokenized fund is designed to minimize counterparty risk by leveraging a fund from BlackRock, which boasts over $10.4 trillion in assets under management.

In a statement following the vote, Frax Finance founder Sam Kazemian highlighted the benefits of this collaboration:

"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."

The 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. As investors increasingly seek out more attractive investment opportunities, traditional stablecoins are being replaced by their yield-bearing counterparts.

BUIDL: A Key Player in the Yield-Bearing Stablecoin Market

The development and adoption of BUIDL-backed stablecoins have been gaining momentum in recent months. In December 2024, Securitize proposed backing frxUSD with BUIDL, which sparked a wave of interest in this innovative approach to stablecoin design.

Ethena Labs’ USDtb: A Separate but Related Product

In September, Ethena Labs announced the development of a BUIDL-backed stablecoin named USDtb (USDTB). This product is separate from Ethena’s USDeUSD synthetic dollar and has already gained significant traction in the market. With a current market capitalization of roughly $70 million, USDtb demonstrates the potential for BUIDL-backed stablecoins to become mainstream.

Curve Finance and the Rise of Yield-Bearing Stable Assets

Decentralized exchange Curve Finance announced that users would be able to mint Elixir’s deUSD (DEUSD) yield-bearing stablecoin on their platform using BUIDL as collateral in November 2024. This move underscores the growing demand for yield-bearing stable assets, which are increasingly being adopted by investors seeking more attractive returns.

Reeve Collins’ Insights: The Future of Yield-Bearing Stable Assets

WeFi co-founder Reeve Collins recently shared his insights on the future of yield-bearing stable assets with Cointelegraph. He noted that this trend towards yield-bearing real-world assets will continue to gain momentum as investors shift from traditional stablecoins that do not provide interest opportunities.

Collins also highlighted the potential for agentic AI and account abstraction to simplify yield-accrual mechanisms for next-generation stablecoins, further amplifying demand for these innovative products.

The Unstablecoin Risk: A Growing Concern

While the rise of yield-bearing stable assets presents significant opportunities, it also raises concerns about the stability of traditional stablecoins. The magazine "Unstablecoins" explores the risks associated with depegging, bank runs, and other issues that could impact the entire crypto market.

Conclusion

The Frax community’s decision to pass FIP-418 marks a significant milestone in the development of yield-bearing stablecoins. As investors increasingly seek out more attractive investment opportunities, traditional stablecoins are being replaced by their yield-bearing counterparts. The adoption of BUIDL as collateral for frxUSD is part of this broader trend, and its success may pave the way for even more innovative products to emerge.

Recommended Reading:

• "Unstablecoins: Depegging, Bank Runs and Other Risks Loom": Explore the risks associated with traditional stablecoins and learn about the potential consequences of depegging and bank runs.
• "Stablecoin Adoption, ETFs to Propel Crypto Performance in 2025: Citi": Discover how stablecoin adoption and ETFs may impact the crypto market’s performance in 2025.

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