Securitize Proposes Using BlackRock’s BUIDL Fund as Collateral for Frax USD

Introduction

Securitize, the brokerage firm responsible for tokenizing the BlackRock US dollar Institutional Digital Liquidity Fund (BUIDL), has submitted a proposal to improve Frax by adding BUIDL as backing collateral. This proposal aims to leverage the benefits of using tokenized real-world assets (RWAs) as reserve assets for stablecoins.

Benefits of Using BUIDL as Collateral

The proposed improvement highlights several advantages of utilizing BUIDL as a collateral reserve asset:

• Yield Opportunities: By adding BUIDL as a collateral, users can tap into the high-yield bearing potential of tokenized real-world assets.
• Deeper Liquidity: The integration of BUIDL would provide deeper liquidity options for Frax USD stablecoin holders.
• Transfer Options: BUIDL’s addition as a reserve asset would enable transfer options, allowing users to easily move their funds between different platforms.

Reduced Counter-Party Risk

The proposal emphasizes the benefits of using BlackRock as the backing institution:

• Reduced Counter-Party Risk: The involvement of the world’s largest asset manager, BlackRock, significantly reduces counter-party risk associated with traditional stablecoin issuers.
• Increased Trust and Credibility: BlackRock’s reputation and commitment to providing secure and reliable financial products would instill trust in the Frax USD stablecoin.

Tokenized Real-World Assets (RWAs) Gaining Popularity

The adoption of RWAs as collateral backing and reserve assets for stablecoins is on the rise due to:

• Cost Efficiencies: Tokenizing real-world assets eliminates traditional barriers, such as high transaction costs and slow processing times.
• Fast Finality Times: The use of blockchain technology enables fast finality times, allowing for quick settlement and reduced risk.
• Unique Opportunities: RWAs offer a unique chance for holders to introduce high-yield bearing opportunities.

BUIDL Statistics and Metrics

Source: RWA.XYZ

| Metric | Value |
| — | — |
| Total Value Locked (TVL) | $65M |
| Collateralization Ratio | 1:1 |
| Yield Bearing Potential | High-Yield |

Ethena Labs Develops BUIDL-Backed Stablecoin

Ethena Labs, the developer behind Ethena, announced the development of a BUIDL-backed stablecoin in September 2024. This separate product offering from Ethena’s USDe synthetic dollar is designed to provide an overcollateralized stablecoin with a 1:1 ratio of cash and short-term US government securities held by the BUIDL fund.

USDtb Stablecoin

The USDtb stablecoin, which went live on Dec. 16, has accrued approximately $65 million in total value locked (TVL) on its first trading day. Unlike Ethena’s USDe, which relies on a complex delta-neutral trading strategy to issue stablecoins, USDtb is overcollateralized by cash and short-term US government securities.

BlackRock Pushes for BUIDL as Collateral

In October 2024, BlackRock began pushing for BUIDL as collateral on crypto derivatives exchanges. The asset manager reportedly entered into talks with Binance, OKX, and Deribit to integrate the tokenized fund as collateral on their platforms.

Integrating BUIDL as Collateral: A Challenging Move

The integration of BUIDL as collateral for crypto derivatives trading would challenge the dominance of incumbent stablecoin issuers like Tether and Circle. This move could potentially disrupt the market, allowing Frax USD to compete with traditional stablecoins.

Elixir Protocol’s deUSD Yield-Bearing Stablecoin

As of November 2024, the Elixir Protocol’s deUSD yield-bearing stablecoin can be minted on the Curve decentralized exchange using BUIDL as backing collateral. This stablecoin is exchangeable with other stablecoin assets in Curve’s liquidity pools.

Conclusion

The proposed Frax improvement proposal to add BUIDL as backing collateral offers several benefits, including increased yield opportunities, deeper liquidity, and reduced counter-party risk. The integration of RWAs as reserve assets for stablecoins is gaining popularity due to cost efficiencies, fast finality times, and unique high-yield bearing potential. As the adoption of tokenized real-world assets continues to grow, Frax USD stands to benefit from this innovative approach.

Related:

• Optimism High for Ethena’s USDtb Stablecoin as it Clocks $65M TVL on Day 1
• BUIDL Eyes Collateral Markets

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