The Frax community has approved a proposal to use BlackRock’s Institutional Digital Liquidity Fund (BUIDL) as collateral for its upcoming frxUSD stablecoin. 

The proposal, identified as FIP-418, received unanimous support after a six-day voting period.

The Increasing Demand for BlackRock’s BUIDL Fund

BlackRock’s BUIDL fund manages over $648 million in assets and provides yield-generating opportunities for frxUSD holders. Achieving this approval is a significant step for the Frax Protocol. 

BlackRock is the largest asset manager in the world, with over $10.4 trillion in global assets. So, being backed by its tokenized fund can potentially minimize counterparty risk for the stablecoin’s collateral.

Also, this move reflects a growing trend among stablecoin projects to introduce yield-bearing options that reward holders financially while maintaining stability.

Securitize, the brokerage firm managing the BUIDL fund, initially proposed the idea on December 22. The frxUSD stablecoin will be pegged to the US dollar at a 1:1 ratio and backed by US government securities through BUIDL.

Meanwhile, other projects have also adopted BUIDL as collateral for stablecoins. Ethena Labs launched the USDtb (USDTB) stablecoin on December 16, backed by the BUIDL fund. The asset’s current market capitalization is $70 million. 

In November, Curve Finance enabled users to mint Elixir’s deUSD (DEUSD) yield-bearing stablecoin using BUIDL as collateral.