Securitize proposes adding BlackRock's BUIDL token as Frax USD stablecoin backing

Frax Finance, the decentralized stablecoin protocol, may soon integrate BlackRock's BUIDL token as a reserve asset backing its soon-to-be-relaunched Frax USD stablecoin, should a new proposal pass its governance process. 

Securitize Markets, which acts as the transfer agent and broker-dealer for the BlackRock USD Institutional Digital Liquidity Fund and its BUIDL token, authored the Frax Finance governance proposal. "In addition to providing Frax USD utility, relative safety, and convenience, Frax USD can significantly reduce counterparty risk for its reserves by working with BlackRock," the proposal states. 

If the proposal is passed, Frax USD will follow in the vein of stablecoins like Ethena's USDtb in adopting the BUIDL token as a backing asset. BUIDL currently has over $530 million worth of assets under management, mostly in short-term U.S. Treasury bills. 

While the proposal has yet to come up for a vote, early responses from Frax Finance DAO members are so far universally positive. "Totally in favor of this proposal as it brings together the best of TradFi & DeFi. I’m confident this partnership will shape the future of finance," reads one response. 

The proposal comes as Frax's core team plans to rebrand its core stablecoin to Frax USD (frxUSD), as described in a separate governance proposal, along with introducing Staked Frax USD (sfrxUSD) as a yield-bearing counterpart. The frxUSD token will allow for direct conversions into fiat currency through a partnership with Paxos, the proposal claims, and may benefit from Frax Finance's attempts to gain access to a U.S. Federal Reserve Master Account.  

"All newly upgraded frxUSD stablecoins will be backed by stablecoin tokens (USDe, USDC, sDAI), CDPs in Fraxlend, and cash equivalent RWA assets from custodians," the frxUSD proposal states. It is currently undetermined what percentage of frxUSD's backing would be made up of the BUIDL token, should both proposals pass. 

A new mint-redeem system will also accompany the stablecoin's launch, Frax Finance founder Sam Kazemian told The Block. "We have a new system called 'enshrined custodians' where entities can get mint-redeem rights of frxUSD if governance allows their asset to back frxUSD," Kazemian said. "For example, if this Blackrock BUIDL proposal passes, anyone that is KYC'd at Blackrock will be able to mint 1 BUIDL and send it to the onchain frxUSDBlackrockCustodian.sol contract and get out frxUSD [in] essentially a 1-to-1 mint. And vice versa as well. "

Competing tokenized fund platform Superstate has also authored two governance proposals that could see frxUSD adopt its USTB Treasury bills and USCC crypto-carry fund as backing for the stablecoin. "These two products align with [Frax Finance's] plan to back $frxUSD with high quality assets that can be easily minted/redeemed to ensure stability and growth of the stablecoin," Superstate wrote in an X post. Superstate's proposals call on Frax to allocate up to $20 million to its USCC fund, and up to $100 million to its USTB fund. 

"BlackRock is not necessarily the only [potential] custodian," Kazemian said. "Both [Superstate funds] would give frxUSD another strong avenue to mint-redeem for RWA users."