Securitize, the brokerage firm behind the tokenized BlackRock US Dollar Institutional Digital Liquidity Fund (BUIDL), has submitted a proposal to use BUIDL as collateral for the Frax USD stablecoin. This proposal, submitted as part of a Frax Improvement Proposal (FIP), highlights the benefits of using BUIDL, which is backed by U.S. government securities, as a reserve asset for the stablecoin.
Key Benefits of the Proposal
The proposal outlines several advantages of using BUIDL as collateral, including:
Yield Generation: BUIDL offers opportunities for yield generation, making it an attractive collateral option.
Enhanced Liquidity and Transferability: The use of BUIDL could improve the liquidity and transferability of Frax USD.
Reduced Counterparty Risk: BUIDL’s backing by BlackRock, the world’s largest asset manager, provides a strong foundation, reducing counterparty risk.
This proposal, however, is not yet finalized. The inclusion of BUIDL as collateral for Frax USD is subject to a community vote, ensuring that stakeholders in the Frax ecosystem have a say in the decision.
Growing Interest in Tokenized Real-World Assets (RWAs)
The proposal also highlights a growing trend in the stablecoin industry: the use of tokenized real-world assets (RWAs) like BUIDL as collateral. These tokenized assets offer distinct advantages, including:
Cost Efficiency: Tokenized assets can reduce the cost of transactions.
Quick Settlement: The use of RWAs allows for faster settlement times compared to traditional financial instruments.
High-Yield Opportunities: These assets provide unique opportunities for yield generation that are attractive in the stablecoin ecosystem.
“In addition to offering Frax USD greater utility, safety, and convenience, BUIDL-backed reserves could help reduce counterparty risk, thanks to BlackRock’s involvement,” the proposal stated.
The Rise of BUIDL-Backed Stablecoins
Securitize’s proposal comes at a time when tokenized real-world assets are increasingly being adopted as collateral in the stablecoin space. In September 2024, Ethena Labs, the developer behind the synthetic dollar USDe, launched a separate stablecoin called USDtb, which is also backed by the BUIDL fund.
Unlike USDe, which uses complex trading strategies, USDtb is overcollateralized by cash and short-term U.S. government securities, ensuring a 1:1 backing with U.S. dollars. The stablecoin went live on December 16, 2024, with $65 million in total value locked on its first day of trading.
Additionally, BlackRock has been pushing for the use of BUIDL as collateral on crypto derivatives exchanges. The asset manager has reportedly been in talks with major exchanges like Binance, OKX, and Deribit to integrate BUIDL into their platforms, potentially challenging the dominance of traditional stablecoins like Tether and Circle in derivatives trading.
BUIDL is also finding use in the DeFi (decentralized finance) sector. For example, the Elixir Protocol’s deUSD stablecoin now supports BUIDL as collateral on Curve Finance, allowing users to mint deUSD and engage in seamless swaps with other stablecoins in Curve’s liquidity pools.
The Future of Tokenization
Tokenized assets are gaining momentum, with projections suggesting significant growth in the coming years. According to McKinsey & Company, tokenized financial assets could become a $2 trillion market by 2030, despite having a “cold start.” Meanwhile, a report from the Global Financial Markets Association (GFMA) and Boston Consulting Group forecasts the value of tokenized illiquid assets could reach $16 trillion by 2030.
Citigroup also offered a more conservative estimate, suggesting that $4 trillion to $5 trillion worth of tokenized digital securities could be minted by 2030. These projections reflect growing interest from major institutions in the tokenization space. For example, Goldman Sachs plans to launch three new tokenization products later this year in response to growing client demand.
In addition to traditional finance giants, digital carbon market platforms like Toucan and KlimaDAO, as well as real estate tokenization protocols such as Propy, are seeing significant user growth, further driving the tokenization trend.
Both public and private blockchains are seeing an increase in the inclusion of tokenized assets, signaling a strong future for digital assets.
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