Securitize, the brokerage behind the tokenized BlackRock US Dollar Institutional Digital Liquidity Fund (BUIDL), has proposed using BUIDL as collateral for Frax USD. This proposal, known as the Frax Improvement Proposal (FIP), emphasizes the benefits of BUIDL, which invests in U.S. government securities, as a reserve asset.
Key Benefits of the Proposal
The proposal outlines several key advantages. First, it offers yield generation opportunities. Additionally, it enhances liquidity and improves transferability. Furthermore, it reduces counterparty risk, thanks to BlackRock’s backing. BlackRock, as the world’s largest asset manager, adds a layer of security to the proposal.
Community Vote and Growing Adoption of Tokenized Assets
Importantly, the inclusion of BUIDL as collateral is subject to a community vote. As tokenized real-world assets (RWAs) gain popularity, more stablecoins are adopting them for collateral. These assets provide cost-efficiency, quick settlement times, and high-yield opportunities, making them attractive in the stablecoin ecosystem.
BUIDL’s Expanding Role in the Crypto Market
By using BUIDL as collateral, Frax USD gains additional utility, safety, and convenience. Moreover, it significantly reduces counterparty risk. Beyond this, BUIDL has already found use in decentralized finance (DeFi). For example, the Elixir Protocol’s deUSD stablecoin can now be minted using BUIDL as collateral on Curve Finance, enabling seamless swaps with other stablecoins in Curve’s liquidity pools.
BlackRock Advocates for BUIDL in Crypto Derivatives
Simultaneously, BlackRock has been advocating for BUIDL’s use as collateral on crypto derivatives exchanges. The asset manager has reportedly engaged with Binance, OKX, and Deribit to incorporate BUIDL into their platforms. This move may challenge the dominance of traditional stablecoins, like Tether and Circle, in collateral reserves for derivatives trading.
USDtb Stablecoin Backed by BUIDL
In addition to Frax USD, Ethena Labs launched a separate stablecoin, USDtb, in September 2024. USDtb is backed by the BUIDL fund, providing a 1:1 backing with U.S. dollars. Unlike USDe, which relies on complex trading strategies, USDtb is overcollateralized by cash and short-term U.S. government securities. On December 16, 2024, USDtb went live and secured $65 million in total value locked on its first day.
Tokenization Market’s Potential Growth
The tokenization market is expected to grow significantly. McKinsey & Company forecasts a $2 trillion market by 2030. In contrast, the Global Financial Markets Association (GFMA) estimates the global value of tokenized illiquid assets will reach $16 trillion by 2030. Even more conservatively, Citigroup predicts that tokenized digital securities could reach $4 trillion to $5 trillion by 2030.
Major Companies Driving Tokenization Growth
Major companies are recognizing the potential of tokenization. Goldman Sachs, for instance, plans to launch three new tokenization products later this year. Additionally, platforms such as Toucan, KlimaDAO, and Propy are experiencing substantial growth, particularly in the digital carbon market and real estate tokenization.
The Expanding Role of Tokenized Assets
Both public and private blockchains are increasingly adopting tokenized assets. This trend highlights the growing importance of tokenization in global financial markets.
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