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Securitize, the brokerage behind the tokenized BlackRock US Dollar Institutional Digital Liquidity Fund (BUIDL), has submitted a proposal to integrate BUIDL as collateral for the Frax USD (FRAX) stablecoin. This proposal, submitted as a Frax Improvement Proposal (FIP), aims to leverage BUIDL’s unique features, which include investments in U.S. government securities, as a secure reserve asset for Frax USD.
Key Advantages of BUIDL for Frax USD
The proposal highlights several benefits of incorporating BUIDL as collateral:
- Yield Generation: BUIDL’s investments in U.S. government securities offer consistent returns.
- Enhanced Liquidity: Tokenization enables faster and more efficient transactions.
- Reduced Counterparty Risk: Backed by BlackRock, the world’s largest asset manager, BUIDL provides unmatched credibility and security.
“By integrating BUIDL, Frax USD can achieve utility, safety, and convenience while significantly reducing counterparty risks,” the proposal states.
Community Vote to Decide the Fate of BUIDL as Collateral
The adoption of BUIDL as collateral is contingent upon a community vote. Tokenized real-world assets (RWAs) like BUIDL are increasingly favored in the stablecoin ecosystem due to their:
- Cost efficiency
- Quick settlement times
- High-yield opportunities
This trend underscores the growing role of RWAs in decentralized finance (DeFi).
Parallel Developments in Tokenized Stablecoins
In September 2024, Ethena Labs launched USDtb, a stablecoin backed by the BUIDL fund. Unlike Ethena’s synthetic dollar USDe, which uses complex trading strategies, USDtb is:
- Overcollateralized: Backed by cash and short-term U.S. government securities.
- 1:1 Pegged: Maintains parity with the U.S. dollar.
USDtb went live on December 16, 2024, and amassed $65 million in total value locked (TVL) within its first day of trading.
BUIDL’s Growing Role in Crypto and DeFi
BlackRock has actively promoted BUIDL as a collateral asset across major platforms, engaging with Binance, OKX, and Deribit to integrate it into their derivatives exchanges. This move challenges the dominance of traditional stablecoins like Tether (USDT) and Circle (USDC) in collateral reserves for derivatives trading.
In DeFi, BUIDL is already gaining traction:
- Elixir Protocol’s deUSD Stablecoin: Allows users to mint deUSD using BUIDL as collateral on Curve Finance, enabling seamless swaps with other stablecoins in Curve’s liquidity pools.
Tokenization Market’s Growth Potential
The market for tokenized assets is poised for exponential growth:
- McKinsey & Company predicts tokenized financial assets could grow to a $2 trillion market by 2030.
- The Global Financial Markets Association (GFMA) and Boston Consulting Group estimate the tokenization of illiquid assets could reach $16 trillion by 2030.
- Citigroup’s conservative forecast projects $4 trillion to $5 trillion in tokenized digital securities by 2030.
Global Moves in Tokenization
Recognizing the vast potential of tokenization, major companies are making strategic advancements:
- Goldman Sachs plans to launch three new tokenization products this year.
- Platforms like Toucan and KlimaDAO are driving growth in the digital carbon market.
- Real estate tokenization protocols, such as Propy, are experiencing significant user growth.
Both public and private blockchains are increasingly accommodating diverse tokenized assets, showcasing the versatility of this transformative technology.
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