BlackRock's BUIDL Fund Continues to Penetrate DeFi, with Aave Moving to Onboard Its Shares as Collateral for Its GHO Stablecoin

The news is the latest example of BUIDL making inroads into DeFi, with MUSD, a Manta-native yield-bearing stablecoin issued by Mountain protocol

DeFi protocols are increasingly adopting BlackRock’s on-chain treasuries fund, with Aave moving to onboard the fund’s shares as collateral for its decentralized stablecoin.

On Aug. 26, Aave Labs, the team behind Aave, the largest DeFi lending protocol, published a preliminary temperature check proposal advocating for the inclusion of shares in the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) to the collateral assets backing its stablecoin, GHO.

If passed, the move would onboard BUIDL shares to the GHO Stability Module (GSM), a smart contract allowing users to exchange GHO one-to-one with supported assets — which currently supports Circle’s USD Coin stablecoin exclusively.

The proposal argued that supporting BUIDL would both help support GHO’s peg to the U.S. dollar and allow GSM assets to generate yield.

“With this implementation, GSM can be more capital efficient while maintaining the high standards of backing as USDC is backing the GHO,” the proposal said. “This GSM implementation sets the technical ability for the Aave DAO, essentially expanding yield sources into real-world assets (RWAs), and increasing the partnership opportunities with BlackRock.“

The fees earned by Aave from BUIDL swaps executed via the GSM would accumulate in the form of GHO, while dividends from the reserve holding will accrue as BUIDL.

GHO is the 19th-largest stablecoin with a market cap of $119.3 million, according to CoinGecko.

BUIDL penetrates DeFi

The news comes as BUIDL is making inroads into DeFi, with MUSD, a Manta-native yield-bearing stablecoin issued by Mountain protocol, adopting BUIDL shares as its collateral reserves in June.

BUIDL quickly emerged as the largest tokenized U.S. treasuries fund after launching in March. The fund now holds $502.5 million, beating out Franklin Templeton’s FOBXX fund with $428.1 million, according to Rwa.xyz.

BUIDL’s success helped to propel the tokenized treasuries sector to a more than $2 billion market cap, which it surpassed for the first time on Aug. 26. The sector’s capitalization is up 160% since the start of the year.

Aave to launch EtherFi-focused deployment

On Aug. 23, Aave governance greenlit deploying a new instance of its v3 protocol dedicated to supporting markets for EtherFi’s liquid restaking token, Wrapped eETH (weETH).

Users can use weETH as collateral to borrow stablecoins from the protocol. The deployment is currently slated to allow users to borrow stablecoins in the form of USDC, PayPal’s PYUSD, and Frax’s FRAX. WeETH currently boasts a $4.2 billion market cap, while eETH makes up another $906 million.

The proposal comes after Aave launched its first v3 deployment specializing in markets for a single asset. On July 29, Lido launched a protocol supporting markets for Lido’s liquid staking token, wstETH.

The price of AAVE is down 1.2% over the past 24 hours, according to The Defiant's crypto price feeds.

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