[TEMP CHECK] Onboard frxUSD to Aave v3 Ethereum Core Instance

Governance New Asset
1

Title: [TEMP CHECK] Onboard frxUSD to Aave v3 Ethereum Core Instance

Author: Frax Core Team

Date: 2025-09-16

Simple Summary

This proposal seeks to onboard Frax USD (frxUSD) as a new stablecoin asset on the Aave v3 Ethereum Core Instance. frxUSD is fully backed by tokenized U.S. Treasury assets held by top-tier institutions like BlackRock and Superstate and is redeemable 1:1 for USD through enshrined custodians.

Motivation/Background

About frxUSD

frxUSD is a fiat-redeemable stablecoin issued by the Frax Protocol, fully backed 1:1 by tokenized U.S. Treasury funds managed by institutional custodians like BlackRock and Superstate. Its bankruptcy-remote structure ensures unparalleled stability, and it is mintable/redeemable directly through licensed partners and soon directly on the frax.com interface itself to any user in the world (fiat wires will require KYC/AML). frxUSD is mintable/redeemable 1:1 for cash, USDC, and USDT directly from the issuer, Frax Protocol. Additionally, frxUSD offers a unique revenue-sharing mechanism, allowing up to 100% of its underlying T-Bill yield (currently 4.1%) on unborrowed frxUSD assets in Aave pools to be shared with Aave DAO. This revenue can be utilized as protocol income or distributed as incentives for depositors, providing flexibility for governance decisions.

Benefits of Listing frxUSD

Adding frxUSD to Aave v3 on the Ethereum Core Instance would provide the following benefits:

  • Stable Collateral Base: Institutional-grade reserves reduce protocol risk.

  • Guaranteed Incentives: 100% of T-Bill yield (4.1% APY) from unborrowed frxUSD assets deposited in Aave pools would be used as incentive for participants.

  • Regulatory Compliance: Positioned as a payment stablecoin under the GENIUS Act.

Proof of Liquidity and Deposit Commitments

Frax Finance commits to supporting the launch of frxUSD on Aave v3 Ethereum with meaningful liquidity:

  • Initial Liquidity Commitment: At least $1M+ in frxUSD deposits will be provided to Aave within the first month of deployment, ensuring strong utilization and borrow availability from day one.

  • Engaged LP Community: Frax has an active community of liquidity providers who have expressed strong demand for frxUSD on Aave Ethereum. Many are recurring participants in lending markets and are expected to migrate capital into this market upon launch.

  • Sustainable Incentive Model: frxUSD’s underlying RWA yield (from tokenized U.S. Treasuries) enables sustainable protocol incentives. portion or full reward from unborrowed frxUSD held in Aave pools can be directed toward depositors. This aligns long-term usage incentives with real-world income rather than relying on token emissions.

Specifications

frxUSD Token Contract Address:

Ethereum: 0xCAcd6fd266aF91b8AeD52aCCc382b4e165586E29

Chain: Ethereum

We are open for recommendations from Aave risk management teams.

Useful Links

Next Steps

  1. Publication of TEMP CHECK to gather community & service providers feedback, and escalate to TEMP CHECK Snapshot.
  2. Publication of a standard ARFC, if TEMP CHECK Snapshot passed, to continue collecting community & service provider feedback before escalating proposal to ARFC snapshot stage.
  3. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived under CC0.

1 Like
2

Hello and thank you for your proposal.
I am currently against adding this asset the reason is simply that it’s not big enough to generate substantial revenue to the DAO.
To be considered it should have at least 100-150m in market cap. According to Etherscan it’s currently around 61m.

3

Thanks for your feedback and for raising this point.

Just to clarify, the current circulating supply of frxUSD is ~$80m (shown on frax.com/frxUSD), not ~$61m. We agree that size matters, but we’d also highlight a few things:

  • Trajectory → frxUSD launched recently and has scaled to ~$80m already, growing faster than many assets that were listed on Aave in earlier stages. With ongoing integrations (Curve, Fraxtal, RWAs), we expect continued acceleration.
  • Risk profile → It’s fully backed by cash-equivalent reserves with transparent balance sheets, giving strong risk-adjusted fundamentals even at today’s size.
  • Strategic value → frxUSD shares T-bill yield with DeFi users. An Aave listing would open lending/borrowing use cases, driving sticky liquidity and positioning Aave as the natural home for frxUSD money markets.

So although we are still under 100m but the growth path suggests we’ll be there soon. Onboarding at this stage allows Aave to capture that growth and revenue opportunity early, while the asset is still ramping up.

1 Like
4

While we appreciate Frax Finance’s contributions to the DeFi ecosystem and recognize their track record of innovation, we believe frxUSD’s current market profile does not align with Aave’s growth objectives.

A major concern lies in the market cap of $82.92M which is low when compared with established stablecoins that have high usage on Aave: USDC ($35B+), USDT ($120B+), DAI ($4B+).

In addition there is significant concentration risk. At the proposed $50-100M Aave deposits, this would represent 60-120% of total circulating supply. And similarly we believe there is insufficient liquidity to support large-scale borrowing without severe slippage.

In conclusion we believe that given the current workload and limited development resources, we do not believe that onboarding this asset would result in growth and revenue that would justify onboarding.

From a business perspective, ACI recommend voting NAY to onboarding frxUSD at this time.

Asset Information

Attribute Answer
Current marketcap $82.92m (CoinGecko: frxUSD)
Committed Aave TVL $0 (None committed)
Expected Aave deposits $50-100m+
Expected monthly revenue $40-60k
Aave incentives budget Ongoing incentives via 100% revenue sharing

Commercial information

Attribute Answer
Asset class Fiat-backed stablecoin
Systems & projects associated Frax Finance (Frax.com)
Basic utilities Regulated stablecoin with on-chain transparency and reward sharing
Planned future developments Potential expansion to collateral asset
Use-cases of Aave onboarding Borrow asset (initially), potential collateral asset (future)
Yield mechanism Backed by cash-equivalent assets (BUIDL, USTB) held by regulated custodians
Previous adverse events None disclosed
Borrow assets Standard stablecoins (USDC/USDT/etc.)

Disclaimer

This review was independently prepared by ACI. ACI is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

Copyright

Copyright and related rights waived via CC0.

[ARFC] Onboard frxUSD to Aave V3 Core Instance on Ethereum
5

The current proposal has been escalated to TEMP CHECK Snapshot under Skywards Program.

Vote will start tomorrow, we encourage everyone to participate.

2 Likes
6

After Snapshot monitoring, the current TEMP CHECK Snapshot ended, reaching out Quorum but 453.3K NAY votes, with the second most voted option, YAE, for 402.8K votes.

Therefore, [TEMP CHECK] Onboard frxUSD to Aave v3 Ethereum Core Instance has NOT PASSED.

2 Likes