Frax USD (frxUSD) is a fully-collateralized stablecoin issued by the Frax Finance Protocol that can be redeemed for fiat currency. It operates on a hybrid model, combining onchain mechanisms developed by the protocol with governance-approved enshrined custodians who mint and redeem the token using cash-equivalent reserves.

An enshrined custodian is a real-world entity authorized to exchange frxUSD 1-to-1 for $1.00 of the reserves they hold. Specifically, they can mint 1 frxUSD by depositing $1.00 in provable reserves, and they release $1.00 of those reserves when burning 1 frxUSD.

Governance determines which real-world entities become enshrined custodians and sets a custodian cap, which defines the maximum amount of frxUSD they may mint against their held reserves. A frxUSDCustodian contract is deployed via this governance process, specifying the minting limit and the specific custody asset token, such as Blackrock BUIDL.

While any user can interact with a frxUSDCustodian contract, the underlying reserve token may impose additional conditions like whitelists. This structure enables frxUSD to operate permissionlessly while allowing institutions to onboard in compliance with their internal rules. Redemption is available on demand for any asset held by a custodian, but there is no guarantee that frxUSD can be redeemed for a specific asset or from a particular enshrined custodian.

For instance, if Blackrock BUIDL and Superstate USTB serve as enshrined custodian assets, frxUSD is not guaranteed to be redeemable for both BUIDL and USTB simultaneously if the entire supply of BUIDL has been redeemed from the Blackrock frxUSDCustodian contract (or the reverse). frxUSD remains redeemable on demand from any frxUSDCustodian contract that still holds collateral tokens.