you are correct, the aim of the proposal is to silo the RWA risks to the investors that want to take on the risks and not affect the rest of the FRAX ecosystem.
my reason for this is simple. if the FRAX protocol loans out a massive amount of protocol owned assets to RWA lending and they default. The liquidity pools will be able to pay out all the unlocked FRAX at 1-1, but that liquidity will be dried up when the locked FRAX investors have their FRAX / random coin LP unlock. this means all the long term locked investors are taking on all the default risk if they agree to or not.
Due to the bidding system the investor would get the best return from all the RWA protocols that can make a bid and as demand grows their funding will see more demand and should see higher bids and more return.
the RWA protocols that can place a bid would have to be voted in by FXS holders so would have had some sort of vetting (How Can We Better Evaluate Future Borrowers (both on-chain and RWAs)?)
if RWA protocols choose to invest in things that are not in line with the agreement made when they were given permission to bid in the auction then they will be flagged as a bad actor and removed from the bidding process going forward.