Fraud proofs are a blockchain verification mechanism whereby a claim on a new block is accepted unless a proof the claim is invalid is provided within some configurable time window. This allows trust-minimized light clients to be secure under the assumption only a single honest full node is available in the network to produce fraud proofs. Both the Fuel protocol and the FuelVM are designed to be fraud-provable in restritive environments such as the Ethereum Virtual Machine.
State-transition fraud proofs are a general-purpose fraud proof mechanism, but come with the downside of requiring a global state tree—an inherently sequential bottleneck. UTXO fraud proofs avoid this bottleneck; they simply require each spend of a UTXO to "point" to the creation of the UTXO. Proving the pointer is invalid, or that whatever is being pointed to doesn't match whatever is being spent, are sufficient for exhaustively proving fraud.
The Fuel transaction format and validation logic are fraud-provable with UTXO fraud proofs. The FuelVM relies on an Interactive Verification Game protocol, whereby an execution trace is bisected until a single step must be executed to check for a mismatch. The FuelVM instruction set is specifically designed to be both expressive yet fraud-provable within the Ethereum Virtual Machine.