Curve launches innovative stablecoin solution, which may enhance protocol revenue

The decentralized stablecoin sector has a vast market, but most projects struggle to survive in the long term. Even LUNA and UST, which once had a market value of several billion dollars, went to zero in a short period. Against this backdrop, Curve, with a total locked value of $3.7 billion, has also begun to venture into this field.

Curve recently released the white paper and code for its stablecoin. According to information from GitHub, the white paper was completed in October and is not the final version. Although the name of the stablecoin is not explicitly mentioned in the white paper, the code shows that its full name is "Curve.Fi USD Stablecoin", abbreviated as "crvUSD". This initiative may help address the issues arising from CRV inflation by increasing Curve's overall revenue through stable fees and income from PegKeeper.

The white paper mainly introduces three innovations of crvUSD: Lending-Liquidation Automated Market Maker Algorithm (LLAMMA), PegKeeper, and monetary policy.

LLAMMA is the main innovation of crvUSD, aimed at reducing the impact of the liquidation process on the market. Unlike traditional lending protocols, crvUSD employs a special AMM to replace the conventional lending and liquidation processes. Liquidation no longer occurs as a one-time event, but rather as a continuous liquidation/unwinding process.

For example, when borrowing crvUSD using ETH as collateral, if the price of ETH falls into the liquidation range, ETH will be gradually sold. However, if the price of ETH rebounds, the system will help users repurchase ETH. This mechanism is similar to hedging against impermanent loss after providing liquidity in an AMM.

The testing by the Curve team shows that even if the market price falls below the liquidation threshold of 10% and then rebounds, the loss of users' collateral within 3 days is only 1%. While this algorithm can reduce users' liquidation losses during extreme market conditions, it may also lead to liquidations being triggered more easily.

To maintain the price stability of crvUSD, Curve has introduced the PegKeeper mechanism. When the price of crvUSD is above $1, the PegKeeper can mint crvUSD without collateral and deposit it into the stablecoin exchange pool to lower the price. Conversely, when the price is below $1, the PegKeeper can withdraw part of the crvUSD liquidity to raise the price. This mechanism is similar to Frax's AMO and can avoid the impact of MakerDAO's PSM mechanism on centralized stablecoins.

Monetary policy adjusts the system by controlling the relationship between the debt of the stabilizer and the supply of crvUSD.

As a DEX, Curve has a large amount of veCRV voting power, which helps guide liquidity between crvUSD and existing liquidity pools, providing a unique advantage for its cold start. In addition, Curve utilizes its own DEX price oracle, and only assets already available on Curve can serve as collateral, which also saves on oracle-related expenses.

Overall, the launch of crvUSD may improve Curve's revenue situation while bringing new innovative solutions to the decentralized stablecoin market.