What Happened on May. 5th | crvUSD Deployed

TI Research

Curve Finance deployed its highly anticipated native stablecoin called crvUSD on the Ethereum mainnet.

Curve’s crvUSD is an overcollateralized stablecoin backed by crypto assets, according to the product’s whitepaper released by Curve in November. The token’s price is pegged to $1.

Curve will control the supply of crvUSD with a mint-and-burn mechanism similar to MakerDAO’s DAI or Aave’s forthcoming GHO. Investors can create crvUSD by a collateralized debt position (CDP), depositing digital assets in Curve’s smart contract as collateral. When the borrower closes its debt position to reclaim the collateral, Curve destroys (burns) crvUSD.

The above is a typical mechanism of overcollateraled stablecoin.

What differentiates crvUSD from competitors is its novel, lending-liquidating algorithm, called LLAMA, that constantly rebalances users’ collateral as crypto prices fluctuate, according to the whitepaper.

For example, when the price of the crypto asset posted as collateral falls below the liquidation level, the protocol will gradually convert the assets into crvUSD, and later will convert back to the collateral asset (de-liquidate) as the price recovers.

The mechanism offers a smoother, continuous liquidation process as opposed to a single, drastic event that sometimes causes turmoil and huge losses on lending protocols when cryptocurrency prices crash.

Additionally, the collateral is stored in an automated market maker (AMM) pool providing liquidity for people to trade against, instead of sitting in a vault or lending pool.

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