As Tether and other stablecoins continue under tight scrutiny following the fall of Luna, Curve DAO has announced their own stablecoin crvUSD. The launch date is not yet available. It features a new lending-liquidating algorithm (LLAMMA), PekKeeper, and Monetary Policy. The whitepaper was released on November 22, 2022 laying out all the features.
The LLAMMA design is the most important. It converts between collateral and the stablecoin. Users deposit in ETH, but as it goes down, it converts to USD. Traditional stablecoins are the reverse. So basically, if your collateralized debt positions start to drop, it automatically liquidates your portfolio into Curve’s stablecoin, so that your position is not lost. This is a fairly innovative protocol for DeFi.
Even more, when prices stabilize, the algorithm might buy back the collateral to keep reserves strong. While many don’t understand exactly how smart contracts work or what they offer, this is one use case that packs a punch.
Over Collateralized Stablecoin
The crvUSD is essentially not stabilized by an algorithm, but rather over collateralization, a safety feature that many stablecoins should likely employ given the current failure rate. The stablecoin is only minted if a user deposits ETH into LLAMMA. The PekKeeper can withdraw and burn crvUSD from a pool to increase the price or mint and deposit when the price is above $1 USD. The borrow rate also gets adjusted to make a double whammy of protection for the price.
Decentralized Platforms to the rescue
Curve DAO is one of the few successful decentralized exchanges and lending platforms. Curve does not have any access to user funds, but rather allows smart contracts to control the process. Admin keys allow the Curve team to pause the contract in an emergency for the first two months only.
Smart contracts cannot be upgraded with the admin key. This limits actions in a case of emergency but leaves users fully in control of their funds.
Now that Celsius, Luna, BlockFi and more have paused withdrawals for customers, having a platform that doesn’t reserve that option is a major plus. Trust the Code, seems to be a popular motto amongst their users. They have an in-depth governance and voting system as well that allows the platform to evolve without centralized control.
Decentralized platforms should start to gain more traction in the future. Funds are flowing off centralized exchanges at alarming rates. CurveDao and their new stable coin may be one to put on your radar.
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