A month-old stablecoin from Curve Finance has taken the markets by storm. Its novel -pegging of prices price-pegging mechanism underpinning crvUSD (CRV) is achieving daily targets. feats on many fronts every day. Since its launch, the stablecoin has traded within a less than 0.5% of its price. Curve shared this data on Monday along with the analysis of its competitors.
According to the report by CoinGecko, USD bounced around by 2%, FRAX fluctuated by 10%, and DAI teetered within the range of 8% in their first months. As per Dune Analytics, users have already made 4.7M crvUSD with its trading. CoinGecko anticipates that crvUSD would become the 42nd-largest stablecoin protocol with a market cap of $4.7M.
Based on the analysis by DeFi Llama, it is the fourth-largest DeFi protocol with a 3% decline in the past week. Its value has reached an astounding $4.3B across 12 chains.
Bear Market Makes The Stablecoin Space Falter
The crvUSD(CRV) is seeing growth at a time when developers are finding many opportunities in the Stablecoin domain. Of late, the centralized stablecoins felt a little heat due to the exposure to the legacy financial sector and regulations. The New York financial regulators ordered Paxos to discontinue the issuance of tokens in the month of February. Just a month after, USDC, the second-largest stablecoin was exposed to a similar fear.
Momentarily, it got debugged owing to the risks to its collateral reserves caused by failed US banks. Last year, the Terra Network and its algorithmic UST suffered a collapse and it caused deteriorating conditions aftermath for the decentralized stablecoins. As part of this chain reaction, Much like a domino effect, MakerDAO’s DAI Stablecoin lost its peg as more than 40% of its collateral assets involved USDC. To make matters worse, Maker’s founder revealed that he might be floating DAI against the dollar freely at any time in the future.
The stablecoins offer resilience to price volatility and regulatory interference in the form of decentralized and overcollateralized tokens. This spiked their demand when the markets went through a little disruption.
What are Peg Keepers?
Around four weeks ago, Curve released its stablecoin on the Ethereum main net without a user interface. Shortly after, degens put $2M into the protocol, resulting in a launch of a UI for crvUSD on May 17th. Currently,. Right now, crvUSD can be minted only against sfrxETH and is backed by $6.4M worth of sfrxETH. AdditionallyIn addition to that, the firm said that it’s discussing the prospects of supporting WBTC and ETH with the community. Furthermore, it plans to incorporate LSD tokens too in the ecosystem.
Meanwhile, the existing users are reporting earnings close earnings of close to 3%. And that’s happening after paying the interest on stablecoins while earning staking rewards on the collateral when minting crvUSD. In order to maintain the $1 price, crvUSB deploys “PegKeepers‘’ and” and “Stability Pools”. Stability Pools pair crvUSD with other stablecoins like TUSD, USDP, USDC, and USDT while acting as liquidity pools. On the other hand, PegKeepers are smart contracts that can mint a limited number of crvUSD to push the token price. They are usually assigned to a particular Stability Pool. The PegKeeper gets the power to mint crvUSD and deposit it to the pool to put downward pressure on the price. It particularly does that when crvUSD exceeds $1 value in a specific Stability Pool.
With extensive reach, PegKeepers reduce supply and push the prices up theoretically. They do it by removing and burning crvUSD liquidity on the occurrence of the token’s price going below $1. Whenever the price goes below $1, it results in an increase in interest rates. This is done to encourage users to buy crvUSD with the purpose of the debt payment. Loan generation is another reason behind the rate decline when the crvUSD price is above $1.
Recently, Curve divulged that its Stability Pools hold up to 2.5M for crvUSD while 14% of its supply is supported by PegKeepers.
What are LLAMA Liquidations?
In an attempt to curb the effects of liquidations on borrowers, crvUSD came up with a unique mechanism. It is called the lending-liquidating AMM algorithm, LLAMMA. It works on the conversion of collateral assets into stablecoins whenever the value of the former backing a user’s crvUSD approaches its liquidation price. The protocol does that without divulging its whole position in a single trade.
Taking the next logical step, the structure converts the collateral back into volatile tokens whenever the price of the former rises. Now it certainly sounds smart but it levies a small cost to the users’ collateral. Right now, Curvey. receives price data from Chainlink’s oracles. However, it indicated that in the future, this would be done internal.
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