Curve launches a new stablecoin crvUSD, innovative clearing mechanism may alleviate market Fluctuation

The potential in the field of decentralized stablecoins is immense, but most projects struggle to survive in the long term. Even LUNA and UST, which once had a market cap of hundreds of billions of dollars, collapsed rapidly. Against this backdrop, Curve, with a total locked value of 37 billion USD, has also decided to venture into this area.

Curve recently released the white paper and code for its stablecoin. According to the information on GitHub, the white paper was completed in October and is currently not the final version. Although the white paper does not explicitly mention the name of the stablecoin, the code indicates that this new stablecoin is fully named "Curve.Fi USD Stablecoin" and abbreviated as "crvUSD". This initiative may help address the CRV inflation issue by improving Curve's revenue through the stability fees of the stablecoin and the income from PegKeeper.

The white paper highlights several innovative features of crvUSD: the Lending-Liquidation Automated Market Maker Algorithm (LLAMMA), PegKeeper, and monetary policy.

LLAMMA is the main innovation of crvUSD, aimed at mitigating the impact of the liquidation process on the market. Unlike traditional one-time liquidations, LLAMMA employs a smoother liquidation algorithm. When the value of the collateral falls to the liquidation threshold, the liquidation will proceed gradually rather than being completed in one go. If the price rebounds, the system will assist users in repurchasing the collateral. This mechanism is similar to the impermanent loss hedge when providing liquidity in automated market makers.

Although LLAMMA can reduce users' liquidation losses in extreme market conditions, it may also lead to easier triggering of liquidations. Users using LLAMMA may suffer slight losses during minor price fluctuations, while users of traditional lending platforms may not face liquidation.

crvUSD also introduces automatic stabilizers and monetary policies to maintain price stability. When the price of crvUSD exceeds 1 USD, the PegKeeper can mint crvUSD without collateral and inject it into the stablecoin exchange pool to bring the price down. Conversely, when the price falls below 1 USD, the PegKeeper can withdraw part of the liquidity to raise the price. This mechanism is similar to Frax's AMO and can avoid reliance on centralized stablecoins.

Monetary policy controls the relationship between the stablecoin debt and crvUSD supply by adjusting system parameters to maintain balance in the system.

The Curve team holds a large amount of veCRV voting power, which allows them to guide the flow of funds between crvUSD and other liquidity pools, providing support for the initial development of crvUSD. In addition, Curve chooses to use the price oracle of its own DEX instead of external oracles like Chainlink, which may limit the range of assets available as collateral, but also reduces associated costs.

Overall, the launch of crvUSD may increase the revenue of the Curve protocol and bring new solutions to the decentralized stablecoin market. However, the long-term effects of its innovative mechanism remain to be tested by the market.