Curve Finance Joins the Stablecoin Race with Launch of crvUSD
A DeFi Protocol Curve Finance has announced that its algorithmic stablecoin, CrvUSD, is now live on Ethereum mainnet, marking a significant milestone for the project.
Curve Finance is a decentralized exchange (DEX) that specializes in stablecoins and offers cheap swaps between stablecoins and other fixed-priced assets such as Ethereum derivatives. The protocol is the second-largest DEX by volume after Uniswap.
CrvUSD is an over-collateralized stablecoin backed by assets such as USDC, Ethereum, liquid staking derivatives, and liquidity provision tokens of stablecoin pools. The token's price is pegged to $1, according to the product's whitepaper released by Curve in November.
At the time of writing on May 4, the contract had minted more than $22 million worth of CrvUSD in the past eight hours, with $20 million of that amount minted within the first five minutes, according to Etherscan.
Curve, which has nearly $4.4 billion in TVL (Total Value Locked), announced last year that it had started developing its dollar-pegged stablecoin. However, it faces stiff competition from rival DeFi protocols, like Aave protocol which recently launched a testnet version of its GHO algorithmic stablecoin.
Curve's stablecoin differentiates itself from competitors with its novel lending-liquidating algorithm, called LLAMA, that constantly rebalances users' collateral as crypto prices fluctuate, according to the stablecoin whitepaper. The protocol will gradually convert the assets into CrvUSD when the price of the crypto asset posted as collateral falls below the liquidation level, and later convert back to the collateral asset as the price recovers.
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.
After the collapse of the Terra ecosystem in May 2022, algorithmic stablecoins came under severe industry-wide criticism. The TerraUSD (UST) stablecoin lost its peg, and the value of its sister token Terra, which was later renamed Terra Classic (LUNC), plummeted by over 99%. UST's value was previously maintained by a complex arbitrage mechanism, which was eventually disrupted by a group of sophisticated traders.
