crvUSD is a collateralized debt position (CDP) stablecoin issued by Curve.
crvUSD is a low-cap, fully collateralized asset. This asset is exposed to the underlying risks of Curve and Base bridge, which are protocols rated as Best and Watch out, respectively.
crvUSD is a stablecoin that usually trades within 20bps of its peg to USD, which makes it a solid store of value.
crvUSD has an uncapped supply but has inflation control or burn mechanisms in place.
crvUSD is a debt-based stablecoin created through a decentralized stablecoin infrastructure developed by Curve. Users mint crvUSD by depositing a variety of collateral and opening a loan within the protocol. This process involves overcollateralization, meaning that the value of the collateral deposited is greater than the amount of crvUSD minted, which helps to maintain the stability of the stablecoin. The collateral is locked in the protocol, and in return, users receive an equivalent amount of crvUSD based on the collateral’s value and their desired collateralization ratio.
The price stability of crvUSD is maintained through a combination of overcollateralization and algorithmic mechanisms. First, users must always deposit more value in collateral than the crvUSD they wish to mint, creating a buffer against price volatility of the collateral assets. Second, the protocol can adjust borrow rates based on supply and demand, which can influence the amount of crvUSD in circulation. Third, there are specialized contracts (Peg Keepers) that can mint or burn crvUSD to trade near the peg when required. They operate by balancing the crvUSD pools against a blue chip stablecoin to maintain the peg. Lastly, trading dynamics in the open market also play a role. If crvUSD trades above $1, users are incentivized to mint more crvUSD by locking up collateral, increasing the supply, and pushing the price down. Conversely, if it trades below $1, users are motivated to buy crvUSD and pay down loans, reducing supply and pushing the price up.
Liquidations for crvUSD are handled more smoothly compared to traditional debt-based stablecoins. crvUSD leverages the concept of soft- and hard-liquidations. In soft liquidations, if the price of the collateral drops into a pre-selected range, the collateral is gradually converted into stablecoins via an AMM (automated market maker), which helps to prevent a sudden loss of collateral and gives the market time to absorb the changes. In hard liquidations, if the loan's health falls below a certain threshold, a full liquidation can occur. This means all of a user's collateral is sold off in the AMM to cover the debt, and the loan position is closed. Unlike other platforms where a loan is liquidated at a specific price point, crvUSD utilizes a range of prices over which collateral begins to be converted to crvUSD, making liquidations less abrupt. If the collateral price is within the liquidation range, users can't add more collateral; they can only repay crvUSD to improve the loan’s health. Finally, crvUSD uses liquidation discounts to provide incentives for liquidators to participate in the liquidation process by offering the collateral at a discounted rate, ensuring that liquidators are compensated for providing liquidity to close out the loan.