- crvUSD will use a lending-liquidating AMM algorithm, or LLAMMA, model to mitigate collateralization risks.
- crvUSD will be decentralized, backed by crypto assets, and pegged to the U.S. dollar.
- The release date of crvUSD is unknown.
Curve Finance (CRV), one of the longest-living decentralized exchanges built on Ethereum, released on Tuesday a whitepaper that goes into detail about its upcoming stablecoin crvUSD.
According to the document, the core idea of the new decentralized stablecoin is what the founder of Curve and the author of the whitepaper Michael Egorov calls a lending-liquidating AMM algorithm, or LLAMMA.
LLAMMA works by converting between the provided collateral and the stablecoin, depending on which is higher and which is lower. For example, if the price of the collateral in the form of ETH is high, users’ deposits are comprised solely of ETH. If the collateral depreciates in value, LLAMMA converts some of it to the stablecoin, helping better manage collateralization risks.
The LLAMMA mechanism, according to the whitepaper, is different from traditional automated market maker (AMM) designs where stablecoins are on top and the collateral is on the bottom.
Similarly to DAI, the other decentralized stablecoin issued by Maker, crvUSD will be overcollateralized with other crypto assets and pegged to the U.S. dollar.
Curve has joined Aave in releasing a crypto-backed stablecoin. Aave’s GHO will also be an overcollateralized stablecoin that users will be able to mint directly on Aave. It’s set to release in the near future.
The market cap of stablecoins backed by crypto assets is currently $6.7 billion, according to data from DefiLlama. Maker’s DAI leads the way, with a market cap of $5.3 billion. The total stablecoin market cap is just under $144 billion with USDT, USDC, and BUSD issuing almost $132 billion of their tokens.
On the Flipside
- It’s unclear when crvUSD will launch.
Why You Should Care
Crypto-backed decentralized stablecoins comprise only a small portion of the total stablecoin market. Curve’s crvUSD, together with Aave’s GHO, are set to increase decentralized stablecoins’ market share in the near future.
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