Overcollateralized Design Will Use a Novel Lending-Liquidating AMM Algorithm (LLAMMA)
Curve, the second largest decentralized exchange on Ethereum, has released a whitepaper detailing its forthcoming stablecoin, sending the price of its CRV governance token soaring.
CRV, which had declined steadily over the past week, jumped 15% after the white paper was released, making it the best-performing crypto token over the preceding 24 hours.
CRV Price, Source: The Defiant Terminal
Like other overcollateralized stablecoins, the dollar-pegged crvUSD will be available to users who deposit other crypto assets as collateral.
According to the white paper, crvUSD will use a novel lending-liquidating AMM algorithm, or LLAMMA, to protect borrowers whose collateral drops below the liquidation price.
As the ETH used as collateral drops in value, approaching its liquidation price, the protocol will convert it to US Dollars; as the price of ETH rises, the dollars are converted to ETH.
“This transforms liquidations from a jagged, all-at-once, all-or-nothing affair with huge slippage losses,” according to crypto developer foobar, “into a smooth transitioning that could even earn the collateral holder swap fees if they weather the volatility.”
Curve’s stablecoin seems set to launch at a time when interest in stablecoins — and businesses’ desire to cement their positions in the market — is on the rise.
Overall stablecoin market capitalization has dropped this year, with market-leading Tether down more than 20% since its high in May. Nevertheless, lending protocol Aave has its own dollar-pegged stablecoin, GHO, in the works. And the world’s largest centralized crypto exchange, Binance, recently delisted several competing stablecoins, converting user balances in those to its own BUSD stablecoin.