Curve’s Stablecoin to Support Lido’s stETH

Move allows crvUSD to scale by increasing debt ceiling by 15x.

By: Samuel Haig Loading...

Curve’s Stablecoin to Support Lido’s stETH

Token holders of Curve Finance, the leading stablecoin DEX, voted for Curve’s new stablecoin to onboard Lido’s liquid staking token, stETH.

The proposal passed on Saturday with unanimous support and a massive quorum of more than 84%, meaning voters mobilized 84% of the circulating supply for Curve’s CRV token to participate.

The move is significant because by adding more collateral alternatives, it allows Curve’s recently launched stablecoin, crvUSD, to scale. With the addition of stETH, crvUSD debt ceiling increases by 15 times to $150M

13th Largest Stable

If crvUSD reaches the new debt ceiling, it would rank as the 13th-largest stablecoin above Euro Tether and below Liquity USD.

Currently, crvUSD users can only mint the stablecoin against deposits of Frax’s staked liquid staking token (LST), sfrxETH, which has a $10M debt limit.

The move positions crvUSD for significant growth roughly one month after the protocol’s launch. While degens rushed to ape into crvUSD when its contracts were deployed on May 3, Curve didn’t launch a user interface for the protocol until May 17.

Users have minted $4.7M crvUSD at present, according to Dune Analytics.

Leading Liquid Staking Token

StETH is by far the leading liquid staking token, ranking as the seventh-largest crypto asset with a $13B capitalization. Integrating stETH would make crvUSD a viable option for many more LST holders looking to use their position in DeFi.

LSTs are yield-bearing tokens representing staked Ether positions that accrue staking rewards. They allow holders to quickly enter or exit staked Ether positions, and enable holders to earn DeFi yields on top of staking rewards.

As such, ETH staking rewards will generally exceed the interest accrued on crvUSD mints, allowing crvUSD to provide additional yield opportunities 

LSTfi Takes Off

The vote comes as LSTfi is emerging as a major DeFi category, with developers competing to attract the more than $15B currently locked in liquid staking tokens, according to CoinGecko.

New protocols offering rewards to stETH stakers are rapidly proliferating For example, Lybra Finance has rocketed to amass a $182M TVL less than six weeks after launching its own stETH-backed stablecoin.

PegKeepers' Limits

The proposal will also increase the limit on PegKeepers pools 10 times to $25M each.

Curve’s design for crvUSD combines over-collateralization requirements with “Stability Pools,” “PegKeepers,” and “LLAMA” liquidations to ensure crvUSD trades for $1.

Stability Pools operate akin to Maker’s Peg Stability Module, comprising liquidity pools that enable low-slippage swaps between crvUSD and other stablecoins (USDC, USDT, USDP, and TUSD).

PegKeepers Design

PegKeepers are smart contracts assigned to a particular Stability Pool and are tasked with minting or burning crvUSD tokens under specific conditions to push the stablecoin’s price toward $1, borrowing from a popular mechanism underpinning algorithmic stablecoins.

When the price of crvUSD exceeds $1 in a specific Stability Pool, the PegKeeper can mint crvUSD and deposit it to the pool to place downward pressure on its price. Conversely, PegKeepers can remove and burn their crvUSD liquidity when the token’s price is below $1, reducing supply and theoretically pushing prices up.

Steep interest rates are also imposed on crvUSD borrowers when its price slides below $1 to incentivize users to purchase crvUSD to pay down their debts. Rates fall when crvUSD is above $1 to encourage loan generation.

The systems have worked well so far, with crvUSD trading within a 0.5% price range since launching.