Author：@FINT1121

Translator：@Chendashan_pat

Stablecoin battle sees the strongest competitor——crvUSD\ Curve has long been the most liquid decentralized exchange for stablecoins. However, while almost every stablecoin project was scrambling to get more liquidity support from Curve during the bull market (Curve War earlier in the year), Curve never issued its native stablecoin.

This week, the stablecoin market liquidity 'referee' stepped in as a 'player.’ Curve released the protocol-native stablecoin crvUSD whitepaper (first draft). The release of this whitepaper coincided with the shorting of crv on the chain by the big player @avi_eisen, so its overly crude wording was a shield for the project at this sensitive time.\ The team also said that this version of the stablecoin whitepaper is not the final version and that a more detailed version will be released later. The good thing is that although the white paper is not specific since the parameters and formulas have not yet been determined, we can still look through it to understand the general framework of crvUSD, the stablecoin market judge's native stablecoin.\ The main points of the Curve stablecoin are divided into four parts: firstly, the lending-liquidating AMM algorithm (LLAMMA), which is responsible for liquidating during ETH price fluctuations. Secondly, the Liquidity Band, which provides liquidity for liquidating. Thirdly, the PegKeeper (also called the Stable Pool), which is responsible for maintaining the crvUSD price anchored at 1 USD, and fourthly, the Curve Gauge, which has been the central Crv emission control module in the Curve ecosystem, and which is a module used to incentivize the growth of the crvUSD scale.
LLAMMA

This feature will make Curve's stablecoin unique. The most impressive part of the cycle is LLAMMA, which converts collateral (e.g., ETH) and stablecoins. In simple terms, if ETH is stable, crvUSD has enough collateral to back it up. As the price of ETH falls, LPs can gradually sell some ETH in exchange for crvUSD. As the cost of ETH rises, LPs can sell crvUSD in exchange for ETH.

This function corresponds to the liquidation mechanism of previous lending platforms. When the price of collateralized tokens falls, the health rate of the collateralized position can deteriorate rapidly, and users who mint stablecoins may be immediately liquidated.\ The old liquidation model had some problems. For example, when retail investors were liquidated after an extremely down market and the market rebounded quickly, the liquidated users would have suffered a very high percentage of losses. It can be seen that if the LLAMMA mechanism had replaced the old mechanism, users would not have suffered such significant losses.\ This strategy works well to help collateralized users avoid permanent loss in volatile markets and allows for more passive position management. However, liquidation can still occur if volatility becomes too high. This is because liquidation exists wherever collateralization exists.\ In addition, each stablecoin-collateral pair forms a liquidity pair with the collateral. This means that not only can users lend ETH to crvUSD, but at the same time, the ETH pledged in can also use these as liquidity for trading pairs (ETH-crvUSD), therefore amplifying the capital efficiency.

Liqudity Band\ The concept is a bit like the Uni v3 manager for market making, but with the difference that Liquidity Band runs entirely on the chain and no longer needs to be manipulated by off-chain strategy bots.\ In this concept, the mortgagee's liquidation price is not a single price but sets the liquidation price in separate bands, i.e., increases the 'liquidation' liquidity within the set price range.\ A collateral borrower's borrowing behavior can be understood as depositing collateral at different liquidating prices and lending crvUSD. When the collateral price crosses a specific range, the collateral within this range will be liquidated. Conversely, if the price returns to this position, the user's collateral will be restored.\ According to some bloggers, this 'liquidation' liquidity must be increased to a minimum of 5 volatility ranges and up to 50. The larger the range, the slower your position will be liquidated, whereas a smaller range means the liquidating process can proceed faster.\ For example, in the case of a user who has received a loan of 1 ETH equivalent in the price range of 1100-1200, the clearing range could be set as follows：\ 1100-1110 0.1ETH；\ 1110-1120 0.1ETH；\ …\ 1190-1200 0.1ETH\ In this case, once the price of ETH falls to the 1190-1200 range, the user's position of 0.1 ETH will be liquidated, and the position will be reduced to 0.9 ETH and approximately $119 (liquidation of 0.1 ETH converted to 119 crvUSD).
PegKeeper\ When crvUSD>1, PegKeeper contracts to mint uncollateralized stablecoins and deposit them unilaterally into LP (crvUSD), while when crvUSD<1, PegKeeper withdraws from LP and burns the stablecoins. These actions cause crvUSD to depreciate at >1 and appreciate at <1 rapidly.\ It is easy to see that at a price > 1, the minted stablecoin is uncollateralized. The whitepaper indicates that the liquidity in the stablecoin pool at this point can used as collateral for this excess issuance of tokens.
Gauge\ Finally, back to the Curve protocol. As mentioned at the beginning of this article, Curve is the place to be for any stablecoin project, regardless of its market cap. From Usdt down to Usdd, all stablecoins are concerned about Curve's influence.\ Curve's impact is reflected through a mechanism called the Curve Gauge. veCRV (locked crv) holders can combine or "bribe" their way into the Gauge to vote for the crv emissions.\ Therefore, whoever holds more votes in Curve will have a stablecoin with deeper liquidity in Curve, and its popularity will be more significant.\ Now, Curve is starting the era of being both a 'referee' and a 'player' for stablecoins. Its future stablecoin market share is worth waiting for.\ However, Biteye also advises the following：

1. The LLAMA mechanism is too new. The first version of the white paper clarifies that its entire logic has not been mathematically rigorously proven and that there is still too much uncertainty in the mechanism. After all, any innovation in liquidating mechanisms needs to be rigorously tested and proven under extreme conditions to ensure that the system does not go bad. You can keep an eye on Biteye for the latest news.
2. Do not get carried away by the initial mining yields and rush to exchange directly for crvusd at a high premium on the secondary market. A high apr is bound to be reflected in the price on the secondary market, and it is common for stablecoins to be priced above 1. When you fomo, calculate whether it is worthwhile to use collateral to issue crvUSD directly or to buy tokens instantly from the secondary market.
3. A relatively stable and profitable strategy that can be thought of at the moment is to "farm initially and wait for depeg ” Because in a bear market, it is not recommended that any collateralized stablecoins be farmed in the long term.