noctemn Profile picture
Nov 23 24 tweets 8 min read
【Curve Stablecoin $crvUSD - First thoughts on the train】

1. Totally new model. No endogenous collateral. $CRV is not even mentioned once in the whitepaper. So like neither $LUNA nor $FRAX.
2. Fundamentally like $DAI, a CDP stable, but with a new liquidation mechanism.

2/ #LLAMMA: old CDP stablecoins have a liquidation price. Once it hits that, gg liquidated. #LLAMMA continuously liquidates and recollateralises as the price of @ETH the collateral moves.
3/ The #LLAMMA also deals with the bad debt situation we've seen on Solend. With traditional lending borrowing markets, you can b
4/ Quick heuristic I've come across for bands is to consider the entire possible price range of ETH: [0, ∞). Mint 100 USD out of 1 ETH at any price, if you manage to sell and buy the ETH such that at 0 you have 0 ETH and 100 USD and at ∞ you're only in ETH, then no liquidation
5/ I think this heuristic is a good starting point to reverse engineer the design logic for the bands mechanism - which I might do later in a substack piece if my smolbrain allows for it.
6/ Note that this design introduces a path-dependent AMM into the mix, which can get really hairy.
7/ Peg maintenance mechanism: deep liquidity on @CurveFinance. Massive liquidity - then no depeg. Question of peg maintenance becomes one of maintaining liquidity, which is something Curve has mastered.
8/ Liquidity is maintained by #AMOs. Depeg arb profits are monopolised by @CurveFinance, like @FraxFinance. Uniswap relies on external arb bots to pull the price of its pools to par with market. LPs gets arbed to death.
9/ The Automatic Stablizer conducts monetary policy (basically acts as an AMO) and mints uncollateralised crvUSD into the Curve pool if it crvUSD > 1 usd, and withdraws and burns it if < 1 usd.
10/ Question: How's the gas and slippage from the constant rebalancing going to be paid? If socialised amongst all depositers doesn't this mean there's a decay of some kind?
11/ Dunno what "adiabatically" means but wiki says its a thermodynamic process that occurs without transferring heat or mass to the system - i.e. without changing the system's behaviour too drastically?
12/ AMOs are not necessarily always profitable, especially when you need to pay bribes. Might be different here because Curve is the house but not sure.
13/ #crvUSDBP?
Would there be a $crvUSD base-pool? If yes would the #3pool be retired? How would #FraxBP be competing? Or would there be something more amicable like a new base pool with $crvUSD and $FRAX and something else?
14/ Peg stability: deep liquidity on Curve via AMO.
Decentralisation: only ETH as collateral, not a USDC wrapper.
Capital efficiency: (?) does the AMO minting money into the Curve pool mean they're actually on fractional reserve? There is $crvUSD minted out of thin air, unbacked.
15/ Is there a module for onboarding new collateral other ETH???? I wouldn't be surprised if there is some kind of decentralisation ratio introduced to keep "undecentralised" off so to maintain decentralisation purity <-- especially in light of recent events.
16/ Note that curve uses oracles for its liquidation engine. What happens in edge cases where you have crazy wicks? Seems there is a EMA price oracle module to handle this

17/ Advantages of this stable:
- highly decentralised, uncensorable <-- in light of events now
- highly liquid, depeg chances low
Unfortunately I think the first major adoption of this token will be by hackers who need unfreezable stables.
18/ Impact on the stables landscape: don't see people flocking to this stable in the meantime. No yield, what's the point? CEXes will not want to list this because it will be a competition to what they're building, and also regulatory risk. But @CurveFinance probs doesn't care
19/ General feeling: Bullish $ETH long term, bearish $DAI, lukewarm $FRAX and $FXS. En garde $AAVE!
21/ @Defilgnas has a good thread as well
22/ This substack as well. Read this. Especially for help to understand wtf's going on with the bands and what "Adiabatic process" means.…
If you find this ok feel free to share and retweet

you can pump the spot price of illiquid collateral, max borrow against manipulated prices, then let that shitcoin collateral be liquidated. But because the collateral is so illiquid, the protocol ends up with bad debt - effectively stealing from that shitcoin's holders

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