Thread by @RoadSaiyan

1/ Bonjour les copains!

Yesterday @CurveFinance launched its whitepaper on $crvUSD, with LLAMMA (lending-liquidating AMM algorithm) being its most important feature.

Here is a breakdown of this @CurveFinance cutting edge innovation:

2/ Why?

In most lending platforms, if the token price suddenly drops, you risk instant liquidation.

Borrowers are then forced to monitor the markets 24/7 to avoid this painful experience.

3.1/ How?

LLAMMA solves this problem by internalizing the AMM, making the collateralized token work like LPs.

It allows the collateral to be constantly rebalanced, so that if the price drops, the collateral is exchanged against what you borrowed and vice versa.

3.2/ If we take the example of ETH collateralizing $crvUSD, the user would deposit $ETH as collateral, but it would turn into an LP ETH/USD position.

When the price of $ETH drops, the LP position gradually sells ETH and buys USD

3.3/ When the price of $ETH rises, the LP position sells the USD and buys back $ETH

If $ETH continues to decline and never recovers, the LP position has enough USD to support the debt

3.4/ It should be seen as follows:

The collateral will be split into several "tranches". Instead of depositing at a single liquidation price, you deposit collateral across a range of liquidation prices.

3.5/ A wide range means that your position begins to liquidate sooner, but more gradually. A tight range means that the liquidation process can be sudden.

3.6/ Imagine taking out a loan using $0.3ETH, with a liquidation range between $500 and $530. Your liquidation tranches will be:

* Tranches 1 : [$500 - $510] : 0.1 ETH
* Tranches 2 : [$510 - $520] : 0.1 ETH
* Tranches 3 : [$520 - $530] : 0.1 ETH

3.7/ Once the price falls within the range of $530 to $520, your position begins to be liquidated. Your $crvUSD position is now 0.2 $ETH and ~52 $USD.

This helps to smooth the exit price when market drops.

4/ Implication for $CRV and $sdCRV:

The screen shot speaks for itself.

I remind you that you can benefit from fees while having a liquid CRV at @StakeDAOHQ
: lockers.stakedao.org.

5/ Here is the white paper, we can discuss in detail next time.

github.com/curvefi/curve-…

6/ Would like to thank @bneiluj for his sharp inputs. He helped me a lot to understand, hence write this overview of the $crvUSD dynamics.

7/ Follow! Then Like & Share

If you learned anything from this thread please encourage me.

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