Curve Releases Stablecoin Whitepaper – crvUSD On The Way?

Published: Nov 22, 2022
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DeFi protocol Curve has released its stablecoin whitepaper via GitHub today, at last providing some more details on their long-awaited stablecoin, suspected to be named crvUSD.

The whitepaper includes new insight into a brand new innovation known as “lending-liquidating AMM algorithm” or “LLAMMA” – a mechanism designed to improve upon the clunky liquidation mechanisms of stablecoin competitors.

Many questions have been left unanswered, however, such as the specific assets that will collateralize the stablecoin, what it will be called, and how it will fit into the broader Curve ecosystem.

What is LLAMMA?

Curve aims to improve upon existing stablecoin mechanisms by integrating its own automated market-maker (AMM) into the system. More specifically, a new innovation known as a “lending-liquidating AMM algorithm” or “LLAMMA”.

The LLAMMA provides a dedicated market between the collateral asset and the stablecoin. Collateral provided to mint/borrow stablecoins is added to this market-maker rather than isolated “vaults”.

Not only does this provide a liquid market for the collateral and the Curve stablecoin, but more importantly it’s designed to serve as a continuous liquidation mechanism for collateralized debt positions (CDPs).

What does this mean?

In current implementations of crypto-backed stablecoins (such as DAI), collateral positions are liquidated almost in their entirety at once, if the collateral falls past a critical threshold.

With the Curve LLAMMA model, collateral positions will gradually liquidated as they approach danger, allowing for partial liquidations unless absolutely necessary. This is performed automatically by the LLAMMA, which slowly sells the collateral asset for the stablecoin as the collateral drops in value.

Smoothing out volatility shocks?

The LLAMMA mechanism may be highly valuable to prevent losses via slippage during times of market volatility, which have been known to result in large, inefficient, cascading liquidations in other models.

Instead of large asset dumps for liquidations, the LLAMMA may smooth this out into a much more gradual and manageable distribution of collateral when it is required.

The model also even suggests that your position will be “re-collateralized” if the price of the asset increases, providing a more flexible and self-correcting market for stablecoin borrowers.

Curve’s stablecoin was first hinted at in July, with Curve founder Michael Egorov later alluding to a release date sometime in September. The stablecoin protocol still is yet to be deployed.