Curve Releases Stablecoin Whitepaper – crvUSD On The Way?

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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.

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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.

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