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Curve Finance, a decentralized finance (DeFi) protocol, has launched its own U.S. dollar-pegged stablecoin, known as "crvUSD," on the Ethereum mainnet.
Curve's crvUSD stablecoin is intended to be a "collateralized-debt-position" stablecoin, where users must deposit collateral to take out a loan in crvUSD. However, the preferred asset for collateral has not yet been specified by Curve Finance. The design of the algorithmic stablecoin is similar to MakerDAO's DAI stablecoin.
After the collapse of the Terra ecosystem in May 2022, algorithmic stablecoins became the focal point of industry-wide criticism. The TerraUSD (UST) stablecoin lost its peg, and its sister token, Terra Classic (LUNC), decreased in value by more than 99%. UST's value was supported by a complicated arbitrage mechanism that was eventually brought down by a group of sophisticated traders.
Curve Finance's crvUSD differs from the now-defunct UST by utilizing an overcollateralized design, which aims to mitigate the risk of the stablecoin losing its peg. Aave (AAVE), a competitor protocol, also released a testnet version of its "native decentralized, collateral-backed stablecoin" called GHO in February of this year.
Curve Launches Overcollateralized Stablecoin to Minimize Risk.
Curve Finance's crvUSD stablecoin launch follows a flurry of activity in the DeFi market, with several platforms introducing new products and features. Furthermore, numerous protocols are concentrating on creating their own stablecoins to help their ecosystems become more self-sustaining.
While the launch of Curve's crvUSD stablecoin is still in its early stages, it has already attracted a significant amount of attention from investors and industry experts. Many are optimistic that the overcollateralized design will help to minimize the risks associated with algorithmic stablecoins and improve their long-term viability.