The proposal suggests reducing TUSD’s collateral backing to zero, effectively ending its support for crvUSD if approved.
On September 25, 2024, Curve Finance, a major decentralized exchange for stablecoin trading, proposed changes that could reshape its stablecoin, Curve USD (crvUSD). The proposal, introduced by governance user “WormholeOracle”, calls for the removal of TrueUSD TUSD $1.00 24h volatility: 0.1% Market cap: $494.55 M Vol. 24h: $30.14 M as collateral, citing regulatory concerns and peg instability.
Curve Finance, which manages billions in user assets, operates through a decentralized governance system where CRV token holders decide key issues. The proposal suggests reducing TUSD’s collateral backing to zero, effectively ending its support for crvUSD if approved.
Moreover, it recommends cutting PayPal’s PYUSD PYUSD $1.00 24h volatility: 0.1% Market cap: $803.02 M Vol. 24h: $51.07 M minting capacity from $15 million to $5 million, aiming to diversify collateral and limit exposure to high-risk assets.
Curve’s Strategic Collateral Shift
The proposal comes in response to growing regulatory scrutiny surrounding TUSD. Earlier this year, the SEC accused TrueCoin, TUSD’s original issuer, of misleading investors by falsely claiming that TUSD was fully backed by U.S. dollars. In reality, a large portion of its reserves was invested in risky offshore funds. This revelation has raised doubts about TUSD’s stability, prompting Curve Finance to reconsider its use as collateral for crvUSD.
WormholeOracle’s proposal highlights the risk, noting that crvUSD is overexposed to smaller stablecoins like TUSD, which has faced SEC fraud charges. The move is seen as a preventive step to protect crvUSD from potential instability linked to TUSD’s shaky peg and transparency issues.
Currently, Curve allows up to $10 million worth of crvUSD to be minted using TUSD through its PegKeeper liquidity pool, which helps maintain crvUSD’s $1 peg. However, the SEC’s actions have undermined confidence in TUSD, making it a less viable option for collateral. The company has historically relied on more stable assets like USDC USDC $1.00 24h volatility: 0.0% Market cap: $60.24 B Vol. 24h: $4.87 B and USDT USDT $1.00 24h volatility: 0.0% Market cap: $144.12 B Vol. 24h: $45.81 B to support crvUSD’s peg.
The proposed reduction in TUSD’s involvement is part of Curve Finance’s plan to diversify its collateral and strengthen crvUSD’s long-term stability by avoiding overdependence on any single, potentially unreliable asset.
TrueUSD Stability Rethink in DeFi
Regulatory scrutiny of TrueUSD has led many in the decentralized finance (DeFi) community to reconsider their asset holdings. In response, Curve Finance has taken steps toward possibly removing TUSD from its platform. Approval of such measures could pioneer new standards for how DeFi entities address compliance and risk, particularly with assets prone to legal complexities.
The move could redefine stablecoin frameworks and collateral tactics within the DeFi sector, potentially influencing other projects’ strategies. Historically considered a dependable stablecoin, TrueUSD now confronts a precarious position in the DeFi market as its regulatory issues intensify.
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