Author: CRV.MKTCAP.ETH Compiler: Cointime.com 237
generally
1. What is $crvUSD and how does it work?
$crvUSD is a stablecoin pegged to the US dollar that can be minted by a decentralized protocol developed by Curve Finance. Users can mint $crvUSD by posting collateral and opening loans in this protocol.
2. How is the liquidation process of $crvUSD different from other debt-based stablecoins?
$crvUSD uses an innovative mechanism to reduce the risk of liquidation. Instead of triggering an immediate hard liquidation at a specific price, the user's collateral is converted into stablecoins within a stable price range.
The benefit of this mechanism is that in most cases it will result in a loss of only a few percentage points in value, rather than the full and immediate loss suffered during hard liquidations common to most debt-based stablecoins.
3. What is the mechanism by which $crvUSD is pegged to the value of the US dollar?
$crvUSD maintains price stability through on-chain variable lending rates and a series of Peg Keepers, which mint or burn $crvUSD based on market demand.
4. Is it possible to propose or add other types of collateral for crvUSD? How does this process work?
Yes, additional collateral markets can be proposed for $crvUSD by management. Please contact the community support channel for additional information on the current process for proposing new collateral types.
Liquidation Process
1. What is my liquidation price?
When you take out a loan in USD, instead of a single liquidation price, you deposit your collateral within a price range. When the price falls within this range, your collateral begins to be converted into USD, a process that helps keep your loan healthy and prevents hard liquidations from happening in most cases. Therefore, you do not have a specific liquidation price.
2. How do I understand or adjust the price range of my collateral deposit?
This price range can be adjusted when the loan is initially created. In the UI, look for a toggle for "Advanced Mode" which will provide more information about this range, as well as an "Adjust" button that will allow you to fine-tune this range.
3. What happens when the collateral price falls into my range?
Each $crvUSD market has an AMM attached to it. This collateral can be traded in the AMM when the price falls within your range. In most cases, the arbitrator will purchase the collateral for $crvUSD. This has the effect of making your loan collateralized by a stablecoin, which better preserves value and keeps your loan healthy.
NOTE: This process was originally referred to as a "soft liquidation," but this term is being phased out to avoid confusion with the hard liquidation process where loans are closed and collateral is sold.
4. What happens if the collateral price rebounds?
The entire process is reversed and your position is swapped from the stablecoin back to your original collateral. Due to the AMM’s transaction fees, you may find that you lose a few percentage points of the value of your original collateral in the round trip.
5. Under what circumstances can I be liquidated?
When your loan health drops below 0%, you may be subject to hard liquidation, in which case your collateral can be sold off and your position sold off. While $crvUSD's collateral conversion mechanism prevents hard liquidations in most cases, it may not be able to keep pace with severe price fluctuations. Borrowers are advised to maintain their loan health, especially when prices are falling within their range.
6. If prices drop into my range, how can I keep my loan healthy?
When the collateral price falls into your range, you can no longer add new collateral to protect your loan health. If you want to maintain a healthy loan, you should repay $crvUSD. At this level, even a small amount of repayment of $crvUSD can be helpful to prevent hard liquidations.
7. What is the difference between self-liquidation and loan repayment? When is each option more advantageous?
Self-liquidation is a process where users close their loans, and loan repayment involves borrowers paying $crvUSD to maintain their loans and improve their health. In the event of a significant drop in the price of collateral, loans may be collateralized by $crvUSD and sold at a higher collateral price, and in some cases, self-liquidation may actually be profitable.
8. What happens to the collateral in the event of a hard liquidation?
In the event of a hard liquidation, all available collateral is sold by the system to cover the debt.
9. How is the “liquidation discount” calculated during the hard liquidation period?
The liquidation discount is calculated based on the market value of the collateral and is intended to incentivize liquidators to participate in the liquidation process.
Peg Keepers
1. Is the USD exchange rate always pegged to the price of 1 USD? If so, how is this achieved?
Yes, $crvUSD is designed to be pegged to 1 USD. This is achieved through automatically adjusting borrowing rates based on supply and demand, and Peg Keepers, who are authorized to burn or mint $crvUSD based on market conditions.
2. Under what circumstances can Peg Keepers mint or burn $crvUSD?
Each Peg Keeper targets a specific Peg Keeper Pool, which is a Curve v1 pool that allows trading between $crvUSD and a blue chip stablecoin. Peg Keepers are responsible for balancing these pools by trading profitably. When the balance of $crvUSD is too low, Peg Keepers can mint $crvUSD to trade into their associated pool, or if the balance is too high, it can buy back and burn $crvUSD.
3. What is the relationship between Peg Keeper’s debt and crvUSD’s total debt?
A Peg Keeper's debt is the amount of crvUSD they have deposited into a particular pool. Total debt in crvUSD includes all outstanding crvUSD borrowed across the system.
4. What does it mean if Peg Keeper’s debt is zero?
If the Peg Keeper’s debt is zero, it means that the Peg Keeper has no outstanding debt in the $crvUSD system.
5. How does Peg Keeper trade and distribute profits?
Peg Keeper has a public `update` function. If the Peg Keeper has accumulated profits, then a portion of these profits will be distributed at the request of the user who called the `update` function to incentivize distributed transactions in the fund pool.
Borrowing rate
1. What is the "borrowing rate"?
The "Borrowing Rate" is the variable interest charged on active loans in each collateral market.
2. How is the borrowing interest rate of $crvUSD calculated?
In $crvUSD, the borrowing rate for each collateral market is calculated based on a number of parameters, including the Peg Keeper’s debt and the market’s borrowing demand.
3. How does the margin custodian’s debt affect the borrowing rate?
Increased Peg Keeper debt could result in higher borrowing rates to incentivize repayment and restore stability to the system.
4. Why is the price of the dollar close to the peg, but the borrowing interest rate is high?
High rates could be due to high demand for borrowing, or an increase in Peg Keeper debt, even if the price of $crvUSD is close to the peg. For example, if Peg Keepers are liquidated as the price of collateral increases, then increasing borrowing rates is the only way for the system to provide stability.
Safety and risks
1. What are the risks of using $crvUSD?
As with all cryptocurrencies, $crvUSD carries several risks, including depeg risk and the risk of your collateral being liquidated. Please make sure to read the disclaimer and exercise caution when interacting with the smart contracts.
2. How can I best manage my risk when providing liquidity or borrowing crvUSD?
The best risk management practices include maintaining safe collateral ratios, understanding the possibility of liquidation, and closely monitoring market conditions.
3. Has $crvUSD been audited?
Yes, you can read the full $crvUSD MixByte audit, and other audits of Curve may be posted to Github.
4. Can I see the code?
The code is publicly available on Curve's Github.