crvUSD Responds to De-pegging Pressure: Founder Proposes Interest Rate Adjustment Plan

Recently, following Aave's GHO, Curve's crvUSD has also experienced a slight de-pegging phenomenon. In response to this situation, the founder of Curve proposed a plan aimed at increasing the base Intrerest Rate of crvUSD, in hopes of stabilizing its price at 1 USD.

Data shows that the lowest price of crvUSD in the past week was about 0.99 USD, and it has now rebounded to 0.996 USD. As a soft-pegged stablecoin to the USD, the price fluctuations of crvUSD have attracted market attention. When the price is above 1 USD, arbitrageurs will borrow crvUSD and sell it in the market; while when the price is below 1 USD, although some people buy in anticipation of a rebound, the effectiveness of this practice is still uncertain. If stable price expectations cannot be maintained, users may have concerns about holding this stablecoin for the long term.

To address this issue, the founders proposed a plan to adjust the multiplier for all crvUSD market Intrerest Rates at the governance forum. The core of this proposal is to encourage users to repay loans by increasing the base Intrerest Rate, thereby helping crvUSD to get out of the current depegging state of approximately 0.5%.

Specifically, the proposal suggests increasing the base interest rate for the non-staked ETH and BTC market from 5.8% to 11%, while the base interest rate for staked ETH is raised from 8.6% to 15%. This adjustment will significantly impact the actual borrowing rates; for example, the borrowing rate for ETH may rise from 6.97% to 13.2%, while the borrowing rate for wstETH may increase from 11.3% to 19.7%.

It is worth noting that crvUSD adopts a dynamic interest rate mechanism, where the final interest rate not only depends on the base rate but is also influenced by the performance of crvUSD prices and the debt ratio of the PegKeeper. It is expected that after the proposal is implemented, high interest rate pressure will encourage borrowing users to purchase crvUSD to repay loans, thereby pushing up the price of crvUSD. As the price rebounds, the pressure of rising interest rates caused by the decoupling will decrease, and PegKeeper may begin to incur debt, leading to a decline in crvUSD borrowing rates.

PegKeeper, as a contract specifically designed for minting and absorbing crvUSD debt, plays an important role in maintaining the peg price. It allows for trading between crvUSD and mainstream stablecoins such as USDC, USDT, TUSD, and DAI. When the quantity of crvUSD in the pool is insufficient, PegKeeper will mint crvUSD; conversely, it will buy back and destroy when there is excess. This mechanism not only helps stabilize the price but may also generate profits through buying low and selling high.

Currently, the proposal has been voted on in the Curve DAO and received 100% support. With the proposal taking effect, the interest rate for borrowing crvUSD by collateralizing wstETH has risen to 19.94%, which may prompt some users to repay their loans. However, whether this measure can stabilize the price of crvUSD in the long term, whether PegKeeper debt will increase leading to a decline in interest rates again, and the impact of these operations on the application of crvUSD still require further observation.