Curve founder proposes adjusting crvUSD Intrerest Rate to address slight decoupling

Recently, crvUSD has experienced a slight de-pegging phenomenon. In order to bring the price of crvUSD back to 1 USD, the founder of Curve proposed a plan on the governance forum to significantly increase the underlying Interest Rate of crvUSD. The proposal was voted on and completed on November 28 on Curve DAO, receiving 100% support.

Data shows that the lowest price of crvUSD in the past 7 days was about 0.99 USD, and the current price is 0.996 USD. As a soft-pegged stablecoin, when the price is above 1 USD, arbitrageurs borrow crvUSD to sell it on the market; when the price is below 1 USD, although there are also arbitrageurs buying in anticipation of a price rebound, this practice is not always effective. If it cannot maintain the 1 USD peg for a long time, users may lose confidence in this stablecoin.

The main content of the proposal is to adjust the interest rate multiplier for all crvUSD markets in order to better manage the peg of crvUSD to the USD and the overall health of the lending market. Specifically, for non-staked ETH and BTC, the base interest rate increases from 5.8% to 11%; for staked ETH, the base interest rate increases from 8.6% to 15%.

In practice, before the proposal takes effect, the lending interest rate for non-staked ETH is 6.97%, while the rates for staked wstETH and sfrxETH are 11.3% and 11.86%, respectively. After the proposal takes effect, assuming other parameters remain unchanged, the lending interest rate for ETH will rise to 13.2%, and the lending interest rate for wstETH will rise to 19.7%.

The final interest rate is dynamically changing, depending not only on the base interest rate but also on the price performance of crvUSD and the debt ratio of PegKeeper. It is expected that this proposal will affect the interest rate through the following steps:

1. Adjust the base Intrerest Rate and increase the crvUSD lending rate.
2. Borrowing users buy crvUSD to repay loans under high interest rate pressure.
3. The price of crvUSD rises, and the increase or disappearance of the interest rate caused by the decoupling.
4. PegKeeper begins to incur debt, crvUSD lending interest rate decreases

If the proposal successfully brings crvUSD back to its $1 peg, the actual borrowing interest rate for crvUSD will be determined by the debt situation of the PegKeeper. For non-staked ETH and BTC, the interest rate ranges from 0.07% to 11%; for staked ETH, the interest rate ranges from 0.1% to 15%.

PegKeeper is a contract specifically designed for minting and absorbing crvUSD debt, trading near the peg price. It allows for trading between crvUSD and mainstream stablecoins (such as USDC, USDT, TUSD, DAI) by minting or repurchasing and destroying crvUSD to maintain price stability.

The proposal is currently in effect, and the interest rate for collateralizing wstETH to borrow crvUSD has increased to 19.94%. This may force some users to repay their loans. However, whether the price of crvUSD can remain anchored at 1 USD in the long term, whether the debt of the PegKeeper will rise and cause the interest rate to decline again, and whether these actions will affect the application of crvUSD still requires further observation.