crvUSD Faces Depegging Pressure, Curve Founder Proposes New Solution to Address

Recently, following the GHO of Aave, Curve's crvUSD has also experienced a slight de-pegging. To address this situation, Curve founder Michael proposed a plan on the governance forum on November 21, suggesting a significant increase in the base interest rate (interest rate multiplier) rate0 for crvUSD to encourage its price to return to 1 USD. The voting on this proposal on Curve DAO ended on November 28, receiving 100% support.

Data shows that the lowest price of crvUSD in the past 7 days was around 0.99 USD, and it has currently rebounded to 0.996 USD. As a soft-pegged stablecoin to the USD, crvUSD attracts arbitrageurs to borrow and sell when the price is above 1 USD; whereas 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 the market expects that crvUSD will struggle to maintain its 1 USD peg, it may affect users' willingness to hold it long-term.

The core of the proposal put forward by Michael is to adjust the interest rate multipliers 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, it is recommended to increase the base interest rate for the uncollateralized ETH and BTC markets from 5.8% to 11%, and for the collateralized ETH market from 8.6% to 15%.

This adjustment is expected to significantly increase the lending rate of crvUSD. Taking staked wstETH as an example, its lending rate may rise from 11.3% to 19.7%. Such a high interest rate is expected to encourage borrowing users to purchase crvUSD to repay loans, thereby driving up the price of crvUSD. As the price returns to its peg, the upward pressure on interest rates caused by the decoupling is expected to be alleviated or eliminated.

It is worth noting that crvUSD adopts a dynamic interest rate mechanism, where the final interest rate is influenced not only by the base interest rate but also by the performance of the crvUSD price and the debt ratio of the PegKeeper. These factors interact with each other to determine the actual borrowing interest rate.

PegKeeper, as a contract specifically designed for minting and absorbing crvUSD debt, plays an important role in maintaining the price of stablecoins. It regulates supply and demand by trading between crvUSD and mainstream stablecoins (such as USDC, USDT, etc.) in specific pools. When PegKeeper starts to generate debt, it will also lead to a decrease in the borrowing interest rate of crvUSD.

Currently, the proposal has come into effect, and the interest rate for borrowing crvUSD by collateralizing wstETH has risen to 19.94%. This may force some users to choose to repay their loans. However, whether this measure can long-term anchor the price of crvUSD at 1 USD, and whether the PegKeeper debt will rise, prompting interest rates to decline again, remains to be seen. At the same time, the potential impact of these operations on the actual use of crvUSD also needs continuous attention.