DeFi’ing The Odds

Market Meditations | November 23, 2022

Due to recent events, CEXes have lost customer confidence and are now under a microscope. DeFi protocols are hoping to take some market share, and one in particular is back to making headlines. Curve hasn’t made an official announcement, but their Github account shows the project is all set to finish its crypto-backed stablecoin.

  • crvUSD will be similar to MakerDAO’s DAI and will be over-collateralized.
  • According to the whitepaper, crvUSD can be minted by depositing excess collateral in the form of a cryptocurrency loan in reserve. This opens a collateralized debt position.
  • The stablecoin will also have an algorithmic element, using a Lending Liquidating AMM (LLAMMA) that will continuously liquidate and sell the deposited collateral to better manage collateralization risk.
  • The governance coin for Curve saw some higher price action yesterday possibly due to the release of the stablecoin documents, but in the background, a short position was discovered on DeFi protocol AAVE.  A trader on the protocol borrowed 92 million CRV after depositing $57 million in USDC as collateral. The trader then began selling the CRV tokens, which is presumed to have resulted in the 25% decline CRV saw before the 50% jump.

Rumor has it that this position was an intentional plan to highlight flaws in the AAVE protocol, which was successful since AAVE incurred $1.6 million in bad debt. Considering the stablecoin documents were randomly released in the middle of the short squeeze without an official announcement, there could be some truth to the matter.