Why did the founder of Curve create the crvUSD/fFRAX pool

Author: DeFi Cheetah, encryption KOL; translation: Golden Finance xiaozou

This article will specifically look at the newly created crvUSD/fFRAX pool in Curve Finance’s biggest potential crisis. Its purpose is to reduce the utilization rate (UR) of the CRV/FRAX lending pair and the interest charged by Fraxlend. But why Fraxlend?

Because there is a time-weighted variable rate (TWVIR) which adjusts the rate over time (max = 10,000%) - the higher the utilization, the shorter the half-life (12 hours at 100% UR) and the interest doubles.

The crvUSD/fFRAX pool is set up to always find a market rate that borrowers are willing to pay, while maximizing the use of the FRAX lent. So, in this case, Fraxlend’s interest rates skyrocket compared to other lending platforms.

This pool was established by Michael in a permissionless manner to extend the half-life of Fraxlend by reducing utilization. What does this mean for fFRAX holders/lenders and crvUSD?

For fFRAX holders/lenders, lenders who currently lend fFRAX with CRV as collateral can exit the secondary market! If they have confidence in Michael and want to get more income, they can also become LPs. Considering that it is easier to withdraw, some people may be willing to deposit FRAX with the CRV/FRAX loan pair on Fraxlend in order to obtain high interest rates and good farming income from the pool. These individuals have a higher risk appetite and strong belief in the Curve ecosystem. If that were the case, UR would be lower and interest would grow at a much slower rate. However, it is not.

For crvUSD, it can create crvUSD borrowing demand for yield farming in the pool. Depositors take the most risk because in a worst-case scenario they could end up holding fFRAX — CRV’s book liability.

These people are also big believers in the Curve ecosystem because of their willingness to hold large amounts of CRV. Additionally, veCRV holders benefit from the interest charged to new borrowers. How about crvUSD? is it safe?

crvUSD is unaffected as it is fully backed by stETH, sfrxETH, wBTC and ETH. In fact, it does a pretty good job of keeping the peg stable in the face of this level of FUD, thanks to two factors in the peg mechanism - the dynamic rate and the pegkeeper.

So far, some OGs have taken corresponding actions after the establishment of new pools, such as Sifu.Vision and CryptoCondom.

Do you have any other questions? There are at least 2 more questions:

(1) More imminent: Short-term FUD further lowered CRV and weakened purchasing power, resulting in the liquidation of CRV price at $0.4.

(2) Longer time: Although not related to the Curve smart contract, it will take time to restore confidence.

In any case, always avoid risks and only take risks you can bear, whether you are long or short.