GM readers! No better way to start your Friday than our newsletter.
The total supply of Curve's stablecoin, crvUSD, passed the 50M mark on Thursday. Although TUSD is in deep water as the token is allegedly undercollateralized, and the overall stablecoin narrative from a few months ago has calmed down, the demand for crvUSD hasn't faded away. In the past week, the amount of crvUSD minted has increased by ~15M tokens, to a circulating supply of ~53M.
The stablecoin maintains its peg through dynamic borrowing rates and Pegkeepers. The latter works by minting and burning crvUSD in its AMM pools. When crvUSD trades above its peg, more tokens are minted and recorded as Pegkeeper debt. The inverse applies when crvUSD is below its peg. The dynamic borrowing rate is calculated based on how far the crvUSD price is from its peg and the amount of Pegkeeper debt in the system.
A decrease in the crvUSD price or Pegkeeper debt outstanding would result in an increase in the borrowing rate, and vice versa. This is because if the debt is close to zero, the protocol can't put a lot of upwards pressure on the crvUSD price by removing supply if needed. When the crvUSD price starts decreasing, a higher borrowing rate forces stablecoin holders to redeem tokens. In other words, borrowing rates increase to encourage debt reduction and decrease to encourage borrowing.
Even though the supply has increased by ~15M tokens, there is still ~512M crvUSD that could be borrowed. Since the stablecoin is minted and borrowed exclusively through Curve, a larger amount of circulating crvUSD would directly increase protocol revenue. The demand for leverage will surely go up as market conditions improve, and it'll be interesting to see how well Curve can take advantage of this. If you want to learn more about the project, we recently released an in-depth report on Curve's stablecoin and lending market.
That's enough rambling from me—enjoy your weekend!
– Brick
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