Stablecoins have emerged as a foundational pillar within decentralized finance (DeFi), providing access to a fast, efficient, borderless, and stable way to transfer value on the internet. Among the plethora of decentralized stablecoin projects, one stands out for its innovative approach and groundbreaking advancements: $crvUSD.
Today, we’ll explore the history of $crvUSD, and how we arrived at the evolution of $MONEY.
The story begins with the birth of crvUSD, a collateralization-based stablecoin introducing a key innovation: LLAMMA, the novel liquidation mechanism that enables soft liquidations.
LLAMMA | Lending-Liquidating AMM Algorithm
Unlike traditional borrowing protocols where instantaneous liquidations are performed when the price of your collateral goes below the liquidation price, crvUSD uses an automated market maker (AMM) system that trades only as much collateral is needed over a price range to cover the loan health.
By automatically turning a borrower's collateral (e.g. ETH) into an LP position in a mini-AMM with the collateral and the stablecoin (ETH + crvUSD), it significantly reduces the risk associated with getting fully (i.e. hard) liquidated from short-time prices dips, as the liquidation process is gradual, and can even stop and start buying back the collateral again if the price of the collateral recovers. Hence LLAMMA offers a more gradual, flexible, and less damaging liquidation process in case of volatile market conditions. And all this is fully automated in the protocol.
How it works mechanically with LLAMMA is that your collateralized debt position (CDP) is structured with multiple separate bands in the liquidity pool, each band representing a different price segment. You can think of it as pouring your collateral into multiple ordered columns with staggered prices. The bands can be understood similarly to how liquidity is provisioned on concentrated liquidity AMMs like Uniswap V3. Each band represents a portion of the collateral that would get liquidated at a particular price point if the price changes to that point. This makes it so that it is possible during price volatility that only one band, and hence one portion of the collateral, gets triggered for liquidation.
The protocol then also gives individuals control over how many bands they prefer and at what price ranges their collateral would possibly get liquidated (depending on how much crvUSD is borrowed in the first place). A greater number of bands means that the liquidation will be more gradual but will start earlier if the price falls. And fewer bands mean that the liquidation process starts later but liquidates more at once if the price crosses that band.
Soft Liquidations
By splitting the collateral into bands, each representing a particular price within the range, a more borrower-friendly, less-volatile alternative to forceful liquidation processes is achieved, as generally a partial liquidation will save a user more money than getting fully liquidated. And this is what happens if the collateral price falls within the range of a band, as LLAMMA automatically balances the position to ensure it remains collateralized (backed by value). The collateral partially gets exchanged into crvUSD. And if price recovers, the collateral can be ‘de-liquidated’, reconverting crvUSD back into the collateral.
The Outcome = A safer, less volatile lending protocol, leading to a less volatile stablecoin.
If you want to learn more about crvUSD have a look at this article by Galaxy, which provides a primer on crvUSD.
Building on a licensed refactor of crvUSD, defi.money has been designed to excel on L2s and be more user-friendly, while the core concepts remain the same. Some simplified terminology to set the stage 👇
LLAMMA = Automated Loan Protection
Soft Liquidating = Collateral Conversion ⬇️
When part of the collateral (e.g. ETH) converts to $MONEY
De-liquidation = Collateral Conversion ⬆️
When $MONEY is converted back to collateral (e.g. ETH)
Hard Liquidation = Liquidation
All collateral is converted to $MONEY, and the loan closes.
With new vocabulary to set the tone, let's dive into the major advancements of defi.money:
Improved User Experience | We've built the UX from the ground up to be easier to use along with creating custom made ZAPs that abstract multiple transactions for the same action. Giving users one-click actions to generate $MONEY and ultimately opening up $MONEY to all members of the public (i.e. both crypto natives and newbies).
L2s & Efficient Collateral Conversion | By taking advantage of the speed of L2s, the Automated Loan Protection automatically rebalances collateral for users now at a much lower cost in terms of gas fees, as well as at faster confirmation times.
Exotic Collateral Types | $MONEY is purpose-built to utilize the advantages of Ethereum Layer 2s, accepting more exotic collaterals that would be unsuitable for Ethereum L1. This is also made possible by the custom arbitrage and peg-keeper system along with the faster confirmation times on L2.
Natively Cross-Chain | By deploying the whole protocol on multiple EVM chains and L2s and being able to deploy on new ones in the future while also being able to bridge between them, defi.money unifies liquidity across the entire EVM. It dissolves silos between chains and gives users the freedom to borrow outside of a single ecosystem. Purpose-built to seamlessly access capital anywhere, defi.money can even lock weights on different chains creating a new era in the Curve Wars, we've aptly named the #chainwars. More on this soon 👀
Our next blog will dive even deeper into the technical advancements brought to the world by defi.money, so stay tuned for more 💰
In conclusion, crvUSD is a significant advancement in collateralization-based stablecoin protocols, offering unparalleled efficiency & safety. With $MONEY, you have that and more - a faster and more scalable, EVM-agnostic stablecoin, creating a new censorship-resistant global layer of $MONEY.
The new global order of value transfer is coming...
Upwards and onwards,
Team at defi.money
About defi.money
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