$crvUSD ARBITRAGE TRADING LIVE DEMO
The release of $crvUSD opens a few interesting applications for traders. we’re putting together some educational material on these topics, starting with a demo of $crvUSD arb trading we’ll be recording live this afternoon. Paying members are invited to join for recording and participate in a live Q&A session — details at the end of the article.
Collateral Types
As $crvUSD reaches a market cap of $5MM, halfway towards the $sfrxETH vault’s cap, it appears new collateral will be opening up soon™️.
Make your voice heard if you want other collateral types! We have no doubt this process will be streamlined to the point where it soon takes place off of Twitter shortly enough, but until there’s a user friendly means to do so, this is all you’ve got…
PegKeeper
A week in the wild, and $crvUSD peg mechanism has kept $crvUSD exceptionally stable.
By what black magic does $crvUSD keep its peg, where other stablecoins like $UST collapse?
Enter the PegKeepers. You may recognize these four pools which recently got picked up by the Curve UI.
Trading on these pools is showing as zero due to UI bug, but is in fact much higher. Since launch, traders have been busy arb trading these pools, which not only reinforces the peg but also makes fees for veCRV.
A lot is happening beneath the hood. Based on the balances of $crvUSD, the $crvUSD infrastructure measures whether or not the price of $crvUSD is pegged. This directly adjusts the borrowing rate — if $crvUSD is below peg the borrow rate goes up, incentivizing users to buy $crvUSD to repay their loans.
The PegKeepers can also mint new $crvUSD (within limits) — which is the only way of minting $crvUSD outside of borrowing it directly.
You might protest — is this inventing $crvUSD out of thin air? Is $crvUSD unbacked? Long-awaited deth spiral?
Here’s the explanation…
Why four 2-pools instead of a smaller number of pools with more coins? It’s because the architecture is designed with resiliency in mind. If USDC depegs, the PegKeeper will reweight using the other pools.
To go a bit deeper into the mechanics, we recommend this outstanding thread by 16131_.
Another good thread by omni_intern
See also, this comprehensive article by Albert Lin.
In sum, $crvUSD keeps peg mostly because arbitrage traders like making money, with PegKeeper making some tweaks to the supply to further incentivize such trades.
After one week, it’s functioning as expected. It’s working as a well-crafted system in which $crvUSD maintains peg, arb traders enjoy profits, veCRV stakers enjoy profits, and borrowers have the smoothest experience.
$crvUSD ARBITRAGE TRADING LIVE DEMO
To get a closer look at how these arbitrage trades are actually executed, we’re hosting a live recording of a video and invite subscribers to participate in live Q&A. Recording details are below.
Or, you can simply wait for the live materials, all of which will be posted publicly after production is complete.