Curve Finance, a prominent decentralized exchange (DEX) specializing in stablecoin trading, is currently reviewing a proposal that may significantly impact its operations. The proposal suggests removing TrueUSD (TUSD) from the list of collateral tokens that back Curve USD (crvUSD). This potential change has sparked discussions within the community, as Curve Finance operates as a decentralized finance (DeFi) protocol, primarily governed by its CRV token holders who have the authority to propose and vote on changes to the protocol.

The proposal, initiated by a user known as WormholeOracle, aims to set the upper limit of TUSD collateral for crvUSD to zero. This implies that TUSD would no longer serve as a backing asset for crvUSD if the proposal is accepted. Additionally, WormholeOracle suggests reducing the minting capacity of crvUSD using PayPal’s stablecoin, PYUSD, from $15 million to $5 million. This adjustment is intended to promote a more diversified and balanced reliance on various collateral assets.

In the proposal, WormholeOracle articulated concerns over crvUSD’s current exposure to lesser-known stablecoins, particularly TUSD. They highlighted TUSD’s questionable reliability, especially in light of recent regulatory scrutiny. The U.S. Securities and Exchange Commission (SEC) has charged TUSD’s original issuer, TrueCoin, with defrauding investors, raising alarms about the asset’s stability and transparency. The proposal states: “crvUSD is overexposed to minor stablecoins, especially TUSD which has a dubious track record and has recently been charged by the SEC with defrauding investors.” This statement underscores the urgency behind the proposal, as it seeks to safeguard the stability of crvUSD and the interests of its users.

At present, users can mint up to $10 million worth of crvUSD using TUSD through a mechanism known as the ‘PegKeeper’ liquidity pool. A liquidity pool is essentially a collection of tokens held in a smart contract, allowing for efficient trading and minting processes. The PegKeeper debt ceiling represents the maximum amount of crvUSD that can be minted to a target crvUSD pool, reinforcing the importance of maintaining an adequate balance of backing assets to uphold the peg to the U.S. dollar.

Historically, the USDC and USDT pools have been the primary sources of liquidity for crvUSD, ensuring its stability by keeping it pegged to the U.S. dollar. The proposal to limit TUSD’s involvement is part of a broader strategy to mitigate risks associated with over-reliance on any single asset or group of assets deemed high-risk. This strategy seeks not only to enhance the robustness of crvUSD but also to build trust among users and investors in the increasingly scrutinized DeFi landscape.

The potential removal of TUSD comes amid increasing regulatory challenges faced by TrueCoin, the original issuer of TUSD, which has since been transferred to the offshore firm Techteryx. The SEC had previously accused TrueCoin of conducting unregistered offers and sales of securities related to TUSD through TrueFi, a platform for stablecoin transactions. The allegations specify that TUSD was not fully backed by U.S. dollars as claimed; rather, a significant portion of its reserves—reportedly 99%—was allegedly invested in speculative offshore funds. Such findings have eroded confidence in TUSD, prompting Curve Finance to reconsider its role in the collateral framework.

Recently, TrueCoin and the SEC reached a settlement, agreeing to pay fines of $163,766 each, alongside a return of nearly $400,000 in profits and interest. This settlement awaits federal court approval, but it highlights the ongoing legal and regulatory challenges surrounding TUSD. The implications of these challenges extend beyond TUSD itself, impacting the overall stability and reputation of crvUSD and its associated liquidity pools.

In conclusion, the proposal to eliminate TUSD from Curve Finance’s collateral assets is indicative of a larger effort to ensure the stability and integrity of crvUSD as a viable stablecoin within the DeFi ecosystem. As the community deliberates this proposal, it is essential to consider the broader implications of such a change, including the potential for increased stability in the face of regulatory scrutiny and market volatility.