Curve Finance Proposes to End CRV Token Emissions on All UST Pools

On-chain participants are already voting “yes” to the measure.

AccessTimeIconMay 19, 2022 at 10:54 a.m. UTC
Updated May 19, 2022 at 2:47 p.m. UTC

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

Stablecoin swap application Curve Finance is proposing to end emissions of its CRV tokens from pools related to terraUSD (UST) after UST's implosion last week.

An on-chain governance proposal floated early on Thursday pointed out that technical risks associated with using UST on Curve pools made it problematic for users and retail participants.

“Due to the current circumstances, i.e., UST trading 90% off-peg and Terra ecosystem having approx. $9B in bad debts, there is currently no prospect of a sustainable recovery of the peg,” the proposal stated.

“Furthermore it is yet unclear as to how exactly weaknesses were exploited and if these vulnerability vectors will persist even in the case of a successful bailout,” it added, referring to revival plans floated by Terra founder Do Kwon.

The proposal further pointed out that Curve pools involving UST could act as a way for opportunistic investors to attract exit liquidity for their failed investments.

Developers, however, explained the proposal came amid technical risks instead of any negative notions of being associated with Terra.

"This is more technical than any kind of judgment of UST/Terra," Frax Finance founder Sam Kazemian wrote in a Twitter message. "The stablecoin is not pegged, so it literally cannot stay or be inside Curve pools until/if it ever repegs."

What are Curve and UST?

Depositors on Curve earn annual yields of up to 4% from one of the many pools on the platform. Curve offers an efficient way to exchange stablecoins while maintaining low fees and low slippage, according to developer documents.

UST, a stablecoin pegged to U.S. dollar, plunged to a few cents last week as investors redeemed UST for other tokens, causing a death spiral and pushing UST off its peg. That led to billions of dollars in losses for investors while creating negative sentiment for the Terra ecosystem among community members.

A drop in UST affected related decentralized finance (DeFi) applications, such as the 4pool on Curve.

4pool was launched in early April and is composed of two decentralized stablecoins, UST and Frax Finance's FRAX, and two centralized stablecoins, USD coin (USDC) and tether (USDT). Vocal backers included Terra's Kwon, who even tweeted that the 4pool’s “goal is to starve 3pool,” the biggest Curve pool.

It worked until it didn’t: Liquidity on the 4pool lingers at a few thousand dollars at writing time, instead of the millions its creators hoped for.

If the proposal is passed, CRV emissions from all pools involving UST would be ended, effectively ending all incentives for anyone to provide their UST to Curve. And the consensus seems to agree as100% of all voters have voted to end CRV emissions from UST-related pools at writing time, data shows.

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Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

CoinDesk - Unknown

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.