Curve Stablecoin Is in the Works, Despite Regulatory Scrutiny

Exchange liquidity pool Curve is looking to launch its first native stablecoin, joining a number of institutional market players vying to seize market share following the recent, sudden and spectacular blow-up of Terra’s UST stablecoin. 

The firm’s chief executive, Michael Egorov, in a virtual appearance Thursday said the stablecoin is slated to be overcollateralized. TerraUSD — the implosion of which sent digital-asset markets spiraling to the extent many a trader has yet to fully recover — has come under fire, in part, for not maintaining sufficient collateral to hold its one-to-one peg to the US dollar. 

“That’s all I can say for now,” Egorov said, without specifying a launch date.

Overcollateralized stablecoins have reserves of cryptocurrency tokens or other assets that exceed the number of stablecoins issued, providing, in theory, a buffer against price fluctuations. It’s a similar setup to bitcoin-denominated loans, which most always require the debtor to pony up far more of the cryptocurrency than, in theory, is needed to back the line of credit in question.

Egorov did not elaborate on specific assets set to serve as reserves for the new product. Stablecoins are typically backed by the dollar, the euro or other liquid and mainstream fiat currencies. Other stablecoins, including Tether, have faced scrutiny over a lack of transparency and the prospect of investing customer stablecoin funds in relatively illiquid assets. 

The planned launch comes as regulators worldwide — perhaps most notably, US Treasury Secretary Janet Yellen, who has called for stablecoins to be strictly overseen in a manner akin to FDIC-insured banks — amp up processes for stablecoin rulemaking in the aftermath of TerraUSD’s collapse. 

“UST was collateralized by LUNA, which ultimately depends on the success of UST,” Egorov said. “That exposed UST to the death spiral.” 

The International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) earlier this month issued their, for now, final guidance on best stablecoin practices. 

“The recent market disruptions, while costly for many, were not systemic events,” Jon Cunliffe, chair of the CPMI and deputy governor for financial stability at the Bank of England, said in a statement, presumably referring to UST’s depeg in May.

If a stablecoin serves as a mechanism for transferring monetary value — and is deemed “systemically important” to financial markets — it must, in the BIS’ view, abide by a specific set of international standards put in place in the wake of the global financial crisis of 2008.

Regulators in the US say they’re especially concerned when it comes to transparency and guidelines around stablecoin reserves. ​​“If you just look at the events in April and May, basically the question everybody asked was ‘What are these stablecoins? Are they really stable? What is backing it?,’” Wolfgang Bardorf, senior vice president and group treasurer of Checkout.com, said during a recent Blockworks webinar.

---

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: Unpacking crypto and the markets.
• Empire: Crypto news and analysis to start your day.
• Forward Guidance: The intersection of crypto, macro and policy.
• 0xResearch: Alpha directly in your inbox.
• Lightspeed: All things Solana.
• The Drop: Apps, games, memes and more.
• Supply Shock: Bitcoin, bitcoin, bitcoin.