Curve founder proposes to raise crvUSD Intrerest Rate to cope with decoupling pressure

Recently, crvUSD has experienced a slight de-pegging phenomenon, with its price dropping to around 0.99 USD. To address this situation, Curve founder Michael proposed a plan in the governance forum to significantly increase the base Intrerest Rate of crvUSD to encourage its price to return to 1 USD. The proposal was voted on in Curve DAO on November 28, receiving a 100% approval rate.

crvUSD adopts a dynamic interest rate mechanism that automatically adjusts based on market conditions. Michael proposed raising the base interest rate for the non-staked ETH and BTC market from 5.8% to 11%, while the base interest rate for the staked ETH market would increase from 8.6% to 15%. This adjustment aims to incentivize users to repay loans, thereby alleviating the approximately 0.5% de-pegging situation of crvUSD.

Before the proposal is implemented, the borrowing interest rate for non-staked ETH crvUSD is 6.97%, while the rates for staked wstETH and sfrxETH are 11.3% and 11.86%, respectively. After the proposal takes effect, assuming other parameters remain unchanged, the borrowing interest rate for ETH is expected to rise to 13.2%, and the borrowing interest rate for wstETH may reach 19.7%.

This adjustment is expected to have the following effects:

1. crvUSD lending Intrerest Rate has significantly increased.
2. Borrowing users face high Interest Rate pressure and may buy crvUSD to repay loans.
3. The price of crvUSD has risen, and the increase in the Intrerest Rate caused by the decoupling may decrease or disappear.
4. PegKeeper starts to incur debt, and the crvUSD lending interest rate is expected to fall below the base interest rate.

PegKeeper is a contract specifically designed for minting and absorbing crvUSD debt, trading around the pegged price. It allows for trading between crvUSD and mainstream stablecoins (such as USDC, USDT, TUSD, DAI) to maintain price stability by minting or repurchasing crvUSD.

Currently, the proposal has come into effect, and the interest rate for borrowing crvUSD by pledging wstETH has risen to 19.94%. This may force some users to repay their loans. However, whether this measure can keep the price of crvUSD anchored at 1 USD in the long term, and whether the debt of PegKeeper will rise and cause the interest rate to drop again, still needs further observation. At the same time, the potential impact of these operations on the application of crvUSD is also worth noting.