Curve Finance has changed its fee distribution mechanism, transitioning from the 3cr token to its native stablecoin, crvUSD.
The move aims to improve crvUSD’s utility and integrate the stablecoin into the Curve Finance ecosystem to incentivize users.
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What users need to know
According to a press release shared with Cointelegraph, the switch in fee distribution to crvUSD will create “an additional supply sink for the stablecoin.”
The release explains that uncollected fees are mainly responsible for the “supply sink,” potentially increasing the total value locked (TVL).
Michael Egorov, the founder of Curve Finance, spoke with Cointelegraph about how the switch would impact Curve Finance users:
“The transition to crvUSD means that users will now obtain fees in a dollar-denominated stablecoin. This shift simplifies the process significantly, as crvUSD doesn’t have to be converted to anything else to be utilized in Curve Finance products.”
Related: Curve Finance soft liquidation works, but CRV plunges 28%
Community engagement incentive
According to the press release, the distribution of fees in crvUSD will incentivize the use of the stablecoin, encouraging users to engage more in products and services that utilize it.
On community incentives through the transition, Egorov told Cointelegraph that Curve users could deposit crvUSD into the ecosystem using fees earned.
“The value of 3crv, although generally increasing, has a variable conversion rate (currently around 1.03). This variability necessitated additional steps for users to convert 3crv into a more stable or usable form of currency for other activities.”
Related: Curve founder repays 93% of $10M bad debt stemming from liquidation
Transition risks
Curve Finance stated in the press release that it plans to address certain liquidity concerns users might have and risks associated with the transition.
Speaking about the risks, Egorov told Cointelegraph that there are a “few potential risks to bring up with this transition,” which include operational risks and asset age.
“The 3crv token has been operational for over four years and has shown no issues. [...] CrvUSD is just one year old and has yet to fully establish its reliability. It underwent multiple audits and has been deemed fit for deployment, but it is inherently less time-tested compared to 3crv.”
Egorov also discussed the operational risks during the “preparation phase” for onchain votes required for the change, but they have been mitigated since “all relevant votes” have passed.
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