Curve Finance considers dropping TrueUSD from crvUSD collateral

A new proposal for Curve Finance suggests removing TrueUSD (TUSD) as collateral for its stablecoin, crvUSD, due to concerns over TUSD’s stability and regulatory issues.

The proposal, submitted by a user called “WormholeOracle” on Curve Finance’s governance forum, recommends reducing the upper limit on TUSD backing for crvUSD to zero. This would effectively eliminate TUSD as a collateral option for the protocol’s stablecoin. Additionally, the proposal suggests decreasing the minting capacity of crvUSD with PayPal’s PYUSD from $15 million to $5 million.

“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,” the proposer wrote. The move aims to diversify crvUSD’s collateral and reduce reliance on potentially risky assets.

This proposal comes in the wake of regulatory action against TrueCoin, TUSD’s original issuer. The SEC recently charged TrueCoin with defrauding investors by not fully backing TUSD with U.S. dollars. The case resulted in a settlement involving fines and the return of profits.

The situation highlights the challenges decentralized finance protocols face in maintaining stability and regulatory compliance. By potentially removing TUSD as collateral, Curve Finance demonstrates the responsiveness of decentralized governance to external regulatory actions and market conditions.

If passed, this proposal could impact TUSD’s utility within the DeFi ecosystem and influence future collateral strategies for other stablecoin projects.

Earlier in January, TrueUSD (TUSD) depegged significantly, reaching $0.97 amid $174 million net outflows on Binance due to eroding market confidence. TrueUSD further destabilized, dropping below its $1 peg to $0.985 with net outflows of $66.1 million on Binance, following a hacking incident at Poloniex.

This article first appeared at Crypto Briefing