Curve Finance Contemplates Removing TUSD from crvUSD Backing Amid SEC Allegations
In response to mounting regulatory pressure, Curve Finance, a leading decentralized exchange (DEX) in the cryptocurrency space, is mulling over the possibility of eliminating TrueUSD (TUSD) as a collateral option for the Curve Stablecoin (crvUSD). This decision comes in the wake of the United States Securities and Exchange Commission (SEC) filing charges against TrueCoin, the issuer of TUSD, for alleged violations of securities laws.
Proposal for Removing TrueUSD Backing
Recently, on September 25, a proposal was put forward on Curve’s governance forum by Wormhole, a cross-chain messaging protocol. The proposal recommends reducing the upper limit on TUSD backing for crvUSD to zero, with the objective of reducing exposure to TUSD given the escalating regulatory concerns and doubts surrounding its solvency.
At present, the PegKeeper liquidity pool associated with crvUSD allows users to mint up to $10 million worth of crvUSD using TUSD as collateral. In addition to this, the proposal also suggests lowering the minting capacity of crvUSD with PayPal’s stablecoin, PYUSD, from $15 million to $5 million. This adjustment aims to create a more balanced reliance on the PegKeeper pools, taking into account the importance of each respective asset.
The strategic move reflects Curve’s commitment to bolster stability and address risks associated with regulatory uncertainties in the crypto landscape.
Concerns Regarding TUSD Reliance
The recent actions taken by the SEC, particularly the charges brought against TrueCoin and TrustToken for engaging in fraudulent and unregistered sales of investment contracts linked to TUSD, have raised significant concerns within the cryptocurrency community.
The SEC’s complaint alleges that TrueCoin and TrustToken deceived investors by asserting that TUSD was fully backed by US dollars, when in reality, a substantial portion of its reserves—specifically 99%—was invested in a speculative offshore fund. This risky investment strategy has sparked doubts about the reliability of TUSD as a stable collateral option.
Following these revelations, TrueCoin and TrustToken did not admit to or deny the allegations but agreed to final judgments that bar them from committing future violations of federal securities laws. They will also face civil penalties of $163,766 each as part of the settlement.
Current Composition of crvUSD’s Backing
As of now, crvUSD’s backing comprises various cryptocurrencies, with Wrapped Bitcoin (WBTC) holding the largest share, totaling over $68 million in total value locked (TVL). Wrapped Staked Ether (wstETH), issued by Lido Finance, follows closely with approximately $60 million in TVL.
The community proposal underscores the necessity for greater diversification among PegKeepers, highlighting the risks associated with over-reliance on lesser-known stablecoins like TUSD, which has come under scrutiny due to its recent regulatory challenges.
Moving Forward
As Curve Finance navigates the complexities of regulatory compliance and strives to uphold stability within its ecosystem, the decision regarding the potential removal of TUSD from crvUSD backing remains a crucial point of consideration. By exploring alternative collateral options and adjusting minting capacities, Curve aims to fortify its position in the ever-evolving crypto landscape while prioritizing risk management and regulatory adherence.