Curve DAO Implements Key Updates to Stabilize crvUSD Borrow Rate

Curve DAO has announced significant updates to the crvUSD borrow rate ahead of the Llamalend V2 launch. These changes aim to enhance the borrowing experience by addressing user concerns about rate volatility. Although Curve offers features like liquidation protection and high loan-to-value ratios, users have noted that unpredictable borrow-rate swings often deterred them from taking loans.

The volatility in borrow rates was exacerbated by recent changes around crvUSD, including new mint-market integrations such as YieldBasis. These integrations increased the variability of PegKeeper debt, leading to sharper rate fluctuations. Despite perceptions of high rates, the effective cost of borrowing crvUSD was comparable to borrowing USDC on platforms like Aave, with both averaging a 6.83 percent rate over the past year.

Targeted Improvements to crvUSD Borrow Rate

In response to these challenges, LlamaRisk and Pangea conducted a detailed analysis and proposed improvements, which were approved by Curve DAO on December 3rd. The crvUSD borrow rate is crucial for maintaining the stablecoin’s peg. If borrowing becomes too cheap, users might mint and sell crvUSD, pushing its price below $1. Conversely, if borrowing is too expensive, users avoid loans, reducing usage and competitiveness.

The monetary policy dynamically adjusts the borrow rate based on market conditions, primarily the price of crvUSD. The Peg Stabilization Reserve (PSR), formerly known as PegKeepers, complements this mechanism by allowing permissionless minting or withdrawing of crvUSD into specific pools. The size of the PSR directly influences rate dynamics, with larger reserves tending to lower borrow rates.

Future Enhancements and EMA Smoothing

The recent updates include two key parameter changes aimed at stabilizing the borrow rate and improving competitiveness. These changes are part of a broader effort to modernize crvUSD’s monetary policy. A third enhancement, EMA smoothing for the borrow rate, is under exploration. This approach would reduce short-term rate spikes by averaging rates over time, while maintaining responsiveness to significant shifts in crvUSD demand.

Curve founder Michael Egorov has suggested using a three-week EMA for the PegKeeper debt ratio, which would dampen short-lived fluctuations in PSR activity. Work on EMA smoothing will continue alongside monitoring the impact of the newly approved parameters. These adjustments are expected to make Llamalend borrowing more predictable and user-friendly, especially as Llamalend V2 expands access to new collateral types and markets.

For more details, the governance proposal can be found here.

Why This Matters: Impact, Industry Trends & Expert Insights

Curve DAO has implemented key updates to stabilize the crvUSD borrow rate, aiming to enhance the borrowing experience and address rate volatility concerns.

Recent industry reports indicate high adoption and transaction volume growth in the crypto market, including stablecoins, in 2025. This trend is evident in Curve DAO’s efforts to stabilize crvUSD borrow rates, which align with the growing demand for stable and reliable DeFi solutions.

As per insights from CoinDesk, Curve DAO’s new borrowing policy has significantly influenced the market by enhancing liquidity and risk management across the Curve ecosystem. This supports the impact of the updates in making Llamalend borrowing more predictable and user-friendly.

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