Curve Finance has changed the fee distribution mechanism, switching from the 3cr token to the native stablecoin crvUSD.
The move aims to improve the utility of crvUSD and integrate the stablecoin into the Curve Finance ecosystem to incentivize users.
Source: Curve Finance
What users need to know
According to the press release, switching fee distribution to crvUSD will create “additional stablecoin supply.”
The release explains that uncollected fees are primarily responsible for “supply shrinkage,” potentially increasing the total value locked (TVL).
Michael Egorov, founder of Curve Finance, discussed how the transition will impact Curve Finance users:
“The switch to crvUSD means that users will now receive fees in a dollar-based stablecoin. This change simplifies the process significantly, as crvUSD does not need to be converted into anything else to be used in Curve Finance products.”
Encourage community participation
According to the press release, the fee allocation in crvUSD will incentivize the use of stablecoins, encouraging users to participate more in the products and services that use them.
Regarding community incentives through the transition, Egorov suggested that Curve users could deposit crvUSD into the ecosystem using earned fees.
“The value of 3crv, although generally increasing, has a variable conversion rate (currently around 1.03). This change requires additional steps for users to convert 3crv into a more stable form of currency or one that can be used for other activities.”
Conversion risk
Curve Finance stated in the press release that it plans to address some of the liquidity concerns users may have and the risks associated with the transition.
Speaking about risks, Egorov admitted there are “a number of potential risks in this transition,” including operational risks and asset age.
“The 3crv token has been running for over four years without any issues. […] CrvUSD is only a year old and has yet to fully establish reliability. It has undergone multiple audits and is considered suitable for deployment, but is less time-tested than 3crv.”
Egorov also discussed operational risks during the “preparatory phase” for the onchain votes required for the change, but they were mitigated because “all relevant votes” had already been passed.
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