Summary
Curve’s new mint markets introduce a parallel issuance channel for crvUSD that operates outside the PegKeeper mint–burn stabilisation loop. As these credit lines expanded - especially via YieldBasis -peg volatility increased, PegKeeper activity became more erratic, and mint-market debt contracted. Borrow rates in crvUSD mint markets are highly volatile compared to competitors, suppressing demand and amplifying system instability.
Analysis shows that falling total debt causes the PegKeeper term to dominate the monetary policy, driving rate volatility. To stabilise the system, three levers are effective:
- Raise
target_fractionto reduce sensitivity to PegKeeper debt, - Lower
rate0to make borrowing competitive and rebuild total debt, - Optionally add EMA smoothing to dampen short-term spikes.
Immediate recommendations: increase target_fraction from 0.20 → 0.2667 and reduce rate0 by 10%, then reassess impacts and continue adjustments over the following weeks.
Context & Motivation
The introduction of custom mint markets represents a structural shift in Curve’s crvUSD monetary architecture, expanding issuance beyond PegKeepers to externally managed credit lines. These markets allow the DAO to mint crvUSD directly to selected counterparties, bypassing the usual mint–burn feedback tied to price deviations. While intended to support ecosystem growth and new yield-bearing integrations, this mechanism introduces additional channels through which crvUSD supply can expand independently of its stabilisation logic putting greater stress on the peg and system more broadly.
The first such credit line was established for Yield Basis (YB) and took effect on 24/09/2025, when Curve governance approved a 60 million crvUSD credit line (Proposal #1206). Although the credit line was approved, Yield Basis initially allocated only 2 million to each market (Proposal #4) and expanded to the full credit line only on 02/10/2025 (Proposal #8). This credit line was subsequently expanded to 300 million crvUSD on 14/10/2025 (Proposal #1222). In addition, on 17/11/2025, Yield Basis requested an expansion to 1B crvUSD (Proposal). Furthermore, to better support Yield Basis, the PegKeeper caps in the respective pools were increased by 3× (Proposal).
In parallel, the DAO approved on 27/10/2025 an additional 5 million crvUSD mint allocation to the sreUSD lending market (Proposal #1237) to bootstrap ReUSD liquidity. A new proposal is currently on the governance forum requesting an extension of this credit line to 15 million (Proposal #1259).
In total, the DAO has authorized 315 million crvUSD in credit lines outside the PegKeeper framework. This expansion introduces a new dimension of monetary supply that affects crvUSD’s system stability.
In particular crvUSD, the stablecoin, faces:
- Increases peg volatility
- More violent Pegkeeper mint and withdraw transactions
- Contraction in mint market debt
Motivation: This proposal acts as guidance how to adjust policy levers within the crvUSD system to better handle the new stressors.
Analysis
In light of the heightened system stress, our analysis centres on crvUSD’s primary incentive mechanism: the Monetary Policy.
Mint Market
Turning to the Mint Market, we observe that the rates charged are volatile and high relative to the competition.
For example, the WBTC Mint Market charges a 30-day average rate between 5% and 10%, with the mean typically between 7% and 8%.
Source: CurveMonitor
When comparing these mint-market borrow rates to those of borrow from other stablecoins on Aave - specifically the ETH Lido Prime Market - we see that crvUSD mint rates are, on average, substantially higher and more volatile.
Note: Given that the collateral assets on Aave earn interest, the effective borrowing rate may be slightly lower.
Source: Dune
Aave vs Curve (average rate)
Source: Dune
Unattractive rates and rate dynamics—combined with a broader market downturn—likely contributed to a decline in leverage demand, leading to a contraction in mint-market activity.
Why are rates volatile
We next identify the drivers of rate volatility in mint markets. The following plots show key Monetary Policy inputs:
Total debt declined alongside the broader market contraction, particularly after the 10 October crash.
Peg volatility appears to have increased since the introduction of YieldBasis.
The PegKeeper debt is also highly variable. Because it is a direct input into the Monetary Policy formula, such fluctuations have an immediate impact on rates.
Pegkeeper
The increase in PegKeeper volatility can likely be attributed to YieldBasis, which introduces a structurally distinct source of crvUSD demand and supply pressure that can systematically influence the peg.
At its core, YB maintains a leveraged (≈2×) position in BTC-denominated Curve LP by borrowing crvUSD against collateral and continuously rebalancing to maintain this leverage ratio. This makes YB a persistent, cyclically sensitive borrower of crvUSD whose behaviour is not primarily aligned with crvUSD stability but with preserving a target leverage.
Before and after YB’s deployment, we observe that the volume interacting with PegKeeper pools increases as YB’s credit lines expand.
There also appears to be a mild upward trend in average trade size, although the evidence is still preliminary. Both effects are expected.
Impact
The consequence of this is that, during periods of debt contraction and increased PegKeeper activation, the debt term carries more weight in determining the final rate charged in mint markets.
From the chart, it is clear that the debt term dominates for most of the observed period, with only occasional spikes where the price term becomes the primary driver.
How do we fix volatile rates?
To address this question, we construct a simple backtest using static inputs and varying parameter configurations to understand how parameter changes affect rate dynamics. The goal is to reduce the influence of the debt term in the monetary policy and thereby decrease rate volatility.
target_fraction
For our selected time window (2025-09-27 to 2025-11-17), we observe that a higher target_fraction reduces the weight of the debt term.
We can examine the impact of target_fraction by isolating the debt component of the monetary policy formula. The policy compares the PegKeeper’s share of system debt to a target through the ratio:
Expanding gives:
This term measures the size of the PegKeeper position relative to system-wide debt. When this term increases (i.e., PegKeeper debt rises relative to total crvUSD debt), the policy rate declines:
Increasing target_fraction reduces the weight of this term - and therefore decreases its volatility contribution.
rate_0
A lower rate0 reduces the overall rate level. While this does not materially improve relative volatility, it makes the system more competitive. In line with the idea that “attack is the best defence,” expanding the crvUSD mint market increases total debt, which in turn dilutes the influence of PegKeeper positions. Furthermore, the relative impact of YieldBasis is likely easier for a larger system to absorb and socialise across all minters.
There seems ample opportunity in lowering rates to comparable CDP protocols such as GHO rates (5.39%) or lend market (WETH-mint vs. WETH-lend - 13.08% vs. 3.80%; WBTC-mint vs. WBTC-lend - 12.86% vs. 5.50%) overly expensive.
Given that borrow rates on the mint market are currently high and uncompetitive, reducing rate0 may attract more borrowers.
EMA Smoothing
Finally, EMA smoothing of the interest rate is the most direct way to reduce short-term volatility.
We recommend smoothing the final rate produced by the monetary policy. This is a secondary intervention because it requires additional system-level modifications. Possible implementations include:
- Adapter contract that ingests the rate and applies smoothing per mint controller.
- Advantage: different EMA time constants per asset.
- Direct update to the Monetary Policy contract to include a smoothing term.
Smoothing is likely beneficial because borrower behaviour adjusts slowly relative to PegKeeper interventions. However, it also reduces system responsiveness and should be treated with caution.
Action Plan
We recommend a phased roll-out of the proposed interventions. After each round, we assess whether the impact on crvUSD system health is meaningful and whether further adjustment is warranted.
We will monitor the following key metrics:
- Borrow-rate level and volatility in mint markets
- Growth in TotalDebt across mint markets
- Peg stability
- PegKeeper debt dynamics
We suggest the following interventions:
Round 1 - Increase target_fraction: **The system is currently experiencing a decline in total crvUSD debt, which increases the relative influence of PegKeeper debt on the monetary policy. Increasing target_fraction reduces this sensitivity and stabilizes the rate.
Since total debt fell by roughly 25% following the 10 October contraction, target_fraction must increase by 33.33% to keep the relative effect unchanged. This implies moving from 0.20 → 0.2667. A higher target can be considered in a second iteration.
The backtest gives us the following results:
Lower target-fraction (0.20) yields a slightly lower average APY but materially higher relative volatility (CV ≈ 0.62 vs 0.51). The higher target-fraction (0.2667) produces a smoother, more stable rate path with higher median APY and a tighter lower tail, while preserving the same upper-tail behavior.
To offset the higher mean APY after raising target_fraction, we recommend a ~10% rate0 reduction (3488077118).
Round 2 - Lower rate0: Lowering rate0 decreases the overall interest rate level, improving competitiveness relative to Aave and other CDP systems. When the absolute borrowing costs decline, it may attract demand and increasing TotalDebt - which in turn dilutes the impact of PegKeeper positions.
Benchmarking 30-day rolling averages for comparable assets (GHO, USDC, USDT, DAI, USDS):
Source: Dune
Source: Dune
We can see crvUSD overcharges between 3.5% (180 days) to 4.5% (30-days).
Source: Dune
The chart below shows the adjusted rate by 10% from the current as outlined in round 1 and a target debt fraction of 0.2667. We present another reduction by 10%, 15%, 20% and 25% from the current rate0.
Lowering rate0 consistently shifts the rate curve downward while keeping volatility essentially unchanged (CV ≈ 0.506–0.508). The lowest setting delivers a mean APY of ~5.75%, making it materially closer to GHO’s 30-day average of 5.4%, and therefore more competitive, without altering tail behavior or dynamics.
We recommend however gradual adjustment with careful monitoring of the overall system health, assessing every 2-3 weeks.
Specification
1. Increase target_fraction from 0.20 → 0.2667
2. Reduce rate0 by 10% from its current value to 3_139_269_406.
Recommended Timeline
Week 0 (now):
✓ Apply target_fraction increase
✓ Apply 10% reduction to rate0
✓ Begin monitoring peg stability, TotalDebt, and rate volatility
Weeks 1–4:
- Evaluate early impacts
– Prepare optional second rate0 reduction (additional 5–10%)
– Validate whether target_fraction needs a further increase
Weeks 4–8:
– Deploy EMA smoothing (starting with 12h) if target_fraction and rate0 are not sufficient
– Evaluate performance; consider increasing to 24h if stable
Ongoing:
– Monthly review of policy parameters
– Continuous monitoring of peg dynamics, market competitiveness, and borrower behaviour