Stablecoin AMM blue-chip protocol Curve officially launched its own lending market, Curve Lend, yesterday. Unlike mainstream lending models such as Aave, Curve uses a unique liquidation mechanism to reduce the risk of liquidation for users and allows users to freely open lending markets for any token.
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Introduction to Curve Lend
Curve Lend’s Soft Liquidation: LLAMMA
Design Architecture of Curve Lend
Expanding DeFi’s Product Line Development Strategy
Curve Lend is a permissionless lending market where users can borrow or lend crvUSD with any asset using oracle prices, allowing users to long or short the asset.
Curve Lend is built on Curve’s unique liquidation algorithm, LLAMMA. By putting the borrower’s collateral into the AMM model, LLAMMA automatically performs partial liquidation through AMM exchanges when the collateral price fluctuates, reducing the risk of full liquidation when the collateral is directly affected by significant price fluctuations. The team refers to this mechanism as soft liquidation mode.
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Recommended Reading:
LLAMMA: Curve’s Algorithmic Stablecoin Whitepaper, Progressive Liquidation Solving the Liquidity Problem in Lending
Reason for recommendation: The LLAMMA model, which stands for “algorithmic automated market maker for lending liquidation,” is the core mechanism of products like Curve USD that require liquidation. Reading this article can help understand the differences between LLAMMA and the previous liquidation mechanism.
Traditional lending markets like Aave strictly control the types of token collateral to ensure sufficient liquidity and reduce the risk of bad debt. Unlike traditional lending markets, Curve Lend has built-in liquidity due to the soft liquidation mechanism of LLAMMA, allowing for a higher acceptance of collateral types and enabling a more diverse market. The team states that they can lend out any token supported by LLAMMA using crvUSD.
However, soft liquidation is not without drawbacks. Once triggered by price fluctuations, even if the collateral price returns to its original state, some fees are charged due to the transactions through AMM, resulting in more capital erosion compared to traditional lending markets.
The entire Curve Lend system is similar to the protocol for minting crvUSD, where each token’s lending market has a separate controller, LLAMMA, and vault.
The controller is an on-chain interface where most user operations are performed, such as creating loans, repaying loans, or managing existing loans.
LLAMMA is the AMM trading model that holds the collateral assets and is crucial for executing soft liquidation.
The vault is the protocol where lenders provide assets and follows the ERC-4626 standard to enhance composability and security. However, this contract does not actually hold any assets and is held by the controller.
Curve Lend is a new product created by the team using existing technological infrastructure, entering a relatively mature lending market with innovative products. However, the market’s acceptance of the advantages and disadvantages of soft liquidation is yet to be verified over time.
In addition to the original stablecoin trading protocol, Curve continues to launch stablecoins, other cryptocurrency trading protocols, lending protocols, and DAO governance protocols to enhance its product line and meet users’ multifaceted financial management needs.
Curve’s strategy is similar to Uniswap, Frax, Alpaca Finance, all of which continuously launch diverse financial services, gradually targeting niche markets with specialized positions.
It can be predicted that blue-chip DeFi protocols will continue to deepen and expand financial services to serve niche markets for specific customer segments.
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Curve Lend
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