Curve Finance Considers Dropping TUSD as Collateral Following SEC Action on TrueCoin

• Curve Finance is considering eliminating TUSD as crvUSD collateral, following SEC charges against its issuer, TrueCoin.
• Wormhole’s proposal seeks to reduce crvUSD’s TUSD backing to zero, citing regulatory risks and concerns over TUSD’s solvency.
• Curve Finance’s proposal also limits PYUSD backing for crvUSD, reducing its mintable amount from $15 million to $5 million.

Curve Finance is considering a proposal to remove TrueUSD (TUSD) from its collateral list for the crvUSD stablecoin. This follows charges against TrueCoin, TUSD’s issuer, by the U.S. Securities and Exchange Commission (SEC) for violations related to securities laws. Wormhole, a cross-chain messaging protocol, suggested the removal of TUSD due to growing regulatory concerns and potential solvency issues.

Proposal to Reduce TUSD Exposure

On September 25, a post on Curve’s governance forum by Wormhole proposed that crvUSD eliminate its exposure to TUSD. The PegKeeper liquidity pool, which currently allows users to mint up to $10 million in crvUSD using TUSD, would be impacted by the suggested changes. Wormhole’s proposal aims to reduce this upper limit to zero, mitigating risks associated with TUSD’s regulatory scrutiny.

The SEC charged TrueCoin and TrustToken Inc. with selling unregistered investment contracts. It alleged that these companies misrepresented TUSD’s reserves, which were reportedly invested in a speculative offshore fund. TrueCoin and TrustToken neither admitted nor denied the charges but agreed to pay civil penalties of $163,766 each. As a result, the crypto community has become increasingly cautious about using TUSD as a reliable stablecoin.

Adjustment of PYUSD Minting Limit

Beyond TUSD, the proposal also addresses PayPal’s stablecoin, PYUSD. It suggests lowering the minting cap for crvUSD backed by PYUSD from $15 million to $5 million. This recommendation aims to ensure that Curve’s reliance on each PegKeeper pool remains balanced and in line with the pool’s significance.

This proposal reflects broader concerns about maintaining the stability of crvUSD, particularly in the face of heightened regulatory pressures. Ensuring diversified collateral backing is crucial for minimizing risk. Curve’s move to adjust collateral limits signals its commitment to addressing these challenges head-on.

Regulatory Impact on Stablecoin Collateral

Currently, crvUSD’s collateral primarily consists of popular cryptocurrencies, with Wrapped Bitcoin (WBTC) and Wrapped Staked Ether (wstETH) making up significant portions. WBTC accounts for over $68 million in total value locked (TVL), while wstETH holds approximately $60 million.

With these assets forming the bulk of crvUSD’s collateral, the community proposal highlights the importance of reducing exposure to lesser-known stablecoins like TUSD. This is especially critical given TUSD’s recent involvement in regulatory disputes, which have raised concerns about its reliability and solvency.