Curve Finance considers dropping TUSD from crvUSD backing amid SEC charges

• Curve Finance is considering dropping TUSD from crvUSD backing amid SEC charges.
• The SEC alleges TUSD was mostly backed by a risky offshore fund, not U.S. dollars.
• Proposed changes include reducing TUSD backing to zero and lowering PYUSD minting.

In light of recent regulatory scrutiny, Curve Finance, a prominent decentralized exchange (DEX), is contemplating the removal of TrueUSD (TUSD) from its collateral options for the Curve Stablecoin (crvUSD).

This consideration follows charges filed by the United States Securities and Exchange Commission (SEC) against TrueCoin, the issuer of TUSD, for violations of securities laws.

Proposal to drop TrueUSD backing for crvUSD

On September 25, a proposal was posted on Curve’s governance forum by Wormhole, a cross-chain messaging protocol. The proposal suggests reducing the upper limit on TUSD backing for crvUSD to zero, aiming to eliminate exposure to TUSD amidst rising regulatory concerns and issues regarding its solvency.

Currently, the PegKeeper liquidity pool associated with crvUSD allows users to mint up to $10 million worth of crvUSD using TUSD as collateral.

Additionally, the proposal recommends decreasing the minting capacity of crvUSD with PayPal’s stablecoin, PYUSD, from $15 million to $5 million, ensuring a balanced reliance on the PegKeeper pools corresponding to the significance of each respective asset.

This strategic adjustment reflects Curve’s intention to enhance stability and mitigate risks associated with regulatory uncertainties.

Concerns over TUSD reliance

The SEC’s recent actions, particularly the charges settled against TrueCoin and TrustToken for fraudulent and unregistered sales of investment contracts involving TUSD, have heightened concerns within the crypto community.

The SEC’s complaint alleges that TrueCoin and TrustToken misled investors by claiming that TUSD was fully backed by US dollars when, in reality, a substantial portion of its reserves—specifically, 99%—was invested in a speculative offshore fund.

This risky investment strategy has raised alarms about the reliability of TUSD as a stable collateral option.

Following these revelations, TrueCoin and TrustToken neither admitted nor denied the allegations but agreed to final judgments that prohibit them from future violations of federal securities laws. They will also incur civil penalties of $163,766 each as part of the settlement.

Currently, crvUSD’s backing includes various cryptocurrencies, with Wrapped Bitcoin (WBTC) holding the largest share, amounting to over $68 million in total value locked (TVL).

Wrapped Staked Ether (wstETH), issued by Lido Finance, follows with approximately $60 million in TVL.

The community proposal underscores the need for greater diversification among PegKeepers, pointing to the risks associated with over-reliance on lesser-known stablecoins like TUSD, which has faced scrutiny in light of its recent regulatory challenges.