Curvefinance
Curvefinance crvUSD Soft Liquidation, LLAMMA Bands and Loan Health
Curvefinance crvUSD, a collateral-backed stablecoin, uses LLAMMA to gradually exchange loan collateral for crvUSD when the collateral price enters its liquidation bands. Each band covers a price interval. Arbitrage trades change the assets backing an open loan, while its debt remains outstanding. A price recovery can reverse the conversion and restore collateral exposure, though trading losses persist. The chosen band range affects borrowing capacity and conversion behavior. Interest continues accruing during soft liquidation, and declining loan health can still permit hard liquidation.
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Partial repayment can improve a crvUSD loan’s health during soft liquidation without moving its bands or ending conversion exposure.
Collateral size and the starting liquidation range
Collateral size and requested debt jointly determine where a crvUSD mint loan begins converting its backing assets. For otherwise unchanged settings, borrowing more against the same collateral can bring the conversion range closer to the starting oracle price. More collateral or less debt can increase that initial distance. The Controller calculates the loan’s band placement using these inputs and the selected band count. It also applies the market’s borrowing discount, which reduces the collateral value available to support new debt.
Each mint market accepts its designated collateral, with new collateral types requiring Curve DAO approval through veCRV governance. New borrowing draws from the Controller’s remaining crvUSD allocation under its market debt ceiling. Market debt ceilings constrain issuance separately from the band mathematics that govern an individual loan.
Oracle pricing and the trades that rebalance collateral
LLAMMA uses the collateral oracle to adjust its trading prices and encourage exchanges that change a loan’s backing. This automated market maker, or AMM, holds collateral and crvUSD across discrete bands. Its internal trading price responds to the oracle and the assets inside the active band. Within the conversion range, a falling oracle price can make collateral cheaper inside LLAMMA than elsewhere. Arbitrage traders then buy that collateral from the AMM, leaving crvUSD in the bands.
A rising oracle price can create the reverse opportunity. Traders sell collateral into LLAMMA and receive crvUSD, increasing the collateral backing affected loans. This reverse conversion is called de-liquidation.
The oracle supplies a price signal. Traders execute the exchanges that alter balances; a price update alone does not sell collateral.
Execution depends on available liquidity and whether the price difference covers trading costs. An AMM quote and an external market quote can therefore differ before arbitrage brings them closer. Empty bands contribute no borrower liquidity at their prices. Pool balances show the assets that trades have actually exchanged, while oracle readings describe the price signal that guides those trades.
Backing assets and debt inside an open position
A LLAMMA position can hold original collateral, a mixture of collateral and crvUSD or entirely crvUSD after full conversion. Those balances describe the assets backing the loan. The Controller records outstanding debt separately, so accumulating crvUSD inside the bands does not automatically repay it. Borrowed crvUSD in a wallet is separate from the assets backing the loan. Reading the loan’s collateral composition alongside its accrued debt distinguishes reduced exposure to the original asset from an actual reduction in the repayment obligation.
What does a wider LLAMMA band range change?
More LLAMMA bands spread conversion across a wider price range and reduce maximum borrowing capacity when other market settings remain unchanged. The crvUSD mint Controllers allow 4 to 50 bands at loan creation. A larger band count generally reduces losses from soft liquidation, with a lower maximum loan-to-value ratio as the trade-off. Loan-to-value expresses borrowed value relative to collateral value; the market’s borrowing discount also affects its permitted maximum.
Band count and individual band width are separate inputs. The AMM parameter A controls each band’s width, so equal band counts across different markets need not cover equal price ranges. Choosing a wider range also changes the placement that the Controller calculates for given collateral and debt inputs. The relevant comparison includes the resulting upper and lower prices, borrowing limit and health at entry into soft liquidation.
Why can collateral shrink after the price recovers?
Collateral can shrink after recovery because LLAMMA’s sales and repurchases can leave conversion losses that a rising market price does not reverse. De-liquidation restores exposure to the original asset, but the amount restored reflects the exchanges that occurred during the downturn and recovery. Repeated price movement within the bands can create further losses. Ending above the conversion range does not imply that the position contains its original token quantity.
Loss severity depends on band configuration, available liquidity and arbitrage execution. A wider range can reduce conversion losses without making them a fixed or negligible amount. Traders pay AMM swap fees, and the portion retained in borrower liquidity can offset some losses. Fee income does not establish that a loan’s collateral value has grown. The remaining asset balances already include retained fees and must be weighed against the loan’s accrued debt.
Interest accrual alongside the crvUSD peg
Borrowing interest increases a loan’s debt during normal operation and soft liquidation, independently of whether collateral trades occur. A position above its bands avoids conversion losses while its borrowing obligation continues growing. The relevant rate comes from the market’s monetary policy. Its inputs include the crvUSD price relative to the dollar target and PegKeeper debt relative to system debt. Consequently, the annualized rate displayed when opening a loan does not fix its lifetime interest cost.
AggMonetaryPolicy v4 smooths the ratio of PegKeeper debt to system debt through an exponential moving average. That smoothing does not apply to the entire rate calculation: the price component retains its responsiveness to peg deviations. This policy also adjusts rates for individual mint markets based on debt-ceiling utilization. Governance can change configurable settings. The Controller’s selected policy and accrued debt are therefore more useful for understanding an open obligation than an old advertised rate.
When does a crvUSD loan face hard liquidation?
A crvUSD mint loan becomes eligible for external hard liquidation when its full Controller health falls below zero. The Controller calculates this health from LLAMMA’s valuation of the backing assets, the loan’s liquidation discount and outstanding debt. Entering the conversion range can occur while health remains positive. The range marks where collateral trading takes place; its boundaries do not identify a universal hard-liquidation price.
Conversion losses and interest can consume the remaining health buffer, including during a collateral-price recovery. External liquidation settles eligible debt using the position’s crvUSD and additional liquidator funds when necessary, in exchange for backing assets. Eligibility does not itself execute that transaction. A fully converted position may also remain open with positive health, although its debt keeps accruing against the remaining crvUSD.
Repayment paths during soft liquidation
Partial repayment reduces debt during soft liquidation without relocating the loan’s existing band indices. The position can gain health while remaining exposed to conversions in the same range. For a loan entirely in collateral above its conversion range, the Controller can recalculate band placement after a partial repayment.
Full repayment through the standard repay function closes the loan and releases its remaining LLAMMA assets. These can include both collateral and crvUSD. The mint Controller returns those assets before collecting the caller’s crvUSD repayment. For a borrower repaying their own loan, the returned crvUSD can help fund repayment within the same transaction.
Voluntary self-liquidation uses a different closure calculation. It applies crvUSD already held in the position toward the debt and requires the caller to cover any shortfall. Borrowers can use this mechanism to close their own loans without waiting for negative health. The assets available at closure still reflect accumulated conversions and losses.
Callback-based repayment can obtain crvUSD through a supported collateral-exchange integration. For the mint Controllers, full callback repayment can close a position during soft liquidation, while partial callback repayment requires the position to be entirely in collateral above its conversion range. Exchange proceeds must satisfy the selected operation’s debt requirements. The callback contract and interface determine the available execution path.
Existing mint markets retain their deployed Controller versions when the factory adopts a new blueprint. A function added to Controller V3 therefore does not automatically appear in older markets. LlamaLend uses related liquidation mechanics, but its lending-market features require their own contract scope.
PegKeepers and the dollar target
PegKeepers support the crvUSD market price through designated stablecoin pools, separately from LLAMMA’s management of loan collateral. When permitted by their checks, they add crvUSD liquidity during upward peg pressure and withdraw previously supplied crvUSD during downward pressure. A withdrawal needs the liquidity ownership created by an earlier deposit. Their actions change pool balances and circulating supply; they do not individually refinance a borrower’s loan or restore collateral lost through conversion.
The dollar peg is a target maintained through these mechanisms and borrowing incentives. Available pool liquidity, paired-stablecoin behavior and contract conditions affect that process. A healthy collateralized loan and a stable exchange price address different parts of the system.
Borrowing conditions before committing collateral
A borrowing choice connects the required crvUSD amount with the band range and repayment paths that the selected market supports. A wider band range changes conversion behavior and maximum capacity. Repayment changes debt, while closure ends the loan’s continuing exposure.
- Compare the requested debt with the borrowing limit for the actual collateral amount and chosen band count.
- Read the range’s upper and lower prices together with the health buffer at entry into soft liquidation.
- Account for interest accrual even when the collateral price remains above the conversion range.
- Distinguish a partial wallet repayment from a full close or collateral-funded repayment, including their state restrictions.
- Match additional controls to the deployed Controller version before relying on them.
The mint Controller blocks collateral additions while the loan holds crvUSD from soft liquidation. If the aim is to end the loan’s conversion exposure, partial repayment alone does not meet it; full closure ends that exposure.
Reader questions
Can I add collateral while my crvUSD loan holds stablecoins from soft liquidation?
The crvUSD mint Controllers reject collateral additions while the position holds crvUSD from soft liquidation. Their collateral-adjustment logic requires backing assets to contain no borrowed token before redistributing collateral across bands. Partial repayment can improve health without clearing that condition. Positive health does not override the restriction on collateral additions.
Why can two health readings for the same crvUSD loan differ?
Full health can include the collateral’s price appreciation above the loan’s upper band boundary, while the non-full calculation excludes that extra value. That extra component applies above the conversion range while the position remains in collateral. As the oracle price approaches the upper boundary, that extra value shrinks even before collateral conversion. External hard-liquidation eligibility uses the full calculation with the loan’s liquidation discount.
What does extra_health change when opening a crvUSD loan?
A positive extra_health setting in Controller V3 adds a borrowing buffer that increases health at entry into soft liquidation. Setting it before loan creation increases the effective borrowing discount, reducing maximum debt for otherwise unchanged inputs. It does not widen each LLAMMA band or eliminate conversion losses. This control belongs to V3 and must not be assumed for older mint Controllers.
Does a LLAMMA trade affect every crvUSD borrower in the same band?
A trade changes the shared asset balances of the band, affecting borrowers according to their ownership shares there. LLAMMA tracks each borrower’s share rather than conducting an isolated collateral sale for each loan. Borrowers who occupy different band ranges can therefore experience different changes from the same market movement. Their debt accounts remain separate in the Controller.
Are LLAMMA trading fees paid straight into a crvUSD borrower’s wallet?
The portion of swap fees retained for borrowers remains in LLAMMA liquidity and contributes to the assets underlying their band shares. It is not a separate automatic wallet payment. Any administrative fee allocation follows the market’s configuration. The retained income can offset conversion losses, but it does not promise a positive return after losses and borrowing interest.
Is a LLAMMA swap quote also a repayment quote for my crvUSD loan?
A LLAMMA swap quote estimates exchange amounts, while a repayment amount concerns the loan’s outstanding debt. The AMM can report input consumed and output received for a trade. The Controller separately tracks debt, including accrued interest. A collateral-funded close needs an appropriate repayment integration, so a quoted swap output alone does not establish that the loan will close.
Can I deposit collateral directly into LLAMMA without a crvUSD loan?
LLAMMA’s collateral-deposit function accepts calls only from its Controller. The Controller assigns liquidity through supported loan operations. Holding the collateral token alone does not create a borrower share in the bands or authorize a deposit into the AMM that backs a crvUSD mint-market loan.
Will a LlamaLend v2 reset option work on a crvUSD mint-market loan?
A LlamaLend v2 reset belongs to its lending Controller and is not interchangeable with repayment through a crvUSD mint Controller. The shared LLAMMA concept does not make their management functions identical. For mint-market loans, partial repayment during soft liquidation leaves the existing band indices in place, while full repayment closes the position.