Stablecoin swap application Curve Finance is proposing to stop issuing its CRV tokens from pools linked to terraUSD (UST) after the latter imploded last week.
An on-chain governance proposal released early Thursday indicated that the technical risks associated with using UST in Curve pools make it problematic for users and small participants.
"Given the current circumstances, i.e., USTs trading 90% outside the peg and the Terra ecosystem having approximately $9 billion in bad debt, there is currently no prospect for a sustainable peg recovery," the proposal states.
"Moreover, it is still unclear exactly how the vulnerabilities have been exploited and whether these vulnerabilities will persist even if the rescue is successful," the proposal states, referring to Terra founder Do Kwon's revival plans.
The proposal also notes that curve pools involving USTs could provide opportunistic investors with an opportunity to obtain liquidity for their failed investments.
However, developers said the proposal is due to technical risks, not negative perceptions associated with Terra.
"This is more of a technical matter than any sort of assessment of UST/Terra," Frax Finance founder Sam Kazemian said in a Twitter message. "Stablecoin is not coupled, so it literally cannot stay or be in Curve pools until/if it is ever coupled again."
What are Curve and UST?
Depositors on Curve earn annual returns of up to 4% from one of the many pools on the platform. Curve offers an efficient way to exchange stablecoins while maintaining low fees and low slippage, according to developer documents.
UST, a stablecoin pegged to the U.S. dollar, crashed to a few cents last week when investors exchanged UST for other tokens, triggering a death spiral and pushing UST out of its peg. This resulted in billions of dollars in losses for investors and created negative sentiment toward the Terra ecosystem among community members.
UST's decline impacted related decentralized finance (DeFi) applications, such as 4pool on Curve.
Launched in early April, 4pool is composed of two decentralized stablecoins, UST and FRAX from Frax Finance, and two centralized stablecoins, USD Coin (USDC) and Tether (USDT). Among the most vocal supporters was Kwon of Terra, who even tweeted that the goal of 4pool was to "starve" 3pool, the largest curve pool.
It worked until it didn't: 4pool's liquidity currently stands at a few thousand dollars, rather than the millions its creators had hoped for.
If the proposal passes, CRV issuance from all pools involving USTs would be eliminated, so there would no longer be an incentive for anyone to contribute their UST to Curve. And the consensus seems to be right: 100.0% of all voters voted to end CRV emissions from UST-related pools at the time of writing.