Curve: A pooling mechanism for achieving a symbiotic relationship between stablecoins

Author: Jarvis Network

Compiled by: ChainCatcher

This article is the first in a series of four related to our PLAAS program.

Curve is an AMM that achieves a symbiotic relationship between stablecoins by providing the characteristics of one stablecoin to another. Some stablecoins have strong peg, high liquidity, fiat on-ramps and off-ramps, or effective lending mechanisms, and any other stablecoin paired with them will inherit these characteristics.

By pairing with USDC, USDT, or DAI, this helps countless dollar-pegged stablecoins become available (pegged and liquid). However, the lack of non-dollar stablecoins with strong pegs and high on-chain liquidity hinders the expansion of this model to a broader range of stablecoins.

Jarvis Network's jFIAT is a non-dollar stablecoin designed to maintain its peg and have deep on-chain liquidity. By pairing them in Curve's pools with other non-dollar fiat-backed or crypto-backed (synthetic) stablecoins, they can provide the necessary peg and liquidity for the latter and inherit their functionalities as exchanges.

In this first article, we will focus on the synergies between jFIAT and its fiat-backed equivalents.

jFIAT is a crypto-backed stablecoin that is over-collateralized by USDC (BUSD on Binance Smart Chain) and can be converted to collateral at oracle prices without slippage, providing them with strong peg and high on-chain liquidity.

This convertibility provides jFIAT with a strong peg in both primary and secondary markets (through arbitrage). For example:

It also provides high on-chain liquidity for jFIAT by leveraging the liquidity of its collateral.

For instance, to convert $25k jEUR to jSGD, the path is:

Since there is no slippage when converting jFIAT to USDC, there is also no slippage when converting jFIAT to jFIAT, achieving zero price impact in the on-chain forex market.

To swap $400 of jNGN for BNB, the route is:

Since there is no slippage when converting jFIAT to BUSD, jFIAT and BUSD have the same on-chain market depth, resulting in low slippage cross-asset swaps.

In the tweets below, you can see how efficient these low-slippage cross-asset swaps are, as they can provide better prices than Kraken, Binance, or Swissborg.

PLAAS is a liquidity mining program designed to incentivize jFIAT to pair with its fiat-backed (or crypto-backed) stablecoin equivalents, providing the latter with peg and high on-chain liquidity.

In this article, we will take two fiat-backed stablecoins, EURS and JPYC, as examples, which are euro-backed and yen-backed stablecoins, respectively. Both EURS and JPYC are powerful stablecoins for domestic payments or avoiding negative interest rates. However, their on-chain liquidity and peg are poor, limiting their use cases in the bubbling DeFi space.

Since Curve supports low-slippage swaps between similar assets aggregated together (when the pool is properly balanced; arbitrageurs are incentivized to rebalance the pool), for example, it allows swapping 1,000 jEUR for about 1,000 EURS or 5,000 JPYC for about 5,000 jJPY.

By using the convertibility of jFIAT to USDC, these low-slippage swaps can help EURS and JPYC achieve their on-chain liquidity and peg!

Since fiat-backed stablecoins can be redeemed for their underlying fiat currency, traders are incentivized to arbitrage when they see the trading price of the stablecoin is above or below its peg.

However, this arbitrage operation is quite complex! They need to have a large amount of fiat currency, already KYCed by the stablecoin issuer, and have an exchange to convert back to the initial currency (at a reasonable exchange rate).

Using the jEUR-EURS (2eur) and jJPY-JPYC (2jpy) pools on Curve, arbitrage can occur entirely on-chain and is very simple.

For example, when the trading price of JPYC is above its pegged exchange rate, arbitrageurs can:

In order to swap the stablecoin for another crypto asset, the stablecoin is paired with USDC or ETH in the liquidity pool. This allows for cross-asset swaps to be executed by routing through multiple pools, such as EURS to WBTC or JPYC to MATIC.

However, due to slippage and peg issues, it is not ideal, and attracting liquidity to overcome these challenges faces many hurdles! Issuers cannot incentivize liquidity provision and can only rely on the goodwill of individuals and market makers to do so, or depend on other projects to use their tokens for such projects. For example, Curve is leveraging its CRV emissions to attract liquidity to its EURS-USDC pool, but the exchange rate is far from the actual EURUSD, limiting the use of EURS in on-chain trading.

With the 2eur and 2jpy pools on Curve, EURS and JPYC can obtain this liquidity in a more accessible, lower-risk, and capital-efficient manner.

For instance, swapping EURS for WBTC:

For liquidity providers, allocating resources to Curve pools with similar assets is more efficient and lower risk than providing liquidity in pools with unrelated assets.

Even if fiat-backed stablecoins do not have a perfect peg, or if the Curve pool is not properly balanced, PLAAS can still provide a lot of value to end-users for certain specific use cases! In fact, market inefficiencies can actually create better routes when trading jFIAT!

For example, if someone wants to swap jJPY for WBTC, and the trading price of JPYC is above the pegged exchange rate, then the best route is:

Since the trading price of JPYC is above its pegged exchange rate, this route will outperform the route of converting jJPY to USDC on Jarvis and then swapping USDC for WBTC on an AMM, as the end-user will receive more USDC.

If someone wants to swap USDC for jEUR, and if the jEUR-EURS pool is unbalanced, with more jEUR than EURS, then the best route is:

Due to the imbalance, this route is better than the route of converting USDC to jEUR, as the end-user will receive more jEUR when selling their EURS.

These routes will benefit both end-users and stablecoins, as these swaps can also facilitate arbitrage (by selling JPYC above the pegged exchange rate) or rebalancing (by adding more EURS and removing some jEUR from the pool).

Fiat-backed stablecoins are the easiest way to enter the crypto space: you "simply" need to send euros or yen to Stasis or JPYC and receive EURS or JPYC tokens at a 1:1 ratio, and vice versa.

The 2eur or 2jpy allows users to purchase EURS or JPYC and exchange them for any token through the routes mentioned above, with exchange rates that can beat any centralized exchange, including Kraken or Binance!

For example, using yen to purchase Ether on Polygon is more efficient with DeFi than with centralized exchanges! Users can now buy JPYC, receive it on their Polygon address, and then use Paraswap to swap it for Ether or any token, rather than using a centralized exchange for the ETH/JPY market and then withdrawing ETH to Polygon.

Withdrawals are also straightforward! Pairing jFIAT with its fiat-backed equivalents provides the most direct and cheapest exit from any token! For example, moving from AAVE on Polygon to yen is as simple as going to Paraswap, swapping AAVE for JPYC, and then converting JPYC to yen (you can even load a payment card with JPYC…). Under the hood, the swap routes are most likely leveraging Jarvis and Curve…

End-users may never know that they have used Jarvis and Curve to execute their trades!

A small piece of noteworthy information about JPYC! For those residing in Japan, JPYC can be used to top up their Visa prepaid cards or can be used to purchase goods on e-commerce sites (in which case, JPYC companies pay in actual yen on behalf of customers)!

Thus, thanks to the 2jpy pool, some people in Japan can cash out their profits in JPYC at the best rates and load their cards to pay their restaurant bills!

For our jFIAT, these mining pools are also a way to connect to the fiat world! They provide jFIAT with a cheap and effective fiat gateway applicable to multiple currencies in many countries!

In this article, we mainly discussed EURS and JPYC, as well as Polygon. Clearly, our goal is to launch as many jFIATs as possible on as many blockchains as possible, similar to fiat-backed stablecoins. BRL in Brazil, NGN in Nigeria, INR in India, SGD in Singapore, Polygon, BSC, Avalanche, etc.