Curve Finance Considers Removing TUSD from crvUSD Collateral Amid SEC Accusations

DeFi protocol Curve Finance is weighing the removal of TrueUSD (TUSD) from the collateral pool for its crvUSD stablecoin. 

The potential decision comes in the wake of recent accusations from the U.S. Securities and Exchange Commission (SEC) against TrueCoin, the issuer of TUSD, regarding alleged securities law violations.

Background on the SEC's Accusations

On September 25, the SEC announced charges against TrueCoin LLC and TrustToken Inc. for fraud and the unregistered sale of investment contracts. According to the SEC, the firms made misleading claims about TUSD, calling it a “purported stablecoin.”

The SEC's complaint states that a significant portion of TUSD's reserves was invested in a "highly speculative and illiquid offshore investment fund" to artificially inflate returns. This raises serious questions about the stability and transparency of TUSD as a digital asset.

Jorge G. Tenreiro, the Acting Chief of the SEC's Crypto Assets & Cyber Unit, stated:

"This case is a prime example of why registration matters, as investors in these products continue to be deprived of the key information needed to make fully informed decisions."

Curve’s Governance Forum Proposal

In response to these developments, Wormhole, a cross-chain messaging protocol, proposed a change in Curve’s governance forum. 

The proposal recommends reducing the upper limit on TUSD backing for crvUSD to zero. This would eliminate any exposure to TUSD due to the associated regulatory risks and solvency concerns.

Curve's crvUSD stablecoin is backed by a diverse range of cryptocurrency collateral, including Ethereum and Wrapped Bitcoin (WBTC). Currently, WBTC represents the largest portion of crvUSD's collateral, holding over $68 million in total value locked (TVL). 

Wrapped Staked Ether (wstETH), a liquid staking derivative from Lido Finance, follows closely with approximately $60 million in TVL.

The proposal points out, “crvUSD is overexposed to minor stablecoins, especially TUSD which has a dubious track record and has recently been charged by the SEC with defrauding investors.”

The governance proposal also suggests a reduction in the amount of crvUSD that can be minted using PayPal’s stablecoin, PYUSD. 

Currently, users can mint up to $15 million worth of crvUSD using PYUSD. The proposal recommends lowering this limit to $5 million to better align the reliance on each PegKeeper with the significance of their respective pools.

TUSD’s Links to Justin Sun

TrueUSD was launched in 2018 and has established itself as one of the key players among stablecoins, maintaining its peg to the U.S. dollar through corresponding reserves held in escrow accounts. However, the recent accusations against its issuers raise substantial concerns among users and investors about the integrity and safety of TUSD.

The ongoing scrutiny of TUSD coincides with long-standing rumors surrounding Justin Sun, the founder of Tron. Sun has been speculated to have undisclosed ownership ties to TUSD. 

Despite denials from both parties, a lawsuit alleges that Sun used a range of entities to acquire TUSD discreetly. Recent on-chain activity also raised eyebrows, as a wallet associated with Sun transferred $72 million in TUSD to HTX, holding a total of $175.7 million in TUSD after the move, according to PeckShield.