Similar to Uniswap, Curve Finance is also a decentralized exchange DEX on Ethereum, but it has a The AMM algorithm model is specially optimized for stablecoins (USDT, USDC, DAI) and aims to provide a low slippage and low fee trading experience.
Users can provide liquidity (LP) to Curve and can also trade on Curve (Trader). However, Curve mainly deals with transactions between stablecoins (USDT, USDC, DAI), or between currencies with similar values, such as stETH and ETH, renBTC and WBTC, etc. In Uniswap, the price of a currency is determined by the ratio of the two tokens in the pool, so the price of the currency will continue to change as users trade. In addition, when there is lack of liquidity in the pool or the ratio of the two currencies is imbalanced, a single transaction will have a greater impact on the price fluctuation of the token, that is, the slippage will be greater. Therefore, Curve has improved on the traditional AMM mechanism for stablecoins. Because unlike other currencies, the price of stablecoins usually fluctuates within a certain price range. For example, the price of U.S. dollar-anchored coins always fluctuates around $1.
In Uniswap, if there are 10 ETH and 10,000 USDT in the liquidity pool, the user can exchange 1 ETH for 1,000 USDT, which means that 1 ETH is worth 1,000 USDT at this time. When the user takes away 1,000 USDT, the liquidity pool remains with 11 ETH and 9,000 USDT. At this time, 1 ETH is worth 818.18 USDT.
When the ratio of the two currencies in the pool is imbalanced, for example, there are only 1 ETH and 10,000 USDT in the pool. If the user exchanges 0.5 ETH, the price of ETH will change from 10,000 to 30,000 USDT. , the changes are very big.
The following figure is a comparison of Curve and Uniswap Bonding Curve. It is not difficult to see that compared to Uniswap, although Curve's curve has larger slippage at both ends, the slippage in the middle part is very low, and even partially coincides with the curve with a slope of 1. This is exactly in line with the characteristics of stablecoins, because the prices of stablecoins usually fluctuate in a small range around $1.