Summary

Curve Finance is a decentralized exchange (DEX) running on Ethereum. It is designed specifically for swapping between stablecoins. All you need is an Ethereum wallet, some funds, and you can exchange different stablecoins with low fees and low sliding spreads.

You can think of Curve as "Uniswap for stablecoins". Thanks to a special pricing formula, it is also ideal for exchanging between different tokenized versions of the currency.

Introduction

Automated market makers (AMMs) have had a huge impact on the cryptocurrency field. Liquidity protocols like Uniswap, Balancer, and PancakeSwap allow anyone to become a market maker and earn fees on many different market pairs.

Can these AMMs compete with centralized trading platforms? possible. But there is one area where they have already shown great potential: stablecoin trading. Curve Finance is already at the forefront of this field.

What is Curve Finance?

Curve Finance (https://curve.fi) is an automated market maker protocol designed for trading between stablecoins with low fees and sliding spreads. It is a decentralized liquidity aggregator that allows anyone to add their assets to several different liquidity pools and earn fees.

If you have read our AMM related articles, you will know that AMM uses a pricing algorithm rather than an order book. Because of the way the pricing formula works on Curve, it is also very useful for swapping between tokens that stay within a relatively similar price range.

This means that it applies not only to exchanges between stablecoins, but also to exchanges between different tokenized versions of the currency. Therefore, Curve is one of the best ways to exchange different tokenized versions of Bitcoin such as WBTC, renBTC, and sBTC.

At the time of writing, there are 17 Curve pools available for exchanging between many different stablecoins and assets. Of course, this number will continue to change based on market demand and the ever-changing DeFi environment. Some of the most popular stablecoins currently include USDT, USDC, DAI, BUSD, TUSD, sUSD, etc.

There is no official information about the Curve team, but most of the GitHub contributions come from Michael Egorov, chief technology officer of computer and network security company NuCypher.

How does Compound Finance work?

As mentioned earlier, assets are determined based on pricing formulas rather than order books. The formula used by Curve is designed for interchanges within roughly similar ranges.

For example, we all know that 1 USDT should be equal to 1 USDC, and 1 USDC should be roughly equal to 1 BUSD, and so on. However, if you wanted to exchange $100 million USDT for USDC and then exchange it for BUSD, there would be some sliding spread. Curve's formula is specifically designed to minimize this slippage.

One thing to note here is that Curve’s formula does not work effectively if you are not in the same price range. However, the system does not need to take this into account. After all, if USDT can be worth $0.7, something other than Curve is seriously wrong. The system cannot fix what is beyond its control, so this formula works well as long as the coin maintains its peg.

This allows the sliding spread to be very low even for very large amounts. In fact, the spreads on Curve can compete strongly with some of the centralized exchanges and OTC markets with the best liquidity.

People have different assumptions about trust and risk, so liquidity and execution are not all factors. But it must be exciting to see centralized and decentralized exchanges compete in this way.

What is CRV token?

CRV is the governance token of CurveDAO, which is the decentralized autonomous organization (DAO) that runs the protocol. CRV is constantly being allocated to the protocol’s liquidity providers, with the ratio decreasing every year.

As of November 2020, each transaction on the platform will incur a transaction fee of 0.04%, which will flow directly to the liquidity provider.

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Risks of Curve Finance

Curve has been audited by Trail of Bits. Now that this project has passed the audit, it means it is absolutely safe to use, right? of course not! Risk is always inevitable when using any smart contract, no matter how many audits it has. Therefore, be sure not to deposit more than you are willing to lose.

As with any other AMM protocol, you also need to consider impermanent losses. If you are new to this concept, please read our article before adding liquidity to Curve. Simply put, impermanent losses refer to the loss in dollar value that a liquidity provider may suffer when providing liquidity to an AMM.

Behind the scenes, the liquidity pool may also be provided to Compound or yearn.finance to create more income for liquidity providers. In addition, thanks to the magic "magic" of composability, users can not only make suggestions on Curve, but also conduct transactions on other smart contracts. This creates additional risks, as many of these DeFi protocols become interdependent. If one of these protocols collapses, we could see damaging ripple effects throughout the DeFi ecosystem.

Curve Finance

Like SushiSwap and Uniswap, Curve Finance also has a high-profile hard fork ——Swerve Finance.

Swerve claims to be a "fair token", meaning that its governance token (SWRV) has no distribution from the team or founders. SWRV tokens are distributed in liquidity mining events, and everyone has an equal opportunity to mine. Therefore, Swerve claims to be a fork of Curve that is 100% owned and managed by the community.

Summary

Curve is the most popular automated market maker (AMM) running on Ethereum one. It facilitates high-volume stablecoin trading with low interactive spreads and tight spreads in a non-custodial manner.

Another reason why Curve Finance is at the core of the DeFi field is that other blockchain protocols are highly dependent on it. The composability of different decentralized applications does have its risks, but it is also one of the most powerful advantages of DeFi.