Curve: The Leader in Decentralized Stablecoin Trading
Curve at a Glance
Curve Finance (CRV)
Curve Finance is a decentralized exchange on the Ethereum blockchain utilizing custom built fully automated market maker smart contracts. With an idiosyncratic design, Curve built the first StableSwap, or an exchange to swap strictly between stable pairing assets with minimal slippage and risk. There are a variety of stablecoins that exists, all with the same overall purpose; providing a risk-off asset to harbor during unfavorable market activity. Tether (USDT), Circle (USDC), Dai (DAI), are some of the most liquid stablecoins currently trading on the open digital markets.
Trading between these stablecoins was found to be unfavorable when using the traditional AMM mathematics, so Curve innovated on this design to create a more sustainable exchange amongst stablecoins. By tweaking the equations used to build these AMMs, Curve was able to significantly lower the amount of slippage when exchanging between stablecoin assets. Not only did Curve improve the swapping experience, but they also developed the first multi-token liquidity pools, where more than two tokens composed each liquidity pools.
Defining Liquidity Pools
These multi-token liquidity pools are referred to as plain pools and lending pools. Plain pools are pools where the underlying tokens are only used to facilitate the exchanging between assets. However, in lending pools, the underlying tokens are also being used on borrow/lending DeFi applications to generate an additional yield for the liquidity providers. Lending pools underlying tokens are represented by wrapped versions of the token, while the underlying token is used on an application like AAVE. Lending pools carry more risk than plain pools, which is typically why they generate a higher yield. By utilizing the products of third-party lending protocols, liquidity providers of lending pools are exposed to the risks associated with those smart contracts as well as Curve’s smart contracts.
The yield for these pools is mainly generated from trading fees by users who utilize the Curve liquidity pools to exchange stablecoins. This yield is the main value accrual mechanism for the CRV token, and by providing the best stablecoin rates to exchange between, this creates a passive yield for CRV holders.
CRV can also be used to vote on Curve’s these yield emissions on each liquidity pool. Holders of CRV are required to lock their CRV tokens for a specified amount of time, granting them veCRV, or voting escrow CRV. veCRV’s primary utility is voting on the emissions for each liquidity pool, giving users power in the direction of the protocol’s profits. This gives CRV holders direct power in the direction of where the profits form Curve are distributed. By voting in favor of liquidity pools a user participates in, they can attempt to increase the overall yield on their deposits.
Since inception, Curve has proven to be a top contender in the DeFi arena, attracting approximately $20 Billion in capital to its liquidity pools. This ranks it at the Top 5 of all DeFi protocols in crypto. It has expanded beyond Ethereum only and now resides on 8 different blockchain networks. This adaptability is a key reason why Curve continues to attract large amounts of capital to its protocol, making it a desirable place to provide liquidity and exchange between stablecoins.
DeFi 101: A Guide to Decentralized Finance
Decentralized Finance, or DeFi, has been rapidly gaining traction amongst the investment community. DeFi protocols, like Solana, Chainlink, or Uniswap, have real-world utility (and revenues) that are quickly displacing their traditional counterparts that require intermediaries to function.
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