Curve Finance: All you need to know about the leading Stableswap

What is Curve Finance?

Curve Finance is a well-known automated market maker (AMM) platform that provides a very efficient means to exchange tokens while keeping low fees and little slippage by only accepting liquidity pools made up of assets that behave similarly. Because it prioritizes stability and composability over volatility and speculation, Curve is one of the most popular DeFi platforms.

The Curve protocol began its road toward decentralized governance in August 2020, when it launched a decentralized autonomous organization (DAO) to coordinate protocol modifications. The majority of DAOs are administered by governance tokens, which permit token holders voting rights. The CRV tokens are in charge of tracking the Curve DAO in this situation.

Curve Finance (CRV), a decentralized stablecoin exchange (or Stableswap), demonstrates something entirely different. It enables stablecoin swaps that are rapid, efficient, and low friction, demonstrating that decentralized currency exchange is possible and superior to standard FX.

Knowing more about Curve Finance

Curve was created in 2020 by a Russian scientist named Michael Egorov, and its whitepaper was released in November of that year. Curve, like Uniswap, is a Decentralized Exchange (DEX) and Automated Market Maker (AMM). The main distinction is that you can exchange any ERC-20 token on Uniswap (as long as there’s liquidity). In contrast, Curve is only used for trading pairs of equal value, such as two representations of USD (i.e. DAI/USDT).

Some of the stablecoins currently supported by Curve include DAI, USDT, USDC, GUSD, TUSD, BUSD, UST, EURS, PAX, SUSD, USDN, USDP, RSV, and LINKUSD. You can also trade between different representations of the same cryptocurrency or token, such as WBTC/RenBTC, ETH/stETH, and LINK/sLINK. 

Why is Curve Finance needed?

Overall trading pairs can be classified into two distinct categories. In the first category, you can classify pairs where the price of the tokens can vary dramatically (i.e. ETH and BTC). The other category concerns pairs where the price of the two tokens must be of equal value (1:1). Curve attempts to minimize impermanent loss, costs, and slippage by building an AMM DEX that focuses on similarly priced assets like stablecoins or tokenized bitcoin.

Uniswap excels in exchanging assets with varying values and volatility, such as ETH and BTC, but is not as efficient with assets with similar values, such as USDC and USDT. Curve’s AMM approach is designed to exchange assets of similar value with little slippage and associated expenses. Thus, Curve allows stable coins to trade directly with one another with a lower price impact, compared to other AMM models.

How does Curve Finance work?

Instead of using an order book, assets are valued using a pricing formula. As mentioned above, Curve’s formula is specifically designed to assist swaps that take place in a comparable range. This pricing formula is coded and executed using Smart Contracts. Therefore, no need for any intermediary to facilitate the transactions. Everything is done with the support of Smart Contract technology.

The four main components of Curve AMM model:

  • The liquidity pools are technical components built with Smart Contract technology. They are responsible for keeping the liquidity of the exchange and define the price of the assets based on the Curve pricing formula.
  • People who deposit their tokens into the Curve liquidity pools are known as liquidity providers. Anyone can become liquidity provider on the exchange.
  • Traders exchange from one token to another using the liquidity pools.
  • The AMM algorithm efficiently price tokens in the liquidity pool based on a variety of criteria, such as trader buy and sell pressures.

Many people might be asking, why should someone become a liquidity provider. Curve incentivizes liquidity on the exchange by providing the fees collected from the transactions to the liquidity providers. Hence, depositing your funds on the exchange allows you to earn interest. The fees are distributed to the liquidity providers based on the percentage of liquidity provided. For example, if you deposit 1000 USDC in a pool that keeps an overall 100 000 USDC, DAI, and USDT tokens, you will be earning 1% of the fees collected from all transactions on that pool.

Another common question that some people may have, is how Curve Finance ensures the prices of the assets do not change dramatically compared to other Centralized or Decentralized Exchanges. The answer is Arbitrage. Curve, like every AMM DEX, relies on arbitragers to ensure that prices of listed pairs do not diverge from other exchanges.

How to Use Curve Finance?

Users must first download the Metamask Wallet and create an account. You can find our Metamask Wallet guide here.

The Metamask Wallet allows users to create an ERC-20 wallet or import one from another platform. When Curve Finance is used on the Ethereum blockchain, users must first establish or import an Ethereum wallet before using the platform. The gas fee at curve Finance is paid in ETH. Users must have ETH in their wallets in order to trade on Curve Finance. Curve Finance currently charges daily users 0.04 percent of the entire trading value for stable coin transactions. Liquidity Providers can contribute their crypto tokens to various Liquidity Pools using Curve Finance and receive the transaction fees as a reward. Curve’s pools occasionally have more than two tokens in them. Follow these steps to begin adding liquidity:

Step 1: Go to Curve.fi/pools and Select the pool you wish to provide liquidity.

Step 2: Select Deposit and input the amount to be provided.

Step 3: Fill in the blanks with the following information:

  • In the blue boxes, type the amount of each token you want to deposit.
  • Tick For your convenience, add all coins in a balanced proportion and use the maximum number of coins accessible.
  • Gas Priority Fee should be adjusted.
  • Adjust Max slippage (optional).

Step 4: When you’ve finished double-checking your information, click Deposit. Then, on the Metamask Extension Wallet’s pop-up box, click Approve to confirm the transaction.

Curve Token and its utility

Curve Finance’s CRV token is a governance token that may be used to participate in the dApps voting process, as well as incentivize liquidity providers. Liquidity providers that risk their assets in providing their services to the exchange, will earn CRV tokens retroactively. The protocol’s liquidity providers receive CRV on a regular basis, with the rate reducing each year.

Curve Finance’s Decentralized Governance

Curve is a community-run and decentralized exchange. Curve Finance features a voting system that allows CRV holders to vote on different parameter modifications and DAO proposals in order to become fully decentralized. CRV holders who vote-lock their tokens to convert them into veCRV make decisions on-chain at gov.curve.fi. To be able to create a DAO proposal, you must have at least 2500 veCRV. If you merely want to vote, though, you don’t need as much veCRV. You can lock 1000 CRV for a year on average to get a voting weight of 250 veCRV.

Upcoming and recent developments in Curve Finance

Curve Finance, with 15.54 billion TVL, is the largest Decentralized Exchange on Ethereum as of March 2022. Curve Finance is also the largest DeFi protocol, according to DefiLamma, with 18.7 billion TVL spread across eight networks. Curve Finance is also used on Optimism, Avalanche, Harmony, Gnosis, Polygon, Arbitrum, and Fantom, in addition to Ethereum.

Equilibrium, a DeFi money market, stated on October 26th that Curve.Fi’s automated market maker, Epsilon, had been officially implemented on the Kusama Network. Equilibrium has disclosed that Epsilon will be integrated into the Polkadot network in the future, extending its reach. 

Users are presently voting on whether or not to add bveCVX (a DAO protocol committed to bringing BTC to DeFi.) and CVX factory pool 17 to the Curve.fi network’s Gauge Controller. 

How to Buy Curve ($CRV)?

Investors or DeFi users who wish to buy Curve Finance’s native token $CRV, either as a form of Investment, or participate in the various protocol’s features can buy and sell $CRV in many Centralized or Decentralized exchanges. Some popular Centralized cryptocurrency exchange platforms you can use to buy Curve ($CRV) are Coinbase, Binance, and Kucoin. Curve ($CRV) is also listed on Uniswap, Sushiswap, and Trader Joe (Avalance) Decentralized Exchanges.

Final Thoughts

Curve is one of the most popular Ethereum-based AMMs. It enables non-custodial high-volume stable coin trades with low slippage and tight spreads.

For any future DeFi user, it is important to know how to use Curve Finance, since it is deployed in multiple networks. You will need a Stableswap like Curve in order to exchange one stable coin for another. Although this is possible with other AMM DEXes models, such as Uniswap, you will always get a better exchange rate on Stableswaps for stable coins, assuming there’s adequate liquidity. 

Furthermore, for DeFi users who want to provide liquidity and earn interest on their funds, Stableswaps like Curve are considered less risky compared to other DEXes. Considering that you are depositing stablecoins (Dollars) of the same value, you are not exposed to the high volatility of crypto markets, hence lowering market risk and lowering the impact of impermanent loss. Due to the importance of Curve Finance, there’s a lot of demand and proposals to deploy Curve on various new blockchain networks such as Celo and Kava Network.

Aris Ioannou
Aris Ioannouhttps://coinavalon.io
Aris created Coinavalon with the purpose of helping the average person navigate the decentralized web. Aris has been passively in the space since 2017 and full time since late 2020. Before Coinavalon, Aris worked as a Business & IT Architect in the financial services sector. Aris holds an MSc in Advanced Computing from Imperial College London, a BSc in Computer Engineering from University of Cyprus and currently pursuing an MBA degree from CIIM.

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