Curve is the first decentralized finance (DeFi) automated market maker (AMM) and the second largest decentralized exchange (DEX) built on Ethereum offering only liquidity pools with crypto assets like stablecoins that behave likewise.
Initially called StableSwap, Curve was founded in early 2020 by Michael Egorov who published the first whitepaper on November 10, 2019, and is currently also the Chief Executive Officer (CEO) of Curve Finance.
At Glance
● Curve is a decentralized exchange enabling the swap of stablecoins like USDT, BUSD, USDC, DAI, wBTC, and tBTC.
● Curve is the second largest decentralized exchange on the Ethereum blockchain after Uniswap.
● Curve can be compared to Uniswap and Balancer but with very low slippage prices because it swaps only stablecoins.
● Curve takes a step further to incentivizing its liquidity providers by enabling interoperability with other DeFi protocols.
● Liquidity providers are incentivized furthermore as rewards are being distributed in the CRV tokens to compensate for the low trading fees from the low slippage prices.
● Curve serves as fiat savings account for liquidity providers who are looking to opt out of the centralized banking system.
● Curve has a total value locked (TVL) of $4.62 billion with Ethereum making up $4.31 billion of the total value according to DefiLlama as of March 2023.
● Curve launched its native utility ERC20 standard token on August 14, 2020, around 7 months after the launch of Curve Finance.
● Curve allows for stable and predictable liquidity pools while still ensuring high interest rates from lending protocol.
How Does Curve Work?
The classical Automated Market Makers (AMM) that is used by all the decentralized exchanges works by the xy=constant formula where the value of X and Y tokens is always constant regardless of their individual sums or any adjustments made to the pool by traders as the pool as will always automatically rebalance itself hence the term Automated Market Maker (AMM).
So if Curve is an automated market maker enabling the swaps of only stablecoins and all automated market makers use the xy=constant formula, how then will it work efficiently since the addition of x stablecoin to the liquidity pool by a trader will subsequently demand a reduction of –y stablecoin in the same pool hence compromising the arithmetics of stablecoins since 1 BUSD should always equal 1 USDT in sum and value?
To maintain assets conservativeness and mitigate the possibility of comprising the 1:1 ratio of the stablecoins filled liquidity pools in the Curve decentralized exchange, Curve uses a "buy high" and "sell low" rebalancing modus operandi that is further explained. A liquidity pool consisting of USDT and DAI represented using X and Y is created by a liquidity provider. A trader wants USDT for DAI so he comes to the liquidity pool and deposits DAI and collects USDT and now there is more DAI and less USDT.
This situation makes the liquidity pool now imbalanced and subsequently compromises the 1:1 ratio of stablecoins. To rebalance the pool, Curve sells DAI for a slightly different price than its initial price and this encourages its purchase until the sum of DAI in the pool rebalances with the sum of USDT in the pool and the 1:1 ratio stabilizes. This will mean good for the demand curve but it'll leave the supply curve profitless.
Supply in Curve liquidity pools are provided by liquidity providers so they should be rewarded and be in profit if the pool should be maintained but if Curve liquidity pools ensures low slippage that has a domino effect on the transaction fees usually charged by the Liquidity providers how then will the Liquidity providers be incentivized as deserved? Curve solves this by using DeFi composability.
What Is DeFi Composability?
DeFi composability is the ability of crypto assets to be interoperable with variable protocols and chains. To put this in perspective, when a liquidity provider deposits DAI in a liquidity pool he is given cDAI, a token representation of the total value of the deposit he made.
The interest incurred from his asset in the pool are accumulated or recorded on the cDAI token and whenever he wishes to withdraw his asset and interest from the pool, the cDAI token gives him the rights. Curve integrates a handful of external DeFi protocols and is seamlessly interoperable with them.
Now the idea is a liquidity provider can lend out to or deposit his or her crypto in one of those external DeFi protocols and when he receives the cToken, he can use it as well in the Curve liquidity pools so in essence the cToken compounds interests for two DeFi protocols from the same amount of investment.
How To Use Curve
● Type in "curve.fi" on your web browser and tap enter.
● You'll be required to connect to a compatible ERC20 wallet.
● Connect your wallet by clicking on the "Connect Wallet" button.
● By default the Curve exchange is set on the Ethereum blockchain so you can proceed.
● However, if your tokens are on other protocols you can easily crossswap using the button on the top right of your screen.
● If successful you'll be provided with two inputs that are parallel to each other.
● The first input is where you'll select the token you wish to swap and the second input is where you'll select the token you wish to swap it for.
● After selecting click on "Approve Spending" and subsequently "Swap" Check your wallet for the exchange token if successful.
What Is Curve Token (CRV)?
Curve token (CRV) is the ERC20 standard native token of the Curve Finance that was launched alongside Curve Finance Decentralized Autonomous Organization
(DAO) on August 7, 2020.
CRV token is meant to fully decentralize the Curve ecosystem as holders will be given rights to vote on specific changes in the Curve Finance. CRV tokens are also used to incentivize liquidity providers in the Curve ecosystem.
According to CoinMarketCap as of March 2023, one CRV token is worth 1 USD. There is a total supply of 3,303,030,299 CRV tokens alongside a circulating supply of 749,018,032 CRV tokens.
Is Curve Safe?
Yes. Curve is safe because of a number of factors, the most important being that it is a decentralized exchange that has its automated market maker smart contract running on stablecoins. This lowers the possibility of volatility, transactional fees and impermanent loss to the barest mimimum.
Secondly, Curve is an the second largest decentralized exchange on Ethereum, this means it inherits Ethereum's security standards and possibly shares it's validators or nodes and ditto for Curve finance native "CRV token". And lastly Curve finance and it's DAO contracts is audited by Trail of bits, Quantstamp and mixBytes.
Why Choose Curve?
For liquidity providers, Curve provides extra opportunities to maximize the profits acquired from your deposits via DeFi composability. You're also being rewarded with CRV tokens alongside your compounded interest on your deposits in the liquidity pool.
For traders, Curve provides a decentralized exchange with the lowest slippages and transactional fees. And if you're just a cryptocurrency enthusiast or investor that is tired of the traditional banking system, you could just turn your fiat to crypto assets and save them in Curve via providing liquidity, and the best part? No extra fee charged and your asset grows overtime!
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