Curve Finance is a popular automated market maker (AMM) platform that offers a highly efficient way to exchange tokens while maintaining low fees and low slippage by only accommodating liquidity pools made up of similarly behaving assets.
Curve is ranked as one of the biggest decentralized yield farming platforms available.
The curve is a decentralized exchange for stablecoins that uses an automated market maker (AMM) to manage liquidity.
Curve Finance operates as an automated market maker (AMM) with a unique selling point of maintaining low fees and slippage by leveraging liquidity pools. Unlike Uniswap and other AMMs, Curve’s primary emphasis is on stable assets, and it provides an extensive range of stablecoins such as DAI, USDT, BUSD, and TUSD.
In addition to the swapping of stablecoins through liquidity pools integrated with Ethereum smart contracts, Curve permits the exchange of several other tokens, including wBTC, reBTC, or pBTC. Curators of multiple liquidity pools can earn rewards by contributing their tokens.
Stablecoins play a crucial role in the world of cryptocurrency, particularly in DeFi. They not only provide a low-risk entry point for new users but also act as an intermediary for assets that lack a direct trading pair.
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By converting asset A to a stablecoin, you can then use that same stablecoin to convert to asset B. So, where can you find pools of stablecoin to borrow from? Look no further than Curve Finance!
Curve Finance is a decentralized trading exchange that serves as the backbone of DeFi. It specializes in liquidity pools for swapping assets of similar value, including most stablecoin pairs and crypto assets with its staked derivative, such as ETH and stETH.
Any user can create a market on Curve and earn trading fees from token swaps.
Curve Finance Has a Stablecoin in the Works! Curve is likely to launch an overcollateralized stablecoin!
Curve Finance is so integral to DeFi that many DeFi protocols rely on it for liquidity. Some even design their protocols with Curve Finance in mind, making it a vital component in these protocols, officially or unofficially. Notable examples include Yearn and Convex Finance.
A Brief History
Michael Egorov, the creator of Curve Finance, had his first foray into cryptocurrency with Bitcoin back in 2013. In 2018, he ventured into the world of DeFi with MakerDAO. However, Egorov felt that there was still much room for improvement in the space and subsequently joined Uniswap in 2019.
Dissatisfied with the limitations he encountered, Egorov went on to develop his own decentralized exchange (DEX) called StableSwap. He released the whitepaper for StableSwap in November 2019 and later rebranded it as Curve Finance in 2020.
Curve is a decentralized exchange for stablecoins that uses an automated market maker (AMM) to manage liquidity.
Launched in January 2020, Curve is now synonymous with the decentralized finance (DeFi) phenomenon and has seen significant growth in the second half of 2020. In August, Curve launched a decentralized autonomous organization (DAO), with CRV as its in-house token.
The DAO uses the Ethereum-based creation tool Aragon to connect multiple smart contracts used for users’ deposited liquidity. Issues such as governance, however, differ from Aragon in their weighting and other respects. Curve has gained considerable attention by following its remit as an AMM specifically for stablecoin trading.
The launch of the DAO and CRV token brought in further profitability, given CRV’s use for governance, as it is awarded to users based on liquidity commitment and length of ownership. The explosion in DeFi trading has ensured Curve’s longevity, with AMMs turning over huge amounts of liquidity and associated user profits.
Today, Curve Finance is a leading DEX in the DeFi ecosystem, providing efficient and low-slippage trading for stablecoins and other assets.
Prior to the emergence of Curve Finance, decentralized exchanges (DEXs) were primarily focused on pioneering peer-to-peer trading in the crypto space. This allowed people to trade crypto assets without the involvement of centralized exchanges (CEXs), which was just the beginning of the DeFi ecosystem we see today.
Impermanent loss (IL) was a prevalent risk for DeFi participants, as it refers to the potential loss of funds resulting from locking them up in a liquidity pool compared to holding the assets themselves.
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Curve Finance was the first DEX to prioritize stablecoin assets, significantly mitigating the risk of impermanent loss since stablecoins are less volatile than other crypto assets.
Curve Team
Michael Egorov is the CEO and Founder of Curve Finance. Prior to Curve, he co-founded various ventures like NuCypher and LoanCoins.
As a scientist and physicist, he worked on research related to quantum computing and cryptography and earned a PhD in Physics at the Swinburne University of Technology.
Stablecoins and their use within the protocol are critical aspects of Curve Finance. The platform features a Factory for creating pools, which incentivizes users to provide liquidity to these pools. Additionally, Curve DAO and its support for ten networks are also essential components of the platform.
3pool (“3CRV”)
Among all the active liquidity pools in the protocol, the 3pool, which consists of DAI, USDC, and USDT, also known as 3crv, is the most well-known. It is not only popular on its own but is also frequently combined with another stablecoin asset to form a trading pair. The liquidity in the pool is slightly less than $1 billion, which is a considerable size, given that most of the other pools are in the mid-millions. The only pool larger than this is the ETH/stETH pool, which is valued at $1.4 billion.
Factory and Gauges
The Factory is the place where you can establish a liquidity pool in CRV, which is a relatively straightforward process. However, to do so effectively, you need to have a solid understanding of what you’re doing before filling out the form. I can imagine many DeFi protocol founders scratching their heads over which type of pool to create, how to set it up to achieve their yield-earning goals, and, most importantly, how to configure the gauge, as it is critical to the pool’s success.
Pool operators want to attract a lot of liquidity to the pools they create, and the best way to do so is by offering incentives for people to participate. It’s similar to walking down a street filled with bars, with each establishment shouting out the free drinks they offer.
Curve has a mechanism known as the gauge weight, which helps pool operators entice customers. This gauge allows CRV token holders to vote on which pool(s) deserve additional rewards in CRV, and the vote is held biweekly and is open to all token holders with locked CRV. To set up the gauge, a minimum of 2500 veCRV tokens is required.
This mechanism plays a significant role in how DeFi protocols interact with Curve Finance, as you will learn in the CRV token section.
A complete, step-by-step guide on how to yield farm on the Curve Finance platform with various blockchains including Ethereum, Optimism, Arbritrum, Polygon, and Avalanche.
With a secure, easy-to-use interface, you can deposit your various tokens into Curve pools and earn up to 50% APY. You can begin farming in less than 5 minutes!
Curve can be accessed through various networks, including Ethereum, Arbitrum, Aurora, Avalanche, Fantom, Harmony, Optimism, Polygon, xDai, and Moonbeam. Notably, the main Ethereum Layer 2 solutions are supported, which can be beneficial in reducing gas fees.
Fees
Curve imposes three types of fees. The first is the swap fee, which is a flat 0.04% fee for all token swaps. The second type is the deposit fee and withdrawal fee, which ranges from 0% to 0.02%.
KYC and Account Verification
As a decentralized platform, there are no specific requirements in terms of participation. Anyone can become a participant as long as they have the necessary funds, without any restrictions based on nationality, gender, sanction status, or other factors.
The only way to identify someone on the platform is through their wallet address, but even then, it’s not a foolproof method as an individual can have multiple wallet addresses.
Security
In terms of security, the Curve platform prioritizes the smart contracts governing the pools. These contracts are audited by Trail of Bits, a reputable security research company that also audits for well-known companies such as Github, Gemini exchange, Meta, Airbnb, and others.
Audits are conducted only when changes are made to the smart contracts. These contracts are designed to be non-upgradable to enhance security.
Governance risk is also considered through the Emergency DAO, which is composed of nine individuals and a multisig set-up. Although the DAO has limited governance function, it can pause a pool during the first two months of its existence or even stop emissions to a pool, as seen in the recent $MOCHI fiasco.
The pools themselves pose a risk component, which is well-documented in the protocol’s documentation section. When providing liquidity to a pool, you are exposed to all the coins in the pool, so it is important to research before depositing any funds into a pool.
Tokens available on Curve Finance
The vast majority of tokens offered on the platform are stablecoins, including lesser-known ones like $LUSD, $USDN, $alUSD (issued by Alchemix), and $GUSD (issued by Gemini). In addition, there are derivatives of BTC and ETH available such as stETH, renBTC, WETH, and WBTC, among others.
The platform intentionally maintains a retro appearance with no flashy graphics or colors. It resembles a webpage from the early days of the internet. There are comprehensive explanations of the terminologies used on the platform, which is very helpful considering the complexity of the operations. However, it caters more to experienced DeFi protocol users who possess adequate knowledge.
The descriptions act more like reminders or defining exclusive terms used on the platform, such as base vAPY. It is advisable to read the available documentation before delving into this protocol.
As a decentralized exchange, Curve does not provide any fiat-to-crypto on-ramp facility. Hence, users need to acquire cryptocurrency from a centralized exchange before depositing them into a Web3-enabled wallet to interact with the platform.
If you’re unsure of which exchange to choose, you can check out our review of some of the top exchanges available.
Withdrawals on Curve are straightforward – simply confirm the gas fees, ensure that the destination wallet address and network are correct, and initiate the transaction. It’s a simple “click-and-send” process.
Curve Token (CRV)
CRV is the governance token for Curve Finance. It implemented a complex time-based staking system to exchange CRV into veCRV, where veCRV is an internal token intended for governance purpose and has a right to claim the cash flows generated by the protocol.
Similar to other DeFi protocols, liquidity providers are motivated to participate in Curve by earning CRV tokens. Incentivizing liquidity providers with tokens is a common practice in DeFi and also helps Curve to keep fees low. However, what sets Curve apart is its unique approach to token utility.
Unlike most DeFi protocols where the utility of the token is limited to governance, Curve has implemented a tiered token design, which adds significant value to CRV. This makes Curve a particularly interesting protocol to explore.
veCRV token
To participate in voting on Curve DAO, token holders must lock their CRV tokens for a period ranging from 1 week to 4 years. This action rewards them with voting-escrowed CRV tokens, also known as veCRV, which are the actual voting tokens. The number of veCRV received depends on the amount of CRV tokens locked and the duration of the lock-up period. The longer the lock-up period and the more CRV tokens locked, the more veCRV tokens obtained, as illustrated in the chart below:
| Lock-Up Period | CRV Tokens Locked | veCRV Tokens Earned |
| 1 week | 1000 CRV | 986.301 veCRV |
| 1 month | 1000 CRV | 985.246 veCRV |
| 3 months | 1000 CRV | 978.723 veCRV |
| 6 months | 1000 CRV | 967.742 veCRV |
| 1 year | 1000 CRV | 934.579 veCRV |
| 4 years | 1000 CRV | 556.677 veCRV |
In addition to veCRV tokens, liquidity providers also receive a boost in earnings based on the liquidity they provide. For example, if you provide liquidity to the tricrypto2 pool using USDT, you can earn a trading fee of 1.73% per year, based on the pool’s volume.
The rewards gauge also offers a potential earning of 7.36%. By locking in CRV tokens, you can increase your earnings up to 18.41%. You can use the platform’s calculator to determine how much you need to lock in and for how long.
As a veCRV token holder, you can also earn a share of the trading fees. In September 2020, the community passed a proposal to distribute 50% of trading fees to veCRV holders. These fees are used to purchase 3CRV tokens, the LP for the 3pool. The chart below from the Curve Finance documentation helps to clarify the situation:
Curve Bribes
I would like to highlight the penultimate line, “can vote on gauge weights”. This is where token holders decide the allocation of CRV rewards among all the pools on Curve. The more CRV tokens you lock up, the greater your voting power and the more influence you have on directing the rewards to the pools you have invested in. If you want your pools to receive the highest possible rewards, it may be worth considering offering incentives to other voters.
The app, created by Andre Cronje from Yearn Finance, enables pool operators to earn tokens from protocols seeking additional liquidity. Convex Finance was the first to implement this by providing CVX tokens to veCRV holders, and other platforms have quickly followed suit.
The Curve Wars
Dozens of DeFi protocols (among others) are fighting for ownership of Curve Finance’s CRV Governance tokens. Why?
Essentially, crypto protocols are incentivized to accumulate CRV tokens and lock them in to obtain veCRV for voting power to tilt rewards in favor of their own pool. Convex Finance, a DeFi protocol on Curve, started acquiring CRV tokens, prompting Yearn to do the same.
Other stablecoin protocols followed, resulting in a frenzy for CRV tokens. The aim is to attract more liquidity providers to pools with higher rewards, leading to a cycle of increased liquidity and users. High liquidity of stablecoins also reduces slippage, encouraging users to utilize them.
CRV Price action
Amidst all the hype surrounding this token, one would expect the token’s price to be quite attractive, right? However, that’s not exactly the case.
Tokens with significant utility may not necessarily be tradable, especially in this case where the token’s value is in its locked state rather than circulating in the market.
The current price of $1.38 reflects market sentiment towards the token. It’s unlikely to reach its all-time high again, and it’s one of the few tokens that can generate more yield by being in DeFi protocols than being traded.
The initial distribution of the token is as follows, starting from a fixed supply of 3 billion:
- 5% to early liquidity providers with a one-year unlock period.
- 5% to Curve Finance DAO.
- 3% to Curve Finance DAO employees with a one-year unlock period.
- 30% to Egorov + 2 investors. Egorov has a 4-year unlock period while the other investors have a 2-year period.
- 62% to current and future liquidity providers on Curve.
On average, 776,000 CRV tokens are distributed daily, with a reduction of 2.25% each year. Additionally, the token’s deflationary characteristic is supported by the fact that the locked CRV is not considered part of the token supply, as they are illiquid and locked for periods measured in years.
Curve Finance exchange offers the best stablecoin swapping experience with its low slippage and massive liquidity pool. Moreover, it provides a host of other benefits such as influential voting power, permissionless setup, and secure platform. The influential voting power that comes with holding a lot of veCRV allows holders to sway the distribution of CRV rewards in the pools.
The permissionless setup means that anyone can create a liquidity pool, promoting inclusivity. Additionally, the platform’s simplicity reduces the attack surface for hackers, making it a secure option for traders. As long as Curve continues to secure its smart contracts, funds remain relatively safe.
Given the outcome of the Curve Wars, certain players have become dominant in terms of their ability to sway rewards allocation in their favor. In the interest of maintaining decentralization, it may be necessary to impose restrictions on the amount of voting power a single wallet can possess or implement other mechanisms that prevent the formation of whales.
This presents a dilemma because smaller protocols stand to benefit more from the liquidity provided by Curve, but their pools may not be able to offer competitive rewards compared to the larger ones. Meanwhile, these larger pools can afford to acquire CRV tokens and wield greater influence over rewards allocation.
It’s important to ensure that the playing field is not too skewed, as to discourage smaller players from participating or having to align with larger players. Achieving balance will be crucial for promoting a healthy and inclusive ecosystem.
In the world of crypto, they say that imitation is the sincerest form of flattery. After the launch of Curve Finance’s voting-escrow token, several other protocols followed in their footsteps. Saber, a protocol built on Solana, was one of them. Saber attempted to replicate Curve’s success, but with less impact.
The influence of Curve Finance in the DeFi world is undeniable, and it has been a game changer.
Many protocols have been built on top of it, and it’s known as the go-to platform for high-value swaps due to its low slippage. As the world of DeFi continues to evolve, it will be fascinating to see how much influence Curve Finance will maintain in the future.
CRV Price Prediction
Based on our analysis by cryptocurrency experts regarding the price of CRV is expected to reach at least $10 in the next bull run. (10x)
Frequently Asked Questions
Is CRV a good investment?
Whether a high-risk asset like CRV is a suitable investment for you would depend on your risk tolerance, investing goals and timeframes, experience in cryptocurrency markets, and other personal circumstances. Always conduct your own due diligence before investing. And never invest money that you cannot afford to lose.
Will the CRV price go up?
Based on our analysis by cryptocurrency experts regarding the price of CRV is expected to reach at least $10 in the next bull run. (10x)
Should I invest in CRV?
Whether CRV is a suitable investment for you would depend on your risk tolerance, investing goals and timeframes, experience in cryptocurrency markets, and other personal circumstances.
Always conduct your own due diligence before investing.
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