In decentralized exchanges, they can do a lot. In previous lessons, we looked at DEXs. We will devote today’s article, Curve Finance. These decentralized stablecoin exchanges show that decentralized currency exchanges work better than many traditional exchanges.
Curve Finance – definition
Curve Finance is a decentralized exchange to Cryptocurrency trading. It focuses on stablecoins. It has very low fees and an efficient liquidity pool.
Curve supports the following stables: DAI, USDT, USDC, GUSD, TUSD, BUSD, UST, EURS, PAX, sUSD, USDN, USDP, RSV, LINKUSD, ETH, LINK, wBTC, renBTC.
Curve Finance Protocol is a relatively young DeFi solution. It has its native token Curve (CRV). CRV is to involve liquidity providers and users to manage the protocol. Due to the efficient pool of liquidity, other applications, such as Yearn Finance or Compound, use the platform’s ecosystem.
How does Curve Finance work?
Project Curve is often compared to the Uniswap platform. True – they have many things in common, and they differ only in the assets we trade on them. Curve has one important feature. It is the protocol AMM (Automated Market Maker). What does it mean?
AMM protocols operate thanks to the algorithms that support smart contracts. Using them, it is possible to effectively evaluate cryptocurrency assets in the liquidity pool, using various factors, e.g. current interest in a given asset. In this way, we eliminate any counterparties in the pool, as AMM transactions do not require their presence.
The advantage of liquidity pools is that we can buy or sell our stablecoins when we want. We don’t even need a buyer or seller on the other side of the transaction.
Fun fact: Liquidity pools are where liquidity provider tokens are stored. All to provide users with a smooth exchange.
Because the Curve protocol is completely decentralized, no order book is required. You can already see that the liquidity in the Curve pool is provided by the users of the ecosystem. The algorithms determine the prices of the assets in the pool and then allow traders to trade with smart contracts.
Protocol liquidity providers and CRV token
Curve enables people to provide liquidity to their pool. We call them liquidity providers. In return, suppliers receive a certain amount of CRV. However, to use their native platform tokens, they have to block them for a while. They then receive a veCRV (vote-escrowed CRV). veCRV tokens give a kind of power. With these, suppliers can vote for different proposals in KNIFE whether to discuss changes to pool parameters.
What’s more – CRV tokens can also be staked which is an additional form of income. All we have to do is stake our CRV and in return, we will receive a part of the trading fees collected by the Curve protocol.
Can CRV tokens be purchased? Sure! This is a very popular altcoin that can be found on many crypto exchanges.
Advantages of Curve Finance
- As we mentioned at the beginning of the lesson, the protocol is focused on stable assets. It carries with it low investment risk and the occurrence of an impermanent loss due to asset volatility.
Impermanent Loss –when does it occur? When the price of the token changes after depositing it in the liquidity pool. Then the dollar value of our token is less than its value at the time of deposit.
- Stability. You can delete your liquidity pool at any time.
- Opportunity for high rewards and profits. Curve also provides interesting deposit bonuses for certain liquidity pools.
- Versatility. The CRV we earn on the platform can be used in other DeFi applications.
- Full minimization of slippage. Trading pairs are so similar to each other that they avoid slippage when trading.
How to make money in the protocol?
Curve is the only platform we can trade on stablecoins. Here are some ways to profit from providing a pool of liquidity to the ecosystem:
- veCRV tokens – by blocking CRV tokens, we get veCRV tokens. With its help, we can increase the APY of the deposit.
- Fees – Every transaction that is made using our pool makes us a profit.
- Yield farming – unused liquidity pools are deposited in other DeFi protocols.
- Boosted liquidity pools – Some liquidity pools offer providers high additional returns for their capital input.
Being the liquidity provider on the Curve Finance platform, we can actually match the income opportunity with what we like the most.
Curve Finance – the most important facts
- It is a decentralized stablecoin exchange run by the community. Decisions are made by users based on the CRV token, which is subsequently converted into veCRV.
- CRV is the platform’s native token. Thanks to it, we manage the platform, pay rewards to liquidity providers, and increase profits.
- veCRV is the blocked CRV in the Curve protocol. We use veCRV to vote, increase rewards or earn money.
- Liquidity providers are rewarded in CRV. It all depends on the size of the stakes in the pot.
- CRV supply is reduced with combustion.
- Transaction Fees. Not all are redirected to liquidity providers. Some of it is taken to buy and burn a CRV.
- With a veCRV, we profit from exchange fees.
- Curve Finance is still a little known and complicated protocol.
Summary
If you have a low-risk factor – this is the perfect platform for you. It puts stability above market speculation. Liquidity pools are not volatile as with Uniswap. The popularity of the platform will only grow. Considering the fact that the ecosystem becomes a part of its other DeFi, its development is worth following.