Strengths and Weaknesses
- Earn interest on your cryptocurrencies
- The platform is driven by algorithms
- Low slippage
- Efficient liquidity for traders
- Easy to use
- Managed by the community
- Limited assets
- Impermanent loss in pools
- Risks with participating in DeFi
- Beginners need enough know-how to use it
Curve Finance is DeFi's leading Automated Market Maker (AMM) decentralized exchange (DEX). Hundreds of liquidity pools have been launched through Curve's factory and incentivized by its DAO. Users rely on their proprietary formulas to provide high liquidity, low slippage, and low-fee transactions between ERC-20 tokens. Launched in 2020, the protocol has quickly gained popularity in the decentralized finance (DeFi) ecosystem due to its unique approach to liquidity provision, and its ability to offer traders low fees and low slippage.
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Functioning of the Protocols
Starting out with Curve Finance can be challenging due to its complex features and the fact that its user interface is quite old-style, which is different from other dApps in decentralized finance.
The simplest way to understand Curve is to view it as an exchange for ERC-20 tokens with low fees and minimal slippage, but unlike traditional exchanges, which require a buyer and a seller to match, Curve utilizes liquidity pools to accomplish this. To maintain a high level of exchange volume, Curve requires a significant volume of liquidity, which it incentivizes through rewards to liquidity providers.
One of the benefits of using Curve is its non-custodial nature, which means that the Curve’s developers do not have access to users' assets. Additionally, Curve's pools are non-upgradable, providing users with the assurance that the logic protecting their funds will remain unchanged.
Liquidity pools are smart contracts that hold a pool of tokens which can be exchanged or withdrawn at rates set by the parameters of the contract. By adding liquidity to a pool, users can earn a share of the trading fees generated by the pool. Additionally, some liquidity pools may offer incentives to attract liquidity providers.
To understand what the different pools do, it’s also important to understand how Curve makes money for liquidity providers, for whom trading fees are the primary source of income. Every time a user exchanges tokens through Curve, whether through the website or other DEX aggregators like 1inch or Paraswap, a small fee is collected and distributed to liquidity providers. This is why the base vAPY increases with the trading volume on Curve.
Some pools, such as Compound ($COMP), $PAX, $Y, and $BUSD, also generate interest from lending protocols. Behind the scenes, these pools utilize lending protocols like Compound or AAVE to generate additional interest for liquidity providers. While this may make these pools more profitable when lending rates are high, it's important to note that it also adds additional layers of risk.
All pools generate interest from trading fees, and some also earn interest from lending. Additionally, there are pools that offer incentives. Providing liquidity on Curve also enables you to receive $CRV. The amount of the CRV token that each liquidity gauge receives is determined by the DAO's allocation.
Whenever a trade is executed on Curve.fi, liquidity providers who have deposited funds into Curve earn a small fee that is split evenly among all providers. As a result, the vAPY can be high on days with high volume and volatility. It's important to note that because fees are dependent on volume, daily vAPYs can fluctuate significantly, ranging from low to high.
The swap fees on Curve Finance are usually around 0.04 %, which is considered to be the most efficient for stablecoin exchanges. Deposits and withdrawals have fees ranging from 0 % to 0.02 %, depending on whether they are made in balance or not. If fees were 0 %, users could deposit in $USDC and withdraw in $USDT for free. However, balanced deposits or withdrawals are free of charge.
Plain v1 Pools
A plain pool is the earliest and simplest implementation of Curve, where all assets in the pool are regular ERC-20 tokens pegged to the same price.
One of the largest plain pools is ‘TriPool’, which holds only the three biggest stablecoins ($USDC/$USDT/$DAI). It is a non-lending gas-optimized pool similar to the ‘sUSD pool’ ($DAI/$USDC/$USDT/$sUSD).
A small number of v1 pools are lending pools, which means liquidity providers can earn interest from lending as well as trading fees. The ‘Compound pool’ ($DAI/$USDC) was the first lending pool on Curve.
Another lending pool is the ‘y pool’ ($DAI/$USDC/$USDT/$TUSD), which includes tokens for Yearn Finance, a yield aggregator. The yToken automatically rebalances your stablecoins to protocols with the best lending rates, such as Compound, Aave, and dYdX. This is a free and non-custodial service, but it does introduce additional risks, as the ‘yPools’ use a series of protocols that could themselves have critical vulnerabilities.
Other pools, such as ‘Aave’ ($DAI/$USDC/$USDT) and ‘sAave’ ($DAI/$sUSD), also lend on the AAVE v2 protocol. However, lending pools are generally more expensive to interact with than non-lending pools.
Metapools enable trading between two underlying base pools using a single token. For instance, the ‘Gemini USD' metapool [$GUSD, [3Pool]] allows users to seamlessly trade $GUSD between the three stablecoins in the ‘3Pool’ ($DAI/$USDC/$USDT). This has multiple benefits, including preventing the dilution of existing pools, allowing Curve to list less liquid assets, and generating more trading fees and volume for the DAO.
The ‘GUSD’ metapool accepts $GUSD and ‘3Pool’ LP tokens. This means that liquidity providers of the ‘3Pool’ who do not provide liquidity in the $GUSD metapool are protected from systemic risks associated with the metapool.
Liquidity pools, particularly those without opportunity costs, are essential in helping stablecoins maintain their pegs. They make it easier for traders to arbitrage when the price deviates from the peg, which is crucial for companies and foundations developing stablecoins, as having a stablecoin that's worth less than 1 USD is never a good look.
As a result, some pools on Curve are incentivized. This means that in addition to trading and lending fees, companies will offer rewards to individuals who provide liquidity to the pools using their coins.
What makes the incentive APR move?
In the screenshot, the $stETH pool earns an additional 2.69 % of $LDO per year, and three variables can affect this:
- The amount of $LDO distributed is based on the number of LP token stakers, meaning your share of rewards decreases when more people stake
- The price of $LDO can affect the yearly bonus, as a higher $LDO price leads to a larger bonus
Boosting CRV token Rewards
One of the main incentives for holding $CRV tokens is the opportunity to increase your rewards for providing liquidity. By locking your CRV tokens to acquire voting power, you can participate in the DAO and earn a boost of up to 2.5x on the liquidity you provide on Curve.
Staking CRV token
As of 19 September 2020, $veCRV holders are entitled to receive 50 % of all trading fees collected. This was made possible by a proposal from the community aimed at incentivizing both liquidity providers and governance participants.
The fees collected will be used to purchase $3CRV, the LP token for ‘3Pool’, which will then be distributed to $veCRV holders.
For those who are unfamiliar with it, $veCRV stands for vote-escrowed $CRV and refers to $CRV that has been locked in the Curve DAO.
Here is detailed video on how to stake CRV token:
I would say that the non-custodial nature of Curve Finance is a significant benefit for users, as it provides a level of security and trust that their assets are safe and cannot be accessed by the Curve team. The fact that Curve's pools are non-upgradable also provides users with assurance that the underlying logic governing their funds will not change, which is crucial when dealing with decentralized finance (DeFi) platforms.
Another significant benefit of using Curve is the ability for liquidity providers to earn a share of the trading fees generated by the pool, as well as additional interest from lending protocols. This can be a profitable venture for those who provide liquidity to the platform.
Furthermore, the incentivized pools on Curve are crucial in helping stablecoins maintain their pegs, which is important for maintaining the value of assets in users' portfolios. Additionally, users who provide liquidity on Curve can receive $CRV, which is determined by the DAO's allocation, offering further incentives for participation.
I believe that Curve Finance is a useful platform for users who are looking to exchange ERC-20 tokens with low fees and minimal slippage, while also earning rewards for providing liquidity to the pools.
Voting on the Curve DAO
To participate in voting on the Curve DAO, users must lock their $CRV. By doing so, they can earn a boost on their liquidity provision and vote on all proposals put forward by the DAO. There is no minimum amount of voting power required to vote, but users who hold 2,500 $veCRV or more can create new proposals. If they wish to create a new official proposal, they should draft it, then post it on the governance forum. They must also check that it is actually possible, and gauge the interest of the community via the Curve Discord, Telegram or governance forum.
VeCRV token stands for Vote Escrowed CRV, which is a locker where users can lock their $CRV for varying lengths of time to gain voting power. Users can lock their tokens for a minimum of one week and a maximum of four years. The longer the lockup period, the more voting power a user receives. This means that users who lock up their tokens for longer periods have a greater stake and thus more voting power.
The access to Curve DAO Dashboard.
Here, you can view all current and past votes.
The governance token of the protocol is $CRV. The main purpose of the Curve DAO token ($CRV) is to incentivize liquidity providers on the Curve Finance platform. Additionally, the token is designed to encourage widespread participation in the governance of the protocol.
Revenue and Tokenomics
Curve Finance generates revenue through trading fees, which are paid by traders on the platform. A portion of these fees is distributed to LP token holders as a reward for providing liquidity to the platform.
On 13 August 2020, the CRV token was officially launched with the primary objectives of incentivizing liquidity providers on the Curve Finance platform and encouraging community participation in the protocol's governance.
The total supply of $CRV is 3.03 billion, which is divided as follows:
- 62 % is allocated to community liquidity providers
- 30 % is reserved for shareholders (including the team and angel investors, who are unknown people) with 2-4 years’ vesting
- 3 % is set aside for employees with 2 years’ vesting
- 5 % is allocated to the community reserve
The initial supply of approximately 1.3 billion tokens (equivalent to about 43 % of the total supply) was distributed as follows:
- 5 % - reserved for pre-$CRV liquidity providers with 1-year vesting
- 30 % - allocated to shareholders with 2-4 years’ vesting
- 3 % - allocated to employees with 2 years’ vesting
- 5 % - set aside for the community reserve
According to Curve, these are the current supply stats:
The Uniqueness of the Protocol
Curve Finance is a leading decentralized exchange (DEX) protocol in the decentralized finance (DeFi) space, known for its efficient stablecoin swaps with minimal slippage. This design has made Curve a popular choice among traders and liquidity providers, and has helped the protocol maintain its position as the top DEX in the DeFi ecosystem. Curve is deployed on 11 blockchains and in addition to swaps, it offers its users to gain interest on their cryptocurrency by providing liquidity to liquidity pools, where stablecoin pools suffer minimal slippage.
One of the key benefits of Curve Finance is its ability to significantly reduce the cost of stablecoin swapping. This is due to the unique algorithmic design of the protocol, which allows for the efficient swapping of stablecoins with minimal slippage. As a result, users are able to save on fees and make more efficient trades on the platform.
Curve Finance was founded on the idea of stablecoin liquidity, providing users with a way to earn steadier interest returns without having to hold volatile assets. The protocol has since become one of the top decentralized exchanges by Total Value Locked (TVL), offering traders ample liquidity at low fees and slippage.
The initial concept for Curve Finance came in November 2019 with the publication of Michael Egorov's StableSwap Whitepaper, which laid the foundations for what would later become the Curve Finance protocol when it launched just two months later, in January 2020. Since its launch, the protocol has continued to evolve and improve, expanding its range of supported assets and implementing new features to enhance the user experience.
“Curve Wars” began at some point in 2020. The term refers to the competition between various DeFi protocols to attract liquidity and users within the Curve Finance ecosystem. The focus of this competition is on the accumulation of $veCRV, as well as the determination of which pool receives Curve's reward boost. The competition is intense due to the substantial liquidity in the Curve ecosystem, and the benefits of accumulating $veCRV can be significant for those who participate.
Curve v1 launched in 2020 and exploded in growth by focusing on stablecoin swaps with low fees and low slippage.
Curve v2 was launched in 2021 and added pools into volatile assets such $ETH and $wBTC. It now has hundreds of pools across 12 of the main EVM chains.
My experience is that Curve Finance's innovative design and focus on stablecoin liquidity have made it a standout protocol in the DeFi space. Its ability to offer low fees, efficient stablecoin swapping, and a lot of unique liquidity pools has helped it maintain its position as a top DEX, as well as making it a popular choice for users looking to maximize their returns in the volatile cryptocurrency market.
There is no specific Road Map for Curve Finance's future.
It's up to the governance to lead the Road Map. The development of the Curve Finance protocol comes from the community in the main, with the governance forum containing multiple threads and proposals about the future of the protocol.
One of the most anticipated upcoming features is the $crvUSD stablecoin. It hasn’t been launched yet, but it is planned to be an over-collateralized stablecoin.
Curve Finance has had a significant impact in the DeFi since its launch in January 2020. Here are some of the benefits and impacts of Curve Finance:
Efficient Stablecoin Swaps: one of the main benefits of Curve Finance is its efficient stablecoin swaps. With minimal slippage and low fees, Curve Finance has become the go-to platform for traders looking to swap stablecoins. This has made it easier for users to move funds between different DeFi applications and protocols.
Increased Liquidity: Curve Finance has played a key role in increasing liquidity in the DeFi ecosystem. Its focus on stablecoins has allowed it to attract a large number of liquidity providers, which has in turn made it easier for traders to access the liquidity they need.
Composability: Curve Finance is highly composable, meaning that it can be integrated with other DeFi protocols and applications. This has made it easier for other DeFi projects to access liquidity, and has helped to create a more interconnected DeFi ecosystem.
Curve Finance was founded by Michael Egorov, a Russian scientist with a wealth of experience in the cryptocurrency industry. Prior to founding Curve, Egorov co-founded NuCypher in 2015, where he served as CTO. NuCypher is a cryptocurrency business focused on building privacy-preserving infrastructure and protocols. Today, the Curve Finance team is composed of several pseudonymous developers and community members who participate in its development thanks to a high level of decentralization.
In addition to Egorov’s work with NuCypher and Curve Finance, he is also the founder of LoanCoin, a decentralized bank and loans network. His experience and expertise in the cryptocurrency industry have been instrumental in the success of both projects. Overall, Egorov's entrepreneurial spirit and passion for blockchain technology have led to the creation of several innovative and successful projects in the cryptocurrency space. With his leadership and vision, Curve Finance has become a leading protocol in the decentralized finance ecosystem.
Community and Marketing
Curve Finance has a strong community of supporters and contributors, including LP token holders, traders, developers, and other stakeholders. The protocol's governance structure is designed to be decentralized, so the community also has decision-making power about the future of the protocol. The community is active on social media platforms such as Twitter (330,000 followers) and Discord 40,000 members as of 21 February 2023), where members discuss the latest developments and potential upgrades to the protocol. There is plenty of active discussion on the Curve Finance Discord and you will get a prompt answer to every question you ask. On Twitter, users actively interact with each other and the platform, with engagement in the tens of thousands. The credit for this goes to marketing that Curve Finance does with great care, delivering regular content to their community that features quality information.
Investors and Partners
The main Curve Finance investors are Cluster Capital, Codex Venture, Fomocraft Ventures, Mechanism Capital, and Mint Ventures (US).
Curve Finance has partnerships with Convex, Defillama, Dune, Yearn, and many others.
Risks and Decentralization
While Curve Finance has gained popularity in the DeFi ecosystem, it is important to note that there are some risks associated with using the protocol. The most significant of which is the potential for smart contract vulnerabilities or other security issues, which could result in the loss of funds for LP token holders and traders. Therefore, it is recommended that users exercise caution and perform their own due diligence before using the protocol, as there is always a risk of potential security issues.
Curve Finance is designed to be a decentralized protocol, with decision-making power distributed among token holders. The protocol's governance structure enables token holders to vote on proposals and upgrades to the protocol. Curve is designed to be permissionless, meaning anyone can deploy a liquidity pool. To use the Curve platform, users do not need KYC.
Protocol Security and Audits
The protocol's smart contracts are open-source and audited by third-party firms to ensure their security and reliability. These audits have identified and addressed potential vulnerabilities in the protocol's smart contracts. Curve Finance also has an active bug bounty program, which encourages security researchers to identify and report any potential security issues they discover. This program rewards researchers with financial compensation for their efforts in helping to identify and fix security vulnerabilities. Additionally, the Curve Finance team closely monitors the protocol for any unusual activity or suspicious transactions. If any such activity is detected, the team takes immediate action to investigate and address the issue.
You can find all the audit reports here.
The safety of Curve users is paramount. For this reason, Curve also has a bug bounty program. The program allows community members to submit reports of "bugs" or vulnerabilities for a chance to earn a bounty. More information about the Curve bug bounty program can be found here.
KYC & Company
The developers of Curve Finance do not have a KYC, and as Curve Finance is a decentralized protocol, it does not have a traditional, centralized company structure. Instead, it is governed by a Decentralized Autonomous Organization (DAO) which is controlled by $CRV holders.
On 9 August 2022, Curve Finance experienced a front-end exploit caused by a DNS issue, resulting in the theft of approximately 570,000 USD. The funds were transferred to the attacker’s wallet and swapped for $ETH which was sent to the crypto exchange FixedFloat. The issue was fixed by Curve within hours, and FixedFloat froze 112 $ETH worth of stolen funds.
Curve provides users with an open-source, community-managed environment primarily focused on trading stablecoins and the provision of liquidity. It is important to always think about the best possible strategy for using Curve Finance. We have written more about this in the article, Curve Finance - Opportunities & Risks.
Curve Finance has established itself as a major player in the DeFi space, and its innovative approach to stablecoin trading and liquidity provision make it a compelling platform for users. Curve Finance has seen significant growth in trading volume and liquidity since its launch in 2020, and at the time of writing, it is still the largest in the DEX category by TVL. Overall, Curve Finance has many benefits, including its low fees, minimal slippage, and being non-custodial, but it may be challenging for new users due to its complex features and unique user interface.
The protocol has undergone thorough auditing and security measures and its smart contracts are publicly accessible, but although the project is very well secured, it is always necessary to think about potential vulnerabilities in its smart contract code. Investors need to do their own research and consider the potential risks before investing in Curve Finance.