Mar 25, 2023

Curve Finance


Opportunities & Risks


Curve Finance is DeFi's leading Automated Market Maker (AMM) decentralized exchange (DEX). Users rely on Curve's proprietary formulas to provide high liquidity, low slippage, and low-fee transactions among ERC-20 tokens. In this article, we'll take a look at the different strategies for Curve Finance and the risks associated with each of them.

Types of Strategies for Investing into a Protocol and Risks

Swap / Trading Strategies

Traders use this part of the platform to exchange or trade cryptocurrencies. Traders can use strategies to profitably trade cryptocurrencies based on fundamental or technical analysis. Curve Finance has a very limited amount of assets to offer compared with other DEXs, but in most cases, it is on Curve Finance that you will get the lowest slippage on cryptocurrency swaps, especially with stablecoins.


Curve Finance's swap / trading strategy does not present a high risk. The only risk is that you swap one cryptocurrency for another that loses its peg or plunges deep into negative values, rapidly reducing the dollar value you hold in this asset.

Liquidity Provision Strategies

The safest strategies for providing liquidity are those where there is as little impermanent loss as possible; i.e., the assets should be as correlated in price to each other as possible, but at the same time, they must generate sufficient income from the swap fees on the platform. On Curve Finance, the lowest impermanent loss comes in stablecoin pools such as 3pool ($DAI/$USDC/$USDT) or cryptocurrency pools such as ethereum ($ETH/$stETH).

Users have several types of liquidity pools to choose from:

Plain pools: for example ‘3Pool’, which holds the three largest stablecoins ($DAI/$USDC/$USDT). Here, rewards are earned from trading fees.

Lending pools: for example, ‘y pool’ ($DAI/$USDC/$USDT/$TUSD), where liquidity providers earn interest from lending as well as trading fees.

Meta pools: these 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.


Risks associated with a liquidity provision strategy:

  • Smart contract issues with Curve
  • Systemic issues with the stablecoins in those pools
  • Smart contract issues with lending protocols
  • Impermanent loss

Staking Strategies

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 unfamiliar, $veCRV stands for vote-escrowed $CRV and refers to $CRV that has been locked in the Curve DAO.

Here is a detailed video that shows you how to stake $CRV:

Users who stake $CRV can claim trading fees as often as they like, but fees will only be converted into $3CRV once a week. To claim your fees, visit Curve Dashboard. Every time a trade takes place on Curve Finance, 50 % of the trading fee is collected by the users who have vote-locked their $CRV. Every week, fees are collected from the pools, converted to $3CRV and distributed. There is a delay of 8 days from the Thursday after which you lock your tokens before you can first claim your $3CRV.

Risks associated with a liquidity provision strategy:

  • Smart contract issues with Curve
  • Users needs to lock their $CRV

History of Similar Protocols

We can consider Uniswap, PancakeSwap, Balancer or Sushiswap to be similar protocols and indeed, the four occupy the other slots in the top 5 DEXs by TVL, with Curve Finance occupying lead position for a long time. One big difference between these protocols and Curve Finance is that they all support a wider range of assets for trading and liquidity provision, while Curve Finance has focused primarily on stablecoins. Overall, each of these protocols has its own strengths and weaknesses, and the right choice for an individual user will depend on their specific needs and preferences.


We have gone through the different strategies and risks that these strategies involve. We have also mentioned similar protocols, how they are doing, and what experience we have with them. If you are interested in any of these mentioned strategies, always familiarize yourself with them thoroughly first, and always start with a small amount of capital. For a complete analysis and detailed functioning of Curve, please refer to Curve Finance - Protocol.


René Užovič