Overview

Curve Finance is one of the most popular and widely used DEXs on Ethereum. Its main goal is to offer a low-fee, low-slippage switching between stablecoins through an AMM (Automated Marker Maker) algorithm with a reduced risk of impermanent loss.

Curve was the first protocol to solve inefficiencies in stablecoin trading, which is one of the building blocks of DeFi.

History

Michael Egorov, a cryptocurrency veteran and founder of NuCypher, came up with the idea of StableSwap towards the end of 2019 when he spotted a big problem in the DeFi sector. In many protocols, stablecoins struggled to maintain their peg with the dollar. Actually, in some cases, they were so far from being stable that numerous open trades were liquidated due to price fluctuations!

In early 2020, Egorov launched Curve Finance (initially StableSwap) to facilitate arbitrage in the various stable coins in order to stabilize the peg as much as possible.

Products

Getting started with Curve isn’t easy, there is a lot to grasp and the unique UI can be a lot to take in. The easiest way to understand Curve is to see it as an exchange that lets users and other decentralized protocols exchange ERC-20 tokens (DAI to USDC for example) through it with low fees and low slippage.

Curve v1

• Liquidity Pools - Stables only

Unlike exchanges that match a buyer and a seller, Curve uses liquidity pools. The liquidity pools are smart contracts that handle a pair of tokens, such as DAI+USDC+USDT, allowing users to exchange one token for another.

Curve needs a high volume of liquidity (tokens) to accomplish successful exchanges, therefore, it offers rewards to liquidity providers. Every time someone makes a trade on Curve Finance, the liquidity providers receive a small commission divided equally between all participants.

In addition to trading fees, some pools use lending protocols (like Compound or AAVE) to help generate more interest for liquidity providers. To sum up: all pools earn interest from trading fees, some pools also earn interest from lending and there are also some pools with incentives. You can also receive CRV when you provide liquidity on Curve Finance.

Curve v2

• Liquidity Pools - Non-pegged Assets

Curve was originally for pegged assets however, Curve v2 allows efficient and low-risk trading of non-pegged assets too. TriCrypto, being the first and main base pool has the following coins: USDT/WBTC/WETH for Ethereum. On Polygon, the first pool has AAVE tokens and can handle swaps with the following tokens: DAI/USDC/USDT/ETH/WBTC.

Becoming a liquidity provider in a Curve crypto pool is in all ways similar to stable pools. You will gain exposure and risks to all assets in the pools.

• Concentrated Liquidity

Curve v2 has also integrated an automated version of Uniswap V3’s concentrated liquidity feature which allows users to choose which price range they’d like to provide liquidity for. For example, instead of providing liquidity to every possible price of Ethereum on the ETH/USDT pool, liquidity providers can target the 2,000-3,000 range to maximize the effectiveness of the liquidity as long as the ETH price remains in range.

Governance

The Curve DAO's primary goals are to incentivize liquidity providers on the Curve Finance platform and to include as many users as possible in the protocol's governance. Curve’s governance token, CRV, has three main uses: voting, staking and boosting.

Users can stake their CRV tokens to receive trading fees. Moreover, vote locking CRV allows you to acquire voting power to participate in the DAO and earn a boost of up to 2.5x on the liquidity you are providing on Curve.

Ps. veCRV stands for vote-escrowed CRV, it is simply CRV locked for a period of time. The longer you lock CRV for, the more veCRV you receive.

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