What is Curve Finance? All you need to know

Main

• Curve Finance is a decentralized exchange with automated market maker technology (AMM-DEX), originally launched on the Ethereum network. It was designed to trade efficiently between stablecoins and other tokens of the same value with minimal slippage and fees.
• Curve is controlled by the decentralized autonomous organization Curve DAO, which consists of CRV governance token holders.
• Curve is one of the leading DeFi protocols in terms of smart contract lock-ups (TVL) and active users.
• As of July 2022, the Curve protocol allows the exchange of more than 40 assets and is deployed on 10 networks: Ethereum, Arbitrum, Aurora, Avalanche, Fantom, Harmony, Optimism, Polygon, xDai and Moonbeam.

Who created Curve?

Curve Finance Decentralized Crypto Exchange Launched Mikhail Egorov. Previously he graduated from the Moscow Institute of Physics and Technology, earned a PhD in physics from Swinburne University of Technology, worked on research related to quantum computing and cryptography, and co-founded a fintech company NuCypher and the LoanCoin project.

In November 2019, Egorov published white paperwhich described an effective mechanism for creating StableSwap liquidity for trading stablecoins.

The Curve Finance exchange, which implements this approach, was launched in January 2020. The project team is based in Switzerland. According to the founder, as of mid-2020, in addition to him, it included only five people, of which two were developers.

How does Curve work?

As with other AMM-DEXs, asset trading in Curve Finance based on liquidity pools. These are smart contracts containing two or more assets in equal shares, which users can automatically exchange through a simple interface by connecting using any Web3 wallet.

Relative asset prices are calculated using a mathematical formula, and the size of slippage (price changes) during the exchange has an inverse relationship with the size of the pool.

One of the first pools launched was 3Pool, which contains DAI/USDC/USDT in equal shares. Later pools emerged to exchange other stablecoins (BUSD, TUSD, HUSD, USDN) and correlated wrapped tokens like wBTC/renBTC.

For each exchange on the platform, a commission is charged (0.04% of the transaction volume), part of which is distributed among liquidity providers. Any user can add their assets to the pool and receive a share of the fees. From August 13, 2020, liquidity providers will also receive additional rewards in the form of CRV tokens.

In June 2021, the second version of the protocol, Curve V2, was launched. It added the ability to exchange between uncorrelated assets. In particular, we launched the WETH/WBTC/USDT pool.

The new version also introduced the function of automatic concentration of liquidity around the current price. Due to this, users were able to exchange large amounts with minimal slippage.

How is Curve tokenomics structured?

Curve Finance has an ERC-20 CRV governance token issued on the Ethereum network. The main purpose of CRV is to stimulate liquidity providers through income farming, as well as to involve users in making protocol-related decisions.

CRV launched on August 13, 2020, but not as planned by the Curve team. The program code was posted in advance on the GitHub service, which was used by an anonymous developer to independently deploy the smart contract of the token.

Since the launch went without any errors, the project team was forced to recognize it as official.

The maximum supply of CRV is 3.03 billion tokens, to be distributed by August 2026 as follows:

• 62% to liquidity providers;
• 33% to the team and investors;
• 5% to Curve DAO reserve.

The token issuance rate decreases by about 30% every year. After the first reduction in August 2021, it is about 633,126 CRV per day.

Token holders can use them in three ways:

• vote on proposals in Curve DAO;
• participate in staking and receive 50% of the protocol fees;
• increase up to 2.5 times the yield when providing liquidity.

All three features require CRV lockout for periods ranging from 1 week to 4 years. In return, veCRV escrow tokens are issued. Moreover, when blocking for 1 year, the owner receives only 0.25 veCRV for 1 CRV. Only by blocking CRV for a maximum period of 4 years can you get veCRV in a ratio of 1:1.

Locked as of mid 2022 about 47.6% CRV tokens in circulation. The token is in the top 100 by market capitalization and is traded on most of the largest crypto exchanges.

How is Curve managed?

All issues related to the development of the Curve Finance protocol are resolved through the autonomous organization Curve DAO, which was launched immediately after the launch of the CRV token in August 2020.

To participate in the Curve DAO, users need to lock up their CRV for a period of 1 week to 4 years and obtain veCRV.

With at least 1 veCRV, you can vote on existing proposals or create “signal votes” to determine community interest in any issue.

Having at least 2500 veCRV provides the opportunity to put forward new proposals, for example, to open new and close outdated pools or redistribute rewards between them.

Each vote lasts one week. For a proposal to be accepted, at least 30% of the existing veCRVs must participate in the vote, of which at least 51% must support it. In accordance with the decisions of Curve DAO, the team Curve Finance makes changes to the parameters of the DEX.

Most of the voices in Curve DAO belong to three DeFi protocols (Convex, StakeDAO and yEarn) who have built their strategies to make money on income farming, providing liquidity and earning trading fees, as well as CRV.

How is Curve developing?

Since launching income farming, Curve Finance has become one of the most successful DeFi protocols in terms of both locked liquidity and trading volume.

At its peak in January 2022, its TVL exceeded $24 billion and its monthly trading volume was over $6 billion. But even after the cryptocurrency market crashed, by mid-2022, Curve continues to be in the top five DeFi services with more than $5.7 billion of funds blocked. .

The massive amount of liquidity provided by Curve allows many other DeFi services to use its pools in their ecosystems. In particular, Curve Finance is integrated with the liquidity aggregator 1inch, as well as with the largest landing protocols Aave and Compound.

In 2021-22, the Curve protocol, in addition to the Ethereum blockchain, was deployed in 9 EVMcompatible networks: Arbitrum, Aurora, Avalanche, Fantom, Harmony, Optimism, Polygon, xDai and Moonbeam.

The popularity of Curve and the protocol’s open source led to several forks (copied protocols). The largest of these are Ellipsis Finance powered by BNB Chain and Kokonut Swap on the Klaytn network.

With a strong focus on smart contract security and user experience, the Curve platform remains one of the most useful tools for decentralized stablecoin trading with low slippage and fees.