What is Curve (CRV)?

Curve (CRV) is a decentralized exchange (DEX) and a liquidity pool that allows you to trade with stablecoins or stablecoins quickly and easily.

EThe boom of the DeFi or Decentralized Finance has seen the birth of many platforms that offer new and innovative tools, and one of those platforms is Curve Finance.

But what does Curve Finance really offer that makes it so appealing to DeFi users? Well, these and other questions will be answered below in this article dedicated to unraveling one of the fastest growing platforms in the DeFi ecosystem.

Curve Finance (CRV), the DEX of stablecoins

Curve Finance (CRV) or Curve, is a decentralized exchange (or DEX) dedicated to offering exchanges of stablecoins or stablecoins. In short, it performs operations like the ones Uniswap does, only that Curve focuses on assets with parity 1 to 1 with national currencies. This feature has made Curve a favorite of stablecoin traders and liquidity providers looking for minimal slippage to minimize losses. Remember that; slippage refers to the difference between the expected price of a trade and the price at which the trade is executed, and it is a recurring source of losses in certain exchanges.

And not only that, Curve offers a simple interface and some of the smart contracts or smart contracts safest in the entire DeFi ecosystem. This together with a wide support of stablecoins among which we can find DAI,USDC, USDT, TUSD, BUSD, PAX and sUSDas well as pairs BTC (RenBTC, WBTC, sBTC and HBTC), allowing to operate with all of them quickly, in a process without custody and in a decentralized way.

All these features have made Curve one of the most used DeFi platforms today, especially for its ability to offer excellent exchange rates for stablecoins and for allowing the connection of various DeFi platforms using Curve pools.

Origin of Curve Finance (CRV)

Curve Finance is a relatively recent project in the DeFi world, in fact its whitepaper was presented on November 10th 2019, by the hand of Michael Egorov.

The platform, which initially received the name StableSwap, was intended to provide DeFi services for stablecoins within an autonomous market maker (from the English Autonomous Money Market - AMM) that would have as its main characteristic a minimum slippage of prices, as well as a efficient “trust savings account” for liquidity providers, all handled by smart contracts within Ethereum.

What led Egorov to create this system was to offer a medium of exchange that would serve as a bridge between centralized stablecoins (such as USDT) and decentralized (such as DAI), to make the exchange between them maintain a dynamism that will help the market grow.

This dealt with situations such as those that arose when MakerDAO lowered its stability fee to 5,5%, causing many users of Compound (which had the interest rate of 11% at the time) will stay there because they took the loan in DAI, and the conversion between DAI and USDC is a costly task, leading to stagnation of the markets.

How does Curve work?

The operation of Curve can be understood simply as a decentralized exchange or exchange. But behind that exchange there are some concepts such as liquidity pools, which are what allow you to have the necessary liquidity for your stablecoins exchanges.

Curve Pools, the liquidity spaces of the protocol

At this point, CRV's liquidity pools look a lot like Uniswap. In fact, Curve is known as the "Uniswap of stablecoins" because of that.

Now, let's remember that a liquidity pool is simply a space controlled by a smart contract where large amounts of an asset are amassed and injected (or invested) by liquidity providers (LP).

These users inject this liquidity in order to obtain profits from the loans or exchanges that will be made using these assets. Thus, each loan or exchange carried out carries a small fee or interest, which, added together, ends up feeding the profits of the liquidity providers. Well, this is the concept that Curve follows with its pools, only that instead of having highly volatile assets, it prefers stablecoins.

Thus, liquidity providers can inject their DAI or USDT to Curve Pools, which this protocol will then use to offer exchanges with a slight fee that will ultimately feed the liquidity providers' profits. The fact of using stablecoins, makes even each decimal count and, in the end, the profit obtained is important in relation to the time that a certain capital is blocked within the pool.

Of course, the exchange ratio within these pools is managed autonomously by smart contracts. Thus, for example, if a pool offers DAI / USDT exchanges and there is parity between its tokens (there are 1000 DAI and 1000 USDT), the exchange ratio will be 1: 1. However, if that ratio changes, for example 800 DAI and 1200 USDT, the exchange ratio would go up for the DAI and down for the USDC, all in order for the pool to rebalance and always have liquidity for its operations.

The previous case is the same principle that Uniswap follows, and it is what allows this system to be classified as an AMM. Now, as we have mentioned, the profits obtained by LPs come from the fees charged in each operation. In fact, the more use the pools have and the more dynamism there is in the pools and markets, the higher the profits obtained by the LPs.

But, in addition to this, Curve also integrates with other platforms, providing another secondary means of exchange in order to obtain higher profits. This is the reason why we can see liquidity pools in projects such as Yearn Finance, Uniswap or Compound, each one of them thought of taking advantage of the liquidity contained in Curve, using said assets in other protocols.

In short, Curve and its pools are designed not only to act as an exchange, but also to provide liquidity to other protocols.

The CRV token

The CRV token is an ERC-20 governance token designed to incentivize liquidity providers on the platform, as well as get as many users as possible to get involved in the governance of the protocol.

CRV currently has three main uses: voting, staking, and momentum.

Those three things require voting within the Curve DAO, which is why if a user wishes to vote, they must block their CRV tokens and acquire veCRV tokens.

veCRV stands for escrow vote CRV, it is simply CRV tokens locked for a period of time, the longer you lock your CRV tokens, the more veCRV you will receive.

This is a recently created mechanism, in fact, it was presented on August 13, 2020.

Among the details of the token we can mention:

1. 1. It has a total supply of 3,03 billion tokens that will be distributed as follows:
      1. 62% to community liquidity providers
      2. 30% to shareholders (team and investors) with 2-4 years of consolidation
      3. 3% to employees with 2 years of consolidation
      4. 5% to the community reserve
   2. The initial supply of around 1.300 billion (~ 43%) is distributed as such:
      1. 5% to liquidity providers prior to CRV entitled to 1 year
      2. 30% to shareholders (team and investors) with 2-4 years of consolidation
      3. 3% to employees with 2 years of consolidation
      4. 5% to the community reserve
   3. The circulating supply will be 0 at launch and the initial release rate will be around 2 million CRV per day.

Like all ERC-20 tokens, this can be stored in any wallet that is capable of offering support for this standard, so that you can store it safely at all times.

Pros and Cons of Curve

Pros

One of the main benefits of Curve is that its currency exchange mechanism is extremely simple. Its smart contract is far from being very complex and this has as its main advantage that its maintenance and security improvement is very high. In fact, it has a very active security problem investigation team.

Another positive point is that it usually offers trades for much lower commissions than other platforms. For example, during the latest Ethereum gas price hike, a transaction on Curve could average $ 33, while on Uniswap it could be between $ 55 and $ 80.

On the other hand, trading tokens on Curve is quite low risk. The operations consist of a single transaction with a minimal attack surface. Additionally, the risks of impermanent losses are rare to see within Curve, all thanks to the fact that this protocol makes use of stablecoins.

Cons

Despite this, one of the cons of Curve is its integration with other platforms with the intention of maximizing your profits. Integration, for example, with Compound puts the assets that Curve has within that platform at risk. In that way, a fault within Compound it would adversely affect Curve and its liquidity providers. While this integration solution solves the problem of low profits, it generates another that may be worse.

On the other hand, the high dependence on highly dynamic and explosive markets makes the platform have a high fluctuation in its returns. High-yield pools attract liquidity over time and often turn into low- or medium-yield pools over time.

Links of interest