Curve Finance

Kai Space
3 min readMay 9, 2022

Dive into the history, products and governance mechanisms behind the leading decentralized exchange with highest value locked.

Overview

Curve is a decentralized exchange (like Uniswap) that has pioneered the swapping of crypto assets with very low price slippage.

Hundreds of liquidity pools have been launched through Curve’s factory and incentivized by Curve’s DAO.

Curve has created an amazing algorithm which balances the price in a liquidity pool such that traders can swap their tokens with very low fee and liquidity providers earn lucrative yields.

It has established itself as one the leading Automated Market Makers with highest value locked with $18 billion.

Curve is composable and many other decentralized exchanges like 1 inch and Paraswap derive their liquidity from Curve Finance.

History

Curve was founded by Michael Egorov in January 2020 as “StableSwap” to essentially aggregate stable coin liquidity. It is based in Switzerland and has a very retro-looking website.

The Curve protocol was built around stable coin liquidity to provide steadier interest returns without having to hold a very volatile asset. Curve got a very warm welcome from investors and had $500,000 in total value locked within ten days of launch.

It established itself as one of the significant pillars of DeFi infrastructure by providing very lucrative yields for its liquidity providers and deep liquidity for traders.

Similar to SushiSwap and Uniswap, Curve Finance also has a high-profile hard fork — Swerve Finance.

Products

Curve StableSwap — Curve v1

The Curve StableSwap was launched in January 2020 as a decentralized exchange. Its main goal was to let users and other decentralized protocols exchange ERC-20 tokens (DAI to USDC, for example) through it with low fees and low slippage.

Curve used liquidity pools instead of the P2P model, which was being used by various exchanges at the time. LPs deposited their funds into the Curve pools and were rewarded with decent trading fees.

More broadly, Curve pools can be split into three categories:

  • Plain collections: a pool where two or more stable coins are paired against one another.
  • Lending pools: a pool where two or more wrapped tokens (e.g., cDAI) are paired against one another, while the underlying is lent out on some other protocol.
  • Metapools: a pool where a stablecoin is paired against the LP token from another pool.

One of first pools is “3pool” which consists of DAI, USDC and USDT which was launched in Curve V1.

Curve V2

While Curve V1 was designed explicitly for swapping pegged assets like stablecoins, Curve V2 introduced a new type of AMM that allowed for highly efficient trading and low risks of non-pegged investments.

The first pool to launch under V2 is wETH/wBTC/USDT. The project has also integrated an automated version of Uniswap V3’s concentrated liquidity feature. This creates 5 − 10 times higher liquidity than the Uniswap invariant, as well as higher profits for liquidity providers.

With its V2 update, Curve Finance will challenge other AMMs in the race for optimal capital efficiency.

Governance

Curve Finance has its native token called CRV that was launched in Aug 2020. CRV incentivizes liquidity providers to use the protocol and onboard as many people into the Curve ecosystem.

The three prominent use cases for CRV are

  • Governance
  • Staking
  • Boosting

CRV is valuable because it allows holders to claim 50% of Curve’s trading fees and influence the allocation of further issued CRV. The more CRV you have now, the more CRV you get in the future.

You can also stake your CRV into the protocol to receive veCRV.

veCRV stands for vote-escrowed CRV; it is simply CRV locked for a specific period. The longer you lock CRV for, the more veCRV you receive. The more veCRV you have, the higher the chance that your choice of the pool will get the highest emissions of CRV. The voting happens every week for veCRV holders.

Networks

  • Ethereum
  • Avalanche
  • Fantom
  • Polygon
  • Optimism
  • Harmony
  • Moonbeam
  • Gnosis
  • Arbitrum

Governance Token

  • CRV
  • veCRV

Audits

  • Quantstamp, Trail of Bits

Tags — Decentralized Exchange

Official Links

Website

Twitter

--

--