The crypto market continues to experience what we may see as the most significant growth ever seen. Additionally, the most trending thing about crypto is that it is more mainstream now than ever. On the other hand, the DeFi train continues to gain traction. We see new players entering the market and the more established platforms continuing to evolve.
That is what we see in Curve Finance. The launching of this platform happened as an Ethereum-based platform in 2020. From then, it expanded to feature support for Ethereum and multiple sidechains.
What is curve finance, and how can you use it?
Curve Finance
Curve Finance is a decentralized exchange (DEX) initially designed to trade stablecoins. The formation of DEXs mainly removes the aspect of central parties that manage user funds and match buyers and sellers. Centralized exchanges primarily use supply and demand of order books, whereas Curve uses liquidity pools to satisfy trades.
Besides, with Curve, users not only retain self-custody but also see their fees and slippage reduce dramatically on stable swaps. This characteristic makes Curve corner a vast market share and brings whales on-chain.
Curve serves as a significant liquidity provider for pools of stable assets.
Michael Egorov is the founder and current CEO of Curve Finance.
Pros and Cons of Curve Finance
Pros
- It is a non-custodial platform.
- It offers multiple liquidity pools one can choose from.
- The platform is fully decentralized.
- Offers low fees.
Cons
- It is heavily dependent on the Ethereum blockchain.
- The interface is difficult for new users
Curve Finance Key Features
- Fast wallet connection
- Multiple liquidity pools
- Plenty of statistics where one can see daily stats, coin volumes, and even cross-pairs with just a few clicks.
The exchange supports liquidity pools for major stablecoins like DAI, USDC, USDT, FRAX, and TUSD. It also offers swaps between wrapped tokens like wBTC, wETH, and stETH (a derivative of staked Ether native to Lido).
What Networks is Curve Available on?
Curve Finance is available on different EVM (Ethereum Virtual Machine) compatible chains. They include:
Curve Tokenomics
The CRV token (the native token of the exchange) serves to incentivize LPs on Curve and incentivize users to participate in the protocol’s governance. The three main uses are voting, staking, and boosting. These actions require one to vote-lock their CRV in return for veCRV.
A total of 3.03b tokens were initially minted and were reserved at the following allocations:
- 62% to community liquidity providers
- 30% to shareholders
- 3% to employees
- 5% for the community reserve.
How does Curve Finance Work?
As a way of facilitating trades, Curve uses the automated market makers (AMMs) protocol. They mainly use algorithms to price tradable assets in a liquidity pool efficiently. Liquidity pools use algorithms that determine the price of an asset. Such liquidity pools have the AMM protocol as a smart contract, allowing traders to occur without an order book. As such, AMM trades do not require a counterparty.
Curve works by allowing people to provide liquidity to their pool. These are the liquidity providers.
What are Curve Pools?
To offer the lowest amount of slippage when exchanging cryptocurrencies, Curve Finance heavily relies on liquidity pools.
Liquidity pools constitute crypto locked into smart contracts lent out by users. As an incentive, the users earn interest on what they lend.
However, the liquidity pools on Curve Finance differ from the other exchanges. This is because Curve Finance mainly focuses on cryptocurrencies with a similar volatility profile. Focusing on stablecoins gives the platform a direct way to offer a lending protocol that is less volatile than other platforms while still providing high interest on the liquidity provided.
How Can One Provide on Curve?
To add liquidity to Curve:
- Open Curve.fi, where you will be prompted to connect a web3 wallet. Connect your choice of wallet.
- Select a pool. Click the menu icon at the top left of the website. Choose a pool that you want to provide liquidity.
- Enter the amount of each cryptocurrency you wish to deposit in the boxes provided.
- Click deposit when ready. This will prompt you to connect to a web3 wallet, allowing the transaction.
- You will then receive the associated liquidity provider tokens.
Is Curve Safe?
Curve’s core smart contracts and DAO contracts have been audited by Trail of Bits and Quantstamp, and mixBytes, respectively. It is, however, essential to note that audits do not eliminate risks.
Risks are inherent within the crypto sphere, requiring one to evaluate them before entering a protocol or purchasing a crypto.
One risk that is inevitable while using an AMM is impermanent loss. Impermanent loss occurs if the price of the asset provided for liquidity changes in price compared to the time you deposited.
Despite the risks, the platform has been around for over two years, with several billion held in pools, and is one of the most trusted and security-conscious protocols in all of DeFi.
Final Thoughts
Curve is an excellent fit for this purpose if you are a crypto trader looking to get deep into working with liquidity pools. It has a higher learning curve, but working through the documentation leads to unlocking an ecosystem genuinely about balancing different cryptocurrencies.
Curve Finance holds a vital spot in the more significant DeFi space, though the platform has a learning curve. While alternatives exist, Curve’s commitment to providing multiple liquidity pools is interesting enough to merit further exploration.
FAQS
Will my crypto be safe when using Curve Finance?
Yes, your crypto will be safe. The platform also stipulates the risks involved while using the exchange.
Does Curve Finance report to the IRS?
No, Curve doesn’t report transaction data to the IRS, but you must self-report any profit you make trading on the platform to the IRS or risk significant penalties.