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 commissions.
Curve is controlled by the decentralized, autonomous Curve DAO, which consists of CRV control token holders.
Curve is one of the leading DeFi-protocols in terms of the volume of locked-in smart contracts (TVL) and the number of active users.
As of July 2022, the Curve protocol allows the exchange of more than 40 assets and is deployed across 10 networks: Ethereum, Arbitrum, Aurora, Avalanche, Fantom, Harmony, Optimism, Polygon, xDai and Moonbeam.
Who created Curve?
The decentralized crypto exchange Curve Finance was created by Mikhail Egorov. He previously graduated from the Moscow Institute of Physics and Technology, received a PhD in physics from Swinburne University of Technology, worked on research related to quantum computing and cryptography, and co-founded the fintech company NuCypher and the LoanCoin project.
In November 2019, Egorov published a white paper describing an effective mechanism for creating StableSwap liquidity for trading StableCoin.
Curve Finance, an exchange that implements the above approach, launched in January 2020. The project team is based in Switzerland. According to the founder, as of mid-2020, it had only five members in addition to him, including two developers.
How does Curve work?
Like other AMM-DEXs, asset trading in Curve Finance is based on liquidity pools. These are smart contracts that equally contain two or more assets that users can automatically trade through a simple interface by connecting with any Web3 wallet.
The relative prices of the assets are calculated using a mathematical formula, and the amount of slippage (price change) in the exchange has an inverse relationship to the size of the pool.
One of the first pools launched was 3Pool, containing equal shares of DAI/USDC/USDT. Later there were pools for exchanging other stackable tokens (BUSD, TUSD, HUSD, USDN) and correlated wrapped tokens like wBTC/renBTC.
The platform charges a fee (0.04% of the transaction volume) for each exchange, part of which is distributed between liquidity providers. Any user can add their assets to the pool and receive a share of the fees. As of August 13, 2020, liquidity providers also receive additional remuneration 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 unreported assets. In particular, they 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 does Curve tokenomics work?
Curve Finance has an ERC-20 standard CRV control token issued on the Ethereum network. The primary purpose of CRV is to incentivize liquidity providers through revenue farming, as well as to involve users in protocol-related decision making.
CRV launched on August 13, 2020, but not as the Curve team had planned. The software code was posted on GitHub in advance, which an anonymous developer took advantage of to deploy the smart token contract himself.
Since the launch went without any errors, the project team was forced to recognize it as official.
CRV’s maximum offering 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 the Curve DAO reserve.
The token issuance rate decreases by about 30% each year. After the first reduction in August 2021, it is about 633,126 CRV per day.
Token holders can use them in three ways:
To vote for proposals in the 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 blockchain CRVs for periods ranging from 1 week to 4 years. In return, veCRV escrow tokens are issued. And when blocked for 1 year, the owner receives only 0.25 veCRV for 1 CRV. Only by locking CRVs for a maximum period of 4 years can one receive veCRVs at a ratio of 1:1.
As of mid-2022, about 47.6% of the CRV tokens in circulation have been blocked. The token is in the top 100 by market capitalization and is traded on most major cryptocurrency exchanges.
How is Curve managed?
All issues of Curve Finance protocol development are managed through an autonomous Curve DAO, which was launched immediately after the start of CRV token issuance in August 2020.
To participate in the Curve DAO, users need to lock in their CRVs for 1 week to 4 years and obtain a veCRV.
With 1 veCRV or more, you can vote on existing proposals or create “signal votes” to determine community interest in an issue.
Having at least 2,500 veCRVs makes it possible to make new proposals, such as opening new pools and closing irrelevant ones, or redistributing awards between them.
Each vote lasts for one week. For a proposal to be accepted, at least 30% of existing veCRVs must vote, of which at least 51% must support it. In accordance with Curve DAO decisions, the Curve Finance team makes changes to the DEX performance parameters.
The three DeFi-protocols (Convex, StakeDAO, and yEarn), which have built their strategies on income farming by providing liquidity and earning trading commissions, and CRVs, have the majority of votes in the Curve DAO.
How is Curve evolving?
Since the launch of revenue farming, Curve Finance has become one of the most successful DeFi-protocols in terms of both locked-in liquidity and trading turnover.
At the peak of its popularity in January 2022, its TVL exceeded $24 billion and its monthly trading volume was over $6 billion. But even after the collapse of the cryptocurrency market by mid-2022, Curve continues to be in the top five DeFi services with over $5.7 billion in blocked funds.
The sheer volume of liquidity provided by Curve allows a host of other DeFi services to use its pools in their ecosystems. In particular, Curve Finance is integrated with liquidity aggregator 1inch, as well as the largest lending protocols Aave and Compound.
Over 2021-22, the Curve protocol has been deployed in 9 EVM-compatible networks in addition to Ethereum blockchain: Arbitrum, Aurora, Avalanche, Fantom, Harmony, Optimism, Polygon, xDai and Moonbeam.
The popularity of Curve and the open source nature of the protocol has given rise to several forks (copied protocols). The largest of them are Ellipsis Finance based on BNB Chain and Kokonut Swap in the Klaytn network.
With a strong focus on smart contract security and user friendliness, Curve remains one of the most useful tools for decentralized, low-slippage, low-commission steblecoin trading.