The Curve.Finance Protocol
Since the advent of decentralized finance, several DeFi protocols have surfaced offering a myriad of services that crypto enthusiasts reap the benefits of. Some popular platforms and decentralized exchanges worth mentioning include Compound, Uniswap, Yearn. Finance, etc. But ever so often, the DeFi space updates and evolves in places that need improvements and offer solutions that might have been deemed impossible. One such protocol that broke all odds is the Curve. Finance platform.
What exactly is the Curve Finance protocol?
Running on the Ethereum blockchain, Curve is a decentralized exchange employing the Automated Market Maker model. It can also be addressed as a yield aggregator but the most crucial reason for its acclaim is that it allows for swapping of different Stablecoins, something the Uniswap DEX failed to do. In other words, Curve is a ‘Uniswap for Stablecoins’. Since the protocol’s focus is simply on Stablecoins, traders and liquidity providers can enjoy low slippage and reduced risk of impermanent loss.
Introduced by Russian physicist Michael Egorov in early 2020, the Curve Finance protocol can swap between DAI, USDC, USDT, TUSD, BUSD, and sUSD, as well as BTC pairs. The protocol offers the best price in the market since only Stablecoins, Stable Assets, and Ethereum based assets were exchanged on the platform. The Curve platform is also recognized as the best way to swap between tokenized versions of Bitcoin, such as WBTC, renBTC, and sBTC.
How does the Curve protocol work?
Simply put, users just need to select the coins they want to swap from and to. The protocol uses multiple pools in the backend of the program, choosing the best rates for the users. These behind-the-scenes liquidity pools are also utilized by other DeFi protocols like Compound and iEarn.Finance to generate income for liquidity pools. As of now, there are 7 Curve pools functioning – PAX, Y, BUSD, sUSD, Ren, and sBTC.
To understand how the Curve protocol fully works, consider a trader, swapping 1 USDT to 1 USDC, which would be equivalent to 1 BUSD. If she wants to, she can swap 1 million dollars of USDT to USDC, without incurring slippage, a great advantage in this protocol. The Curve Finance platform uses a formula to calculate and facilitate swaps instead of relying on order books.
How is Curve. Finance better than Uniswap?
Primarily both Uniswap and Curve carry out the same basic functions, raising the question of whether a program like Curve is necessary. The distinction between the two is small but impactful. For instance, token-to-tokens trade carried on Uniswap is sort of expensive. Since the protocol only allows for trade directly against ETH, double the amount of trading fees is incurred. Moreover, the algorithm employed in the Uniswap protocol is designed to maximize liquidity. This algorithm slips for trades for various sizes. On the Curve protocol, the platform aims to reduce slippage, and since trades happen directly between Stablecoins, only one trading fee is collected. So comparatively, Curve Finance wins this round.
Liquidity provision on Curve – is it an easy feat?
One of the ways crypto-asset holders can make a profit from the Curve protocol is by supplying liquidity to the several pools available. They can earn a yield by shifting their liquidity to the pool that offers the highest interest and enjoy trading fees as well. As easy as it may sound, there are a few risks or rather liabilities when it comes to liquidity provision which is not seen in swapping tokens-a risk-free affair.
One of the complications faced by Liquidity providers or LP’s in the Uniswap protocol is that they have to worry about impermanent loss, which is not an issue on Curve. On the Uniswap protocol, LP’s will have to supply liquidity only in ETH which is known to be a very volatile asset. If the value of ETH were to fluctuate or drop while in the pool, the provider will lose money compared to simply holding the ETH. This impermanent loss is avoided in the Curve protocol since only Stablecoins are traded and they incur a minimal impermanent loss.
Another advantage of LP’s on Curve is that since the protocol is integrated with Compound and iEarn, they can have the benefit of an increased yield. However, the LP’s will need to oversee and monitor their assets in these other pools to safeguard against security threats as such. For these reasons and more like yield fluctuations and reduced profit after gas fees, supplying liquidity might not be the ideal choice for those beginning to dabble their feet in trading and swapping in the Crypto space.
Curve’s native token – CRV
CRV is the governance token of Curve. Finance or CurveDAO which is running the program. The token holders are usually the liquidity providers of the protocol and hold governance rights over the workings and policies of the protocol. The market rate of CRV is on a rise perennially, currently holding a market cap of $111,010,764 USD. The CRV token currently stands at the #110 mark on CoinMarketCap, with over $1 million locked in assets. It is one of the largest tokens in the DeFi space and is breaking a lot of records.
Benefits and Advantages of the Curve.Finance Protocol
As discussed already, the Curve protocol holds a lot of advantages over its equally competent counterparts like Uniswap and Compound. Its slew of benefits is discussed here.
- Provides users higher market depth profiting both traders and LP’s
- The protocol provides liquidity with assets backed by its own markets
- Curve is very upfront and sincere about potential risks involved within and takes measures such as auditing smart contracts to ensure safe transactions
- Allows direct trade of tokens
- Low trading fees are incurred
- Maximum liquidity is available
- The protocol’s algorithm makes way for minimal slippage
Invest and launch your own protocol like Curve. Finance in the DeFi space!
Curve. Finance is a lucrative and favorable automated DEX designed exclusively for Stablecoins. Compared to Uniswap, it is far superior in terms of interface, user benefits, and platform holders. If you’re a business looking for your big break in the DeFi space, launching a DeFi protocol like Curve Finance is the way to go, and Blockchain App Factory has the perfect solutions. Our seasoned team of Blockchain engineers and DeFi enthusiasts have explicit knowledge of the DeFi crypto space, so your project will be inexperienced hands.