A popular DeFi decentralized funding protocol, Curve Finance (CRV) tops the list along with other projects like Aave, Uniswap, Synthetix, Yearn Finance, or Compound Finance. It is a project that is becoming increasingly popular among crypto enthusiasts.
Curve Finance offers stablecoin holders the opportunity to provide liquidity and earn income, as well as allowing traders to exchange tokens in a safe and secure environment. In this article we tell you more about it. We explain to you what Curve Finance is and where to buy the token!
What is Curve Finance (CRV)?
Curve Finance is a relatively new project in the DeFi world, in fact its white paper was presented on November 10, 2019, by Michael Egorov. Originally called StableSwap, the platform was designed to provide deFi services for stablecoins within an Autonomous Money Market (AMM) whose main feature would be minimal price slippage, as well as an efficient “Fiduciary Savings Account” for liquidity providers, all managed. by smart contracts within Ethereum .
What prompted 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 ones (such as DAI), ensuring that the exchange between them maintains a momentum that market will help grow.
This included situations like the one that occurred when MakerDAO lowered its stability fee to 5.5%, which resulted in many Compound users (which then had an interest rate of 11%) staying there because they borrowed on DAI, converting between DAI and DAI. USDC is an expensive business, leading to market stagnation.
Launched in January 2020, Curve Finance is a blockchain -based DeFi platform for securely trading Ethereum-based stablecoins. By targeting stable tokens, it can offer traders extremely low slippage and liquidity providers benefit from minimal to no temporary losses.
Curve Finance supports DAI, USDC, USDT, TUSD, BUSD and sUSD pairs, as well as BTC pairs. This makes trading between these pairs extremely fast and efficient. When it comes to stablecoins or stable assets, Curve’s prices are typically the best in the industry.
As with other DeFi protocols, you need to connect to an Ethereum crypto wallet such as MetaMask or Ledger. That’s pretty normal for Ethereum-based projects.
The difference between Uniswap and Curve
You’ll probably think that Curve is a lot like Uniswap , although there are a few differences that set them apart.
Curve uses a market making algorithm known as an Automated Market Maker (AMM). A market maker is software that buys and sells securities on behalf of a particular market, thereby providing liquidity. At the same time, a market maker usually profits from the difference between bid and ask prices.
By relying on a market maker, Curve facilitates a faster order matching process on its platform. This allows all types of traders (including high volume traders) to easily trade their cryptos at a very low cost and with minimal slippage.
The use of AMM protocols poses a number of challenges. One of these is what is called transient loss (IL). IL is the loss you can incur when you hold a cryptocurrency in an AMM instead of a wallet.
However, the Curve platform effectively reduces the chance of temporary or permanent losses. Curve specializes in trading stablecoins, so stablecoins are less sensitive to the fluctuation that would cause such losses.
The growth and increasing popularity of stablecoins is the reason for the rapid growth of Curve.fi. Users are flocking to stablecoins for their stability compared to regular cryptocurrencies. Stablecoins provide the security and anonymity of cryptocurrency while at the same time providing the stability of a fiat currency such as the euro or the dollar.
In addition, centralized exchanges such as Binance or Bitvavo are characterized by high fees and a high probability of slippage. Curve.fi solves these problems by providing a decentralized, peer-to-peer and secure exchange platform with minimal costs.
How does Curve work?
The way Curve works is easy to understand when you think of it as a normal crypto exchange . But behind this exchange are certain concepts, such as liquidity pools, that make it possible to have the liquidity needed for your stablecoin exchanges.
At the moment, Curve’s liquidity pools are very similar to Uniswap. Curve is therefore also called the “Uniswap of the stablecoins”.
A liquidity pool is simply a smart contract controlled space where large amounts of assets are accumulated and invested by liquidity providers (LPs).
These users invest this liquidity to make a profit on the loans that will be made with these assets. Each loan is therefore associated with a small commission or interest, which, when added together, ultimately fuels the profits of the liquidity providers. Well, this is the concept that Curve follows with its pools, only that it prefers stable coins instead of highly volatile assets.
For example, liquidity providers can invest their DAI or USDT in special Curve Pools, which will then use this protocol to offer trades with a small commission that will ultimately feed the liquidity providers’ profits. In fact, by using stablecoins every decimal counts and in the end the gains made are significant compared to when a certain amount of capital is locked up within the pool.
Of course, the exchange ratio within these pools is independently managed by smart contracts. So, for example, if a pool offers DAI/USDT exchanges and there is a pair between its tokens (there are 1000 DAI and 1000 USDT), the exchange ratio will be 1:1. However, if this ratio changes, say 800 DAI and 1200 USDT, the exchange ratio would increase for DAI and decrease for USDC, all to allow the pool to rebalance itself and still have liquidity for its operations.
The previous case is the same principle that Uniswap follows, which is why this system can be classified as an MA. However, as mentioned, the profit of the LPs comes from the fees charged for each transaction. After all, the more use is made of the pools and the more dynamic the pools and the markets are, the higher the profit the LPs make.
But besides that, Curve also integrates with other platforms, creating another way of secondary exchange to get higher profits. This is why we can see liquidity pools in projects like Yearn Finance , Uniswap or Compound, each of them thought to take advantage of the liquidity 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.
Advantages of Curve
One of the main advantages of Curve is that the exchange mechanism is extremely simple. Its smart contract is far from complex and this has the great advantage that its maintenance and security are very high. In fact, it has a very active investigation team for security issues.
Another positive is that it generally offers trades at much lower commissions than other platforms. For example, during the last Ethereum gas price surge, a trade on Curve could cost an average of $33 while on Uniswap it could range from $55 to $80. So that is a significant difference that certainly matters among crypto traders.
On the other hand, trading tokens on Curve is quite low risk. In addition, the risk of non-permanent losses is rare in Curve, all thanks to the fact that this protocol uses stablecoins.
Disadvantages of Curve
Despite its many advantages, one of the drawbacks of Curve is its integration with other platforms to maximize your profits. Integration with Compound, for example, jeopardizes Curve’s assets within that platform. In this way, a bankruptcy of Compound would have negative consequences for Curve and its liquidity providers. While this integration solution solves the problem of low profits, it generates another problem that could be even worse.
On the other hand, due to its strong dependence on highly dynamic and explosive markets, the platform has to deal with a large fluctuation in returns. High-yield pools attract liquidity over time and often turn into low- or medium-return pools over time.
The CRV token is an ERC-20 governance token designed to incentivize liquidity providers on the platform, as well as to involve as many users as possible in the governance of the protocol. CRV currently has three main applications:
- The users can participate in the management of the protocol through a voting procedure.
- Promoting various liquidity pools.
- As a lock-in mechanism for liquidity providers to gain value over time.
- They are used to pay transaction fees to reduce inflation.
All of these three things require votes in the DAO Curve. So if a user wants to vote, they have to lock their CRV tokens and get veCRV tokens. veCRV stands for CRV escrow vote, and they are simply CRV tokens that are blocked for a certain amount of time. The longer you lock your CRV tokens, the more veCRV you will receive.
Curve has a total supply of 3.03 billion tokens distributed as follows:
- 62% to the liquidity providers
- 30% for shareholders (team and investors)
- 3% for employees
- 5% to the reserve
How can I buy CRV tokens?
It is possible to buy CRV tokens from the major and traditional crypto exchanges. However, we advise you not to do this at any exchange. We recommend that you choose Bitvavo or Binance, because these exchanges are much safer than other crypto exchanges. In addition, they always offer high liquidity, allowing you to buy and sell CRV tokens at the best price.
Of course it is also possible to opt for a decentralized crypto exchange, such as Uniswap, Sushiswap or of course Curve. However, there is always a big disadvantage to a DEX. And that is that you have to go through many steps before you actually own your tokens. As a result, the chance that things will go wrong is much greater than with a central crypto exchange.
How can I store my CRV tokens?
Curve runs on the Ethereum blockchain, which means that the CRV tokens are therefore ERC-20 tokens. You can store these tokens in almost any wallet, because most tokens use the ERC-20 protocol. You can easily and quickly store your tokens in the hot wallet of your crypto exchange. However, this is not always the best and safest choice. It is much more sensible to store your CRV tokens in a cold wallet, also called a hardware wallet .
A hardware wallet is a USB stick where you can store crypto coins. Because you can disconnect a hardware wallet from the internet, it is much more secure than a hot wallet . When the wallet is not connected to a device, no internet connection is possible with the wallet. This makes it impossible for hackers to gain access to the hardware wallet. Of course you should then keep the hardware wallet at home. When you lose this, you also lose all tokens and coins that you have stored on it.
Curve Finance (CRV) Chart
Curve Finance is compared to Uniswap by many people. That’s because of the way it provides liquidity. And there is actually nothing wrong with that, because this method has already proven itself several times. As a result, Curve ensures that they can serve their users in the best way. However, there is still a lot of difference between Uniswap and Curve. And the difference is mainly in the details.
You now know what Curve Finance is and where you could buy the tokens of the same name. To find out whether CRV is a wise investment, it is smart to do good research into this project. You can do that with a fundamental or technical analysis .
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com