What is Curve Finance?

What is Curve?

Curve Finance is a decentralized exchange (DEX) specializing in stablecoin trading within the DeFi ecosystem. Utilizing liquidity pools instead of traditional order books, Curve minimizes fees and slippage while allowing users to retain full control over their assets. Its sophisticated algorithm manages both stable and non-stable assets with high efficiency, establishing Curve as a trusted protocol in DeFi with over $2.2 billion in total value locked.

Beyond trading, Curve offers substantial yield opportunities for liquidity providers (LPs) through trading fees and interest from lending protocols. The platform's security is bolstered by thorough audits from reputable firms like MixBytes and TailOfBits, making it a trusted and reliable option for those focused on stablecoin trading and liquidity provision.

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How Does Curve Finance Work?

Curve Finance uses the StableSwap exchange mechanism, optimized for stablecoin trading. At its core is the StableSwap invariant, a formula that reduces slippage, especially for trades involving stable tokens like USD-pegged stablecoins or wrapped BTC. This efficiency makes Curve ideal for trading stable-priced tokens.

The platform's core functionality is delivered through Curve pools, which are smart contracts utilizing the StableSwap invariant. These pools range from basic pools containing two or more tokens to complex lending pools with integrated lending features, and metapools that enable exchanges with tokens from other base pools.

This adaptability allows Curve to meet diverse trading requirements in the decentralized finance space, establishing it as a preferred platform for stablecoin exchange and liquidity provision.

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What is Curve V2?

Curve Finance V2 enhances liquidity provision with advanced features for assets with varying volatility. Unlike Curve V1, which focused on stablecoins, Curve V2 accommodates a broader asset range through innovative adjustable parameters.

Here are the key parameters of Curve V2:

1. Bonding Curve Parameters: The 'A' parameter controls liquidity concentration at the curve's center, optimizing near the expected exchange rate. The 'Gamma' parameter adjusts the curve’s breadth, particularly in imbalanced pools.
2. Price Scaling Parameters: The 'MA half time' sets the duration for the pool's Exponential Moving Average (EMA) price oracle. 'Allowed extra profit' and 'Adjustment step' govern conditions for re-pegging the bonding curve to the EMA, focusing liquidity effectively according to current market prices.
3. Fee Parameters: Fee mid' is the minimum fee in a balanced pool. 'Fee out' is the maximum fee in an imbalanced pool. 'Fee Gamma' regulates fee escalation as the pool shifts from balanced to imbalanced.

These parameters allow Curve V2 pools to manage liquidity dynamically, adapting to various market conditions and asset volatilities. This versatility makes Curve V2 a powerful tool for liquidity providers, optimizing profit potential while managing associated risks.

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Curve Finance Tokenomics

Curve Finance's CRV token, introduced on August 13, 2020, is essential for incentivizing liquidity providers and enabling protocol governance. The total CRV token supply is 3.03 billion, allocated as follows:

• 62% to community liquidity providers
• 30% to shareholders (team and investors) with a 2-4 year vesting period
• 5% reserved for community development
• 3% allocated to employees with a 2-year vesting period

Initially, around 1.3 billion CRV tokens (about 43% of the total supply) were allocated among shareholders, employees, and the community reserve. Pre-CRV liquidity providers received a 5% share with a 1-year vesting period.

CRV token distribution to liquidity providers began at approximately 2 million CRV per day, gradually increasing the circulating supply. This method highlights Curve's dedication to sustainable growth and active community involvement in governance.

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What is veCRV?

veCRV, or vote-escrowed CRV, represents CRV tokens locked in a voting escrow contract for a specified period. These non-transferable tokens are acquired by locking CRV tokens, providing users with several benefits. Holders of veCRV possess voting power in Curve's governance, allowing them to influence on-chain proposals and determine CRV token emission allocations to liquidity pools.

Since September 19, 2020, veCRV holders receive 50% of all trading fees generated on the platform, with the remaining 50% allocated to liquidity providers. These fees are paid out in 3CRV tokens. Additionally, veCRV boosts liquidity providers' CRV rewards through a reward enhancement mechanism.

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Providing Liquidity on Curve

Liquidity providers (LPs) on Curve earn yield from trading fees paid by users. LPs receive 50% of all trading fees, increasing base vAPY with pool volume. Swap fees in V2 pools range from 0.04% to 0.4% when prices deviate from the internal oracle (EMA) price. LPs are exposed to all assets in their pool.

Some pools also earn interest from lending protocols, offering higher yields but adding risk. Incentives like native tokens may enhance liquidity. CRV tokens are emitted to pools based on gauge weights set by the Curve DAO (veCRV holders). veCRV holders can boost LP rewards up to 2.5x, offering additional incentives.

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Is Curve Safe?

Curve Finance's core smart contracts have been audited by Trail of Bits, and the Curve DAO contracts have been reviewed by Trail of Bits, Quantstamp, and mixBytes. While audits enhance security, they cannot eliminate all risks. Participating as a liquidity provider (LP) exposes users to the inherent risks of all tokens in the pool. Additionally, using lending protocols for higher yields introduces further risks.

Despite these risks, Curve has maintained secure operations for over two years, managing billions in assets and establishing itself as a reliable and security-focused DeFi protocol.

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Curve Finance Supported Chains

Curve operates on multiple EVM (Ethereum Virtual Machine)-compatible blockchain networks. These include Ethereum, Arbitrum, Avalanche, Celo, Fantom, Polygon, Optimism, Kava, Gnosis, Moonbeam, Base, Frax, and X Layer.

Each network supports all of Curve's functionalities, enhancing its accessibility and usability across the multi-chain ecosystem.

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Final Thoughts

Curve Finance stands out as a pivotal platform in the DeFi ecosystem, specializing in stablecoin trading and offering robust liquidity provision features. Its innovative StableSwap mechanism and versatile V2 parameters enable efficient trading and yield optimization. Supported by thorough audits and operating on multiple blockchain networks, Curve provides a secure and reliable environment for users.