Have you ever been cooking and you taste what you are making only to find it’s missing something? You can’t quite tell what it is, but your gut can.
This is how the CEO of Curve, Michael Egorov, first felt when he started using decentralized finance (DeFi) applications like MakerDao. He loved how DeFi was revolutionizing the way digital assets could be exchanged; however, he saw areas in the DeFi industry that needed tweaking. This is what led to the creation of his own DeFi protocol, called Curve Finance (CRV).
Since its launch, Curve Finance has been revered by many DeFi users and enthusiasts as a breakthrough application for reducing price slippage for commonly traded assets.
We’ll explain how this works and why it matters in this article. However, first, we’re going to cover the basics — what is Curve Finance all about?
How did Curve get started?
Though Michael Egorov didn’t launch Curve until 2020, his exploration and pioneering of the crypto industry began in 2013 when he purchased his first Bitcoin. After receiving a PhD in physics, Egorov moved to the United States to work in the tech industry at LinkedIn.
In 2018, Egorov (@OskolOG) became invested in the decentralized financial market by using MakerDAO, a decentralized lending and borrowing protocol. As a crypto investor, he found that swapping between stablecoins on many decentralized exchanges was inefficient.
At the same time, he was experimenting with how to use trading bots, and this sparked an idea in his mind of how to swap stablecoins with minimal slippage. Shortly after, Michael got to work on a paper titled StableSwap: efficient mechanism for stablecoin liquidity. And that’s how the idea for Curve came about.
What is Curve?
Curve is a decentralized exchange (DEX) for various digital assets with similar prices. Examples of this might be stablecoins, or tokens pegged to the price of Bitcoin like wBTC (wrapped Bitcoin) and HBTC (Huobi BTC). By only including liquidity pools that consist of assets that share similar traits, it is able to sustain low trading fees.
Liquidity pools are a collection of cryptocurrency tokens that are pooled together and locked in a smart contract that helps to facilitate trading of those tokens. Because different tokens in a pool may offer different annual percentage rates or yields, the curve protocol code is specifically designed to allow one to swap between assets that are close in value, like stablecoins, with minimal slippage, or price variation.
What is slippage?
It’s called slippage because often when buying volatile assets, one has to allow potentially for the price to ‘slip’ higher than what they were aiming for in order for the transaction to be completed. Slippage on Curve is only a small concern because the assets featured on the platform are generally stable. The more volatile the asset, the higher the amount a person risks losing in slippage.
How does Curve work?
Liquidity is brought to the Curve platform by investors who stake tokens in liquidity pools on the Curve protocol. In his own words, Egorov says in his paper, StableSwap:
“In this work, I introduce an automated liquidity provider for stablecoins. On the demand side, it offers a Uniswap-like automated exchange with very low price slippage. This happens with no middleman being responsible for the trading, e.g. no exchange owners, no order books, no human market makers.”
However, liquidity pools work differently on Curve than they do on Uniswap and therefore have different levels of slippage. For example, let’s say you want to trade 10,000 DAI stablecoin for a near equal value; on Curve you would receive approximately 9,997 USDC which is only 3 less USDC less than the 10,000 DAI you exchanged. However, on Uniswap this could be as much as taking a price slippage of up to 60 tokens which would yield only 9940 USDC for 10000 DAI.
This minimization of price slippage is possible through the use of what are called bonding curves — hence the name, Curve Finance.
Where is Curve now and where is it headed?
Curve has recently launched on a new blockchain named Avalanche. This blockchain has been called an Ethereum-killer due to their Avalanche-Ethereum bridge that allows Ethereum-based tokens to be transferred between the blockchains. At the time of writing, Curve has already established 3 liquidity pools on Avalanche. This development was important for the longevity of the DeFi protocol, as Ethereum alone will struggle to process all the transactions the network hopes to attract.
With their update of services and expansion to other blockchains, Curve Finance is definitely positioning itself to be a force in the future of decentralized finance.
Curve (CRV) Resources
Curve (CRV) References
Curve Finance – The Stablecoin Exchange Protocol: https://podcasts.apple.com/us/podcast/michael-egorov-curve-finance-stablecoin-exchange-protocol/id792338939?i=1000521526478&l=es
Curve: How it Works: https://www.gemini.com/cryptopedia/curve-finance-liquidity-provider-dao