Curve Finance is a decentralised exchange (DEX) protocol created on the Ethereum blockchain, focusing on stablecoins and other low-volatility tokens. Since its launch in 2020, it has rapidly gained popularity and is now among the top DEXes in the DeFi ecosystem. As with any financial platform, Curve Finance has pros and cons that investors should consider. Thus, read this detailed Curve Finance review to make an informed decision.
What is Curve Finance?
Curve Finance is a protocol for automated market-making that enables low-cost and low-slippage swapping between stablecoins. It operates as a decentralised liquidity aggregator, where anyone can contribute their assets to various liquidity pools and earn rewards from fees generated by trades.
Presently, there are 17 Curve pools for you to exchange stablecoins and assets, which are continuously adjusted based on market demand and the changing landscape of DeFi. The most popular stablecoins available are USDT, USDC, DAI, BUSD, TUSD, USD, and more.
While there’s no official information about the Curve team, most GitHub contributions have been made by Michael Egorov, the CTO of a computer and network security company called NuCypher.
Curve Pros & Cons
Curve Finance offers some advantages and disadvantages that investors should consider before using it:
Pros
Low transactional fees: The liquidity pools and automated market maker of Curve Finance result in some of the lowest transaction fees in DeFi, despite potentially high Ethereum gas fees.
Simple smart contracts: The smart contracts of Curve Finance are among the simplest in DeFi, which improves security and efficiency.
Reduced risk of impermanent loss: Curve Finance focuses on stablecoins, which can reduce the risk of impermanent loss.
Cons
The risk from separate DeFi protocols: Curve Finance integrates with multiple DeFi protocols to improve returns, which can increase the system’s vulnerability to issues from those protocols.
High fluctuation in liquidity returns: Liquidity pools with high annual percentage yield can be subject to significant volatility in returns over time.
Ethereum fees: Curve Finance currently only operates on Ethereum, which is subject to high gas fees.
Curve Key Features
Without a doubt, stablecoins and their utilisation within the protocol represent a crucial aspect of Curve. The platform boasts features such as the Factory, the Curve DAO, and 10 different networks.
3pool (“3CRV”)
The 3pool, comprising DAI, USDC, and USDT, is popular among all the active pools on the Curve protocol. It is widely used with other stablecoins to form a trading pair. With a liquidity volume of nearly $1 billion, it is one of the larger pools, as most other pools have liquidity in the mid-millions. Only the ETH/stETH pool surpasses its size, valued at $1.4 billion.
Factory & Gauges
The Factory is where you can create a liquidity pool using CRV. Although the interface is user-friendly, it’s essential to understand the process before filling out the form. DeFi protocol founders need to carefully consider the type of pool they want to set up, how to achieve their yield-earning goals, and the gauge setup, which is crucial to the pool’s success.
To attract more liquidity to their pools, pool operators have to offer incentives for users to participate. Curve has a gauge weight mechanism that helps pool operators attract customers. The gauge allows CRV token holders to vote on how many extra rewards in CRV each pool deserves. The vote is held every two weeks and is open to all token holders who have locked CRV.
Supported Assets
Curve Finance is a decentralised exchange primarily focused on trading stablecoins and other low-volatility tokens. The platform supports many stablecoins, including USDT, USDC, DAI, TUSD, USD, and more. In addition to stablecoins, Curve supports liquidity provider (LP) tokens, representing a user’s share in a pool of assets on the platform.
LP tokens representing pools of stablecoins, such as the USDC/USDT pool or the DAI/USDC pool, can be traded by users. Curve’s emphasis on stablecoins and low-volatility tokens makes it stand out from other decentralised exchanges and a preferred choice for investors seeking low-risk trading opportunities.
Compatible Networks
You can access Curve Finance through compatible wallets like MetaMask, MyEtherWallet, and Trust Wallet on Ethereum and Polygon networks. While Ethereum is still the dominant network for trading on Curve, its expansion to Polygon has made it a more popular option for users seeking faster and cheaper transactions.
In addition to Ethereum and Polygon, Curve Finance is available on several other EVM-compatible chains, including Arbitrum, Avalanche, Celo, Fantom, Optimism, Kava, Gnosis, and Moonbeam.
The team behind Curve Finance plans to expand to even more blockchain networks, such as the Binance Smart Chain and Fantom network.
Curve Token (veCRV)
CRV is the governance token of CurveDAO, a decentralised autonomous organisation (DAO) responsible for governing the Curve protocol. Liquidity providers of the protocol are continually rewarded with CRV tokens, with the reward rate decreasing annually. As of November 2020, liquidity providers receive a 0.04% trading fee for each trade on the platform.
Users can deposit CRV into a voting escrow contract to receive veCRV tokens representing their voting power in the Curve DAO. The DAO makes decisions about the platform’s development, fees, and other essential matters.
Holding veCRV allows users to vote for platform changes and earn additional CRV rewards. The longer a user has veCRV, the more voting power they accumulate, translating into a higher share of the platform’s rewards.
veCRV incentivises users to participate in Curve’s governance process, ensuring that decisions are made in the best interests of the platform and its community.
Curve Exchange Fees
Unlike traditional exchanges, Curve Finance Exchange does not accept fiat currency deposits, meaning users without prior cryptocurrency holdings cannot trade on the platform. Users must use an “entry-level” exchange that accepts fiat deposits to purchase their first cryptocurrencies.
Curve Finance charges two types of fees: swap fees and withdrawal fees. The swap fee, a small fee charged for every trade on the platform, is currently set at 0.04% for most Ethereum network pools and 0.10% for most Polygon network pools. This fee is automatically deducted from the traded tokens and distributed to liquidity providers as a reward for their contributions.
When a user withdraws funds from a Curve pool, they may be subject to a withdrawal fee, depending on the pool. These fees encourage users to keep their funds in the pool for more extended periods, thus reducing the risk of sudden liquidity withdrawals that could disrupt the pool’s balance. Withdrawal fees can range from 0.01% to 0.5% of the total amount being withdrawn, depending on the pool and the amount being withdrawn.
Users may have to pay gas fees for Ethereum transactions or network fees for Polygon transactions, determined by the respective network and not controlled by Curve Finance.
Curve’s fees are relatively low compared to other decentralised exchanges, making it an attractive option for traders seeking to minimise trading costs.
Curve DeFi Security
The security of the Curve Finance platform primarily depends on the smart contracts governing the pools. These contracts are audited by Trail of Bits, a trusted security research company that has also conducted audits for well-known organisations such as Gemini Exchange, Github, Meta, and Airbnb.
An Emergency DAO with a multi-sig setup of 9 members has been established to mitigate governance risks. Although the DAO has limited governance functions, it can pause a pool during the first two months of its existence or halt emissions to a pool. This was observed during the $MOCHI fiasco.
Another risk is the pools themselves. The protocol acknowledges this in its documentation section: “When you provide liquidity to a pool, regardless of the coin you deposit, you essentially gain exposure to all the coins in the pool, which means you should find a pool with coins that you are comfortable holding.” Therefore, do your research before depositing anything into a pool.
Curve Finance FAQs
Is Curve Finance safe?
Curve Finance is a legitimate decentralised exchange created to simplify the trading of stablecoins. You can enjoy potentially high returns by selecting the appropriate liquidity pool and investing the correct amount. However, risk is always a factor to consider.
How to provide liquidity to Curve Finance?
Individuals can deposit stablecoins and Bitcoin ERC20s into liquidity pools on the exchange and then convert them into cTokens or yTokens. These tokens can be used for lending and borrowing on the platform and deposited directly if the user already possesses them.
Is Curve the best DeFi platform?
Curve Finance is a leading protocol for earning yield and CRV tokens by providing liquidity. However, you should explore other options if you’re looking for the highest profits or the best lending/borrowing rates.
Should I invest in Curve DAO token?
Curve has recently been subjected to a coordinated short attack. Deciding whether or not to invest in CRV is a personal decision that requires conducting thorough research. Only invest the funds you can afford to lose, as market prices fluctuate in either direction.
How to get support from Curve Finance?
You can contact the support team via their official social media channels or join their community-driven Telegram group and GitHub to find answers and solutions.
Final Thoughts
While there are inherent risks in any DeFi protocol, Curve has had a stable track record since its launch in 2019, establishing it as one of the most secure and reliable DeFi platforms. It presents a valuable opportunity for investors interested in DeFi yield farming with reasonable fees, large liquidity pools, and enticing incentives in 2023 and beyond.
