SEPTEMBER 30, 2021
What is Curve (CRV)?
Curve Finance is a decentralised exchange that uses automated market-making (AMM) protocols. The project focuses on stable assets or assets that exchange hands for similar value. This design allows users to trade with less price slippage than users could experience on other decentralised exchanges like Uniswap or Sushiswap.
- Curve Finance is a decentralised Exchange
- CRV is the native token and is used for governance, fees and payments
- The protocol is comparable to Uniswap, but has some key differences
- CRV has the highest amount of locked liquidity
Who created Curve Finance?
Michael Egorov is the founder and CEO of Curve. He is a Russian scientist who has been in the cryptocurrency industry for some time. In 2015, he co-founded NuCypher, a crypto business building privacy-oriented infrastructure and protocols.
In August 2020, Egorov locked up a substantial amount of CRV tokens in response to yearn.finance’s increasing voting power in the network. He awarded himself 71% of the governance tokens in the process.
How does the protocol work?
Curve Finance is a decentralised exchange (DEX) that operates in a similar way to Uniswap or Sushiswap. It was launched before Uniswap V2 came out and has some differences in its inner workings.
One key variation is that on Uniswap, liquidity pools always comprise a token pairing, whereas on the Curve DEX there can be multiple assets in a pool, or a liquidity pool can be used as an asset inside another pool.
In practice, this means that when someone adds liquidity (stablecoins and assets) to a pool, that person will receive a token from a specific pool, like 3pool – the most popular LP on the protocol.
Alongside stablecoins, users can trade mirrored assets as well. For instance, wBTC and renBTC are both assets built on Ethereum that track the price of Bitcoin. These two assets are known as derivatives, because their value is derived from an underlying asset (in this case, BTC). Since prices are comparable, they can be pooled together and traded using the Curve DEX.
By doing so, Curve is essentially performing the function of traditional finance without the exclusionary barriers to entry.
What is the CRV token?
CRV is the token of Curve Finance and was launched with Curve DAO in August 2020. The purpose of the token is as a governance token, and to provide an incentive structure for fees while being a long-term earnings method for liquidity providers, also known as LPs.
The total supply of CRV tokens is 3.03 billion, with the majority (62%) being distributed to liquidity providers (LPs). The rest of the supply is split between shareholders and employees, with a small amount being kept for community reserves. Shareholder and employee allocations were distributed with a two-year vesting schedule in mind.
The token had no pre-mine, and tokens are incrementally unlocked for holders. Currently, the circulating supply is around 427 million tokens.
What are the main features of CRV?
Curve has garnered considerable attention following its launch of Automated Market Making for stablecoins.
The launch of the DAO and CRV allowed the protocol to become profitable while also maintaining its governance model, which is based on liquidity commitments and the duration of ownership. As such, the protocol has an incentive structure that rewards long term vested investors.
The explosion of DeFi trading, especially with the most recent Chinese ban on cryptocurrencies, means that decentralised applications have a growing use-case as capital seeks to find a new home. In this regard, DEXs like Curve Finance are fairly useful.
Additionally, DeFi activities such as yield farming and liquidity mining are tailwinds for the protocol, since yield-bearing assets are highly valuable in an environment where global economies are struggling for passive returns.
Coupled with the platform’s incentive structure, diverse liquidity pools and options for users and liquidity providers, there are a fair amount of features that Curve Finance has captured, which partly explains why it is so popular.
Putting it all together
All in all, Curve Finance stands out as one of the popular, liquid and reliable decentralised financial (DeFi) protocols. In fact, the protocol holds the top DEX spot on defipulse, with over $11.3 billion in locked liquidity at the time of publishing. No doubt, the spate of collaborations, liquidity pools and general usability is a tailwind for the project as decentralised finance continues to proliferate.
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