What is Curve DAO (CRV)?
Have you heard of Curve Finance? Even if you haven’t, you may have used the protocol without even noticing!
Curve is the fourth largest DeFi protocol in crypto, and sometimes tops the charts as the largest decentralized exchange by volume, but it receives less publicity than other well-known DeFi projects such as Maker and Uniswap.
The platform’s automated market maker (AMM) allows users to trade stable assets from a liquidity pool, rather than needing to find buyers and sellers. Even if no-one is selling on the day that you use Curve’s DEX, you can still complete your trade!
That’s why the Curve protocol is used in the background of many dApps, including 1inch and Compound.
Curve Finance, the Curve DAO and the CRV token have a lot to offer the cryptocurrency space, and that’s what we’ll explore in this article.
What is Curve Finance?
Curve was launched in January 2020, and benefitted from the DeFi boom that came in the spring of that year.
The project was founded by Michael Egorov, who had previous experience in the world of cryptography with NuCypher, a successful tech company that helped keep medical and financial records safe.
NuCypher began life off-chain, but was brought onto the blockchain in 2017, with a native token called NU.
Egorov then launched Curve in January 2019, with the aim of creating a decentralized exchange that focuses less on price and more on efficiency. This is done by lowering the slippage fee, which is less important on Curve, because most of the assets traded are stable in price.
Uniswap, for example, has an in-built slippage tolerance of 0.80%, which can be manually increased for users who plan to trade volatile crypto coins, thus decreasing the risk that transactions will be unsuccessful.
Because Curve is trading mostly stable assets that should not be volatile, it has a slippage basis of just 0.06%, ensuring that traders get almost exactly the price they want for their assets.
Nobody wants to swap 10,000 USDT for 9,800 USDC!
So Curve’s main utility is as a swapping platform for stable coins (coins that are pegged to a national currency) such as DAI, USDT and USDC. The Curve DEX can also swap Bitcoin-pegged tokens such as WBTC and RenBTC.
How to use the Curve exchange?
Using Curve is simple. All you have to do is log in to your browser wallet (such as Metamask), approve Curve interactions with your address, and then perform your desired swaps on the simple and easy to use home page.
Users who have engaged in yield farming (depositing your coins in different places in order to take advantage of the highest possible yield, or return) will probably have interacted with Curve at some point or another.
Those who wish to profit from stable coin returns on yEarn Finance, for example, will have used Curve through the back end of the yEarn platform.
These users may have been rewarded in yEarn’s own yCRV token, which acts as a stand-in for stable coins such as DAI and TUSD. In typical yield-farmer style, the yCRV token can then be re-staked on yEarn, in order to earn the platform’s YFI token!
If this sounds complicated, it’s because it is, but many crypto farmers have earned large amounts of tokens by chasing the best yields across the DeFi space.
How is Curve Finance secured?
For those who are wondering how the Curve platform is secured, the DAO run regular bug bounties (where ‘good’ hackers are paid to expose flaws in the source code) and it has been externally audited by crypto security companies Trail of Bits and Quantstamp.
This is no guarantee of the safety of your funds however, and you should always treat DeFi as a risky investment.
How does the Curve DAO (CRV) token work?
Seeing as the platform already had a lot of traffic, there was a lot of hype ahead of the release of the CRV token.
The price at the initial launch, which happened during ‘the summer of DeFi’, proved unsustainable however, and decreased by 10x within a week of becoming available.
Some investors were also unhappy about the governance and token economics of CRV, which led to around 71% of the voting power being allocated to its founder, Egorov.
A handful of people from the Curve community were so unsettled that they started their own fork of Curve called Swerve, which aimed to improve on the project’s token distribution, and quickly attracted a decent amount of liquidity.
How do Curve liquidity pools work?
Users who stake their tokens into Curve pools help the platform by providing the liquidity that the market has come to rely on, and they are rewarded for this service with a percentage of the platform’s trading fees.
In some Curve pools users can also earn trading fees from other platforms. An example of this is the sUSD and sBTC pool, where liquidity providers can deposit stable assets that belong to the Synthetix platform.
Users who commit to these pools can earn both CRV and also a designated share of the Synthetix SNX token.
One risk of being a liquidity provider on Curve is that if one stable coin in the pool loses it’s peg, meaning that some failure in the algorithm or supply causes the price of a stable coin to slip below the price it is trying to maintain, then the total value of the assets locked into your pool would also affected by this adverse (but unlikely) scenario.
Where can I buy the CRV token?
There are many exchanges where you can buy the CRV token, or for your convenience, you can exchange into the token seamlessly from within the comfort and safety of the Exodus wallet.
Exodus is also a good wallet for storing CRV tokens, because you have control over your own private keys!
The future of Curve DAO and the CRV token
So long as DeFi on Ethereum continues to grow, Curve’s efficient liquidity solution should continue to grow alongside it. The platform is still offering new pools and trading pairs, and seeing a high volume of user activity.
Question marks remain about the token economics of the project however, with only 10% of the total supply currently in circulation, and 90% of CRV tokens yet to be released. And even though Curve is a Decentralized Autonomous Organization, users are not properly incentivised to take part in governance decisions, leaving a powerful few in control of the platform’s direction and decisions.
Curve also shares the problem of high gas fees with other Ethereum-based platforms, but have sought to address this by partnering up with scalability solution Polygon (Matic). This gives Curve users the opportunity to save on gas fees, and also to earn the MATIC token in Curve liquidity pools.
Solutions like this show that Curve is perhaps one of the best examples in the crypto space of the ‘money legos’ ethos - platforms that can be integrated into other platforms, to take advantage of an ever-more interconnected financial world.
For this reason, the long term prospects of the platform itself look good. While saving 20 dollars on a stablecoin trade isn’t going to change the world, Curve is building for a future where financial institutions will be swapping billions of dollars worth of stable coins on a daily basis, all on-chain, and they are currently the masters of that niche.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.