*obligatory not financial advice*
What is Curve Finance?
Decentralized exchanges make it possible to efficiently trade cryptocurrencies without depending on a centralized entity. They work by creating liquidity pools for trading pairs where traders can exchange the tokens at a price that is set automatically based on how much of each token is supplied. Because somebody needs to provide funds for this to be possible, the people that do that are being rewarded with trading fees. The process is very simple but was revolutionary for DeFi.
However, this is not perfect especially for trading pairs of tokens that are supposed to have the same value, like 2 stablecoins for example. That is because unless there is a very large and equal supply for both tokens, there will be a large slippage because prices depend on the ratio of the tokens in the pool. For example, if you want to swap 10 USDC for 10 DAI, which are both supposed to have a value of $10, and there is not an equal and large enough amount of both tokens, then you could end up with only 5 DAI. This can make trading between stablecoins quite unbearable, and this in turn can make it worthless to supply liquidity because without trades there are no trading fees. That’s why Curve Finance was built.
Curve is a DEX that has its focus on swapping assets with the same value. This means that you can conveniently trade between stablecoins like USDC, USDT or DAI. The DEX also works with liquidity pools and an AMM, but it’s designed to keep the slippage much lower. That is because the formula that sets the prices considers that 1 BUSD and 1 USDC are supposed to have an equal value to a degree. Should one of the tokens drastically fail at keeping its peg, then Curves AMM likely couldn't properly handle it anymore without slippage, but if all provided tokens keep their peg, there will be a relatively low slippage on trades. This is not limited to stablecoins but works for any trading pair of tokens with the same peg, like Wrapped BTC and renBTC.
Since the tokens in the liquidity pools have the same value, there is practically no risk of impermanent loss because it shouldn't matter to liquidity providers if they receive more DAI or USDC back when they withdraw their funds. This low risk allows the DEX to have much lower trading fees, each trade has a fee of only 0.04%, half of that is being added to the pool directly and the other half goes to the stakers of CRV.
The Curve Finance website has a very interesting design. It has a certain retro flair and reminds me of a very early version of Windows. Personally, I kind of like it.
Curve Finance is well established in the DeFi space, and many other great projects are utilizing it to. For example, Yearn.Finance, Compound and True Finance are all using Curve to maximize their yield. Thanks to that it is one of the top DeFi applications on Ethereum and it has also launched on other blockchains like Polygon, Avalanche, Moonbeam and Fantom.
The CRV Token
Curve is a DAO and CRV is its governance token. The token can be locked to receive veCRV, which gives you the right to vote on proposals. How much veCRV you get depends on how many tokens you lock and for long you lock them. You can freeze your CRV for up to 4 years, which gives you the maximum voting rights you can get. This is done to ensure that long term investors have more influence in the DAO. You need 2,500 veCRV (which are 10,000 CRV locked for 1 year) to create a new proposal. 50% of the trading fees are also distributed to people that lock their CRV, which encourages them to improve the protocol further.
There is a max supply of 3.03 billion. 62% are going to the liquidity providers, people that provided liquidity before the CRV token was a thing also got some tokens retroactively as a reward, 30% of the supply is going to the Curve team and its investors, another 3% goes to their employees and 5% went to the community reserve. The tokens for the Curve team and the employees are being vested. Most of the supply is going to the liquidity providers, which also includes users of other DeFi applications that use Curve to get a yield, like TrueFi.
The value of the token depends on how much liquidity is in the Curve liquidity pools, because the voting rights would affect more money with more funds in the pools. Since the DAO rewards you with more influence for locking your tokens, the participants of the governance have a strong incentive to make wise decisions and serious long-term investors can't dump their tokens that easily. The platform is a sort of blue chip within the DeFi sector, runs on many different blockchains and many other DeFi applications use it too.
The CRV token is supported by pretty much every exchange. You can buy it on Binance, Coinbase and KuCoin. Decentralized exchanges like Uniswap, Sushiswap and SpookySwap also offer the token. You can use a normal MetaMask Wallet to connect to the dapp and store the token.
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