0x01 Curve
First of all, Curve is the largest decentralized exchange for DeFi that initially provides stablecoins (USDC, DAI, UST, etc.).As a bridge between stablecoins, Curve will become a long-term Defi infrastructure, and the transaction volume of these stablecoins is the value foundation of Curve.fi. Large-scale stable currency AMM exchange market, their unique algorithm makes the pool extremely low slippage most of the time.Curve also has access to iEarn, Compound, Synthetix and other lending protocols and synthetic asset protocols, which improves the utilization of funds while giving liquidity providers additional benefits
Exchange between stablecoins or equivalent coins (such as ETH and sETH, BTC and wBTC, etc.):
Slippage, handling fees, and impermanent losses will become three main issues in the stablecoin exchange scenario. The transaction scale of stablecoins tends to be larger, people are more sensitive to transaction fees, and it is also difficult to accept that 1USDT can only be exchanged for 0.9USDC. (The so-called impermanent loss means that when the currency price fluctuates unilaterally, the loss caused by participating in dual-currency mining is compared to the loss caused by holding the currency. The essence is that the asset price rises and sells while it falls, and it is not a loss in the true sense.)
Curve adopts the AMM model (the combination of x + y = constant and x * y = const), Curve can provide a low transaction fee of 0.04% (Uniswap is 0.3%), and the low slippage of the exchange is reflected at the liquidity provider level, which means a very low risk of impermanent loss.
See below example:
The coordinates represent the ratio of the two assets in the asset pool, and the slope reflects the current asset exchange ratio, that is, the asset price. It can be intuitively seen that xy=const is a hyperbola, and the slope is constantly changing with the change of x. If you want to maintain a relatively stable asset price, you need very deep liquidity, and the actual operation is very difficult. On the x+y=const curve, although the slope of the curve is equal everywhere, it may face the problem of exhaustion of one party’s assets, that is, the exhaustion of liquidity.
Curve’s AMM model, the Stableswapin variant, balances the advantages and disadvantages of the two, and achieves the relative stability of the asset exchange price within a large range while ensuring that the liquidity of the asset pool will not be exhausted. (Curve promotes the composition ratio of assets in the asset pool to the balance point through the incentive of deposit and withdrawal, so as to avoid the asset ratio deviating too much from the balance position. For example, assets with a deposit ratio lower than the balance ratio and assets with a withdrawal ratio higher than the balance ratio are both will get higher returns.)
0x02 Curve’s tokenomic model
CurveDAO was officially launched on August 13, 2020, with the launch of the governance token CRV. The maximum supply of CRV is 3.03 billion, of which 62% will be allocated to community liquidity providers, 30% will be allocated to project teams and early investors (2–4 years vesting), 5% will be used as community reserves, and 3% will be allocated to Employees with 2-year vesting rights.
CRV currently has three main uses: community voting, staking to obtain community governance fee sharing, and increasing liquidity pool revenue (up to 2.5 times). The premise of realizing the above uses is to lock the CRV and obtain veCRV. Compared with the DEX protocol that conventionally adopts DAO governance, the innovation of Curve is that it adds a time function to the CRV lock-up rules: veCRV=CRV*T/4 (T is the lock-up period), that is, the longer the CRV is pledged, the more time it takes to stake CRV. The longer it is, the more veCRV you will receive. If you choose to lock CRV for 4 years, you can get veCRV at a 1:1 ratio. It should be noted that the pledge and lock-up behavior is irreversible and veCRV cannot be circulated.
0x03 Convex
There is a contradiction between income and liquidity, so there is the emergence of Convex, which is to realize the separation of income and liquidity. Users can only obtain higher income and sell their voting rights. This is what Convex does.
Convex’s protocol token is CVX, and its maximum supply is 100 million, 50% of which will be allocated to users who provide liquidity to the Curve platform through the Convex platform (adding a layer of income to the initial liquidity provider), 25% Provide liquidity mining incentives to CVX/ETH and cvxCRV/CRV mining pools (the establishment of the mining pool has greatly improved the liquidity of cvxCRV, which is one of the means for Convex to solve the lack of liquidity of veCRV), 10% belongs to the Convex team, 9.7% vesting contract, 3.3% vesting in early investors, 2% airdrop to veCRV holders.
CRV token holder choice
- Hold CRV and wait for the price to rise
- Curve pledges CRV in exchange for veCRV, which will share the voting rights and management fees of the Curve protocol, but at the expense of liquidity
- Go to Convex to pledge CRV to obtain cvxCRV, which will be able to obtain the highest income and CVX that veCRV holders can enjoy without sacrificing liquidity, but 16% of the accelerated income will be charged as a platform fee. (based on Convex platform)
- Go to SushiSwap to provide liquidity, and you will get SUSHI, transaction fee sharing and CVX incentives. (based on Convex platform)
The good operation of Convex comes from the price support of CVX. If the price of CVX is too low, the third type of income will decrease. The decline of SushiSwap’s liquidity mining yield may lead to insufficient liquidity of cvxCRV. Convex needs to reduce the circulation of CVX and cvxCRV. , the 16% fee charged can incentivize CVX and cvxCRV holders to pledge their tokens.
However, the advantage of the Convex protocol is not only the improvement in the liquidity of cvxCRV compared to veCRV, the Convex protocol can also gather a lot of funds to improve the liquidity income in Curve. It is not difficult to understand that retail investors with a small amount of funds cannot obtain enough The veCRV is used to improve the liquidity pool revenue. Convex once again plays the role of a bank, pooling scattered funds , so that users don’t even need to lock CRV to enjoy the accelerated benefits.
0x04 Stablecoin
The development of encrypted stablecoins has mainly gone through three stages. Each of these stablecoins has its own advantages and problems:
The Stableswap algorithm provided by Curve makes it have lower slippage than Uniswap V1 at the same market depth. This algorithmic advantage allows it to meet: the needs of stablecoins for large-value and low-slippage transactions. Therefore, the ecology of stable currency exchange is gradually established around Curve.
Essentially, Curve is a DeFi basic component anchored by stablecoin value, and Uniswap is a DeFi basic component for new currency value discovery. The two are not in direct competition.
In order to solve problems of DeFi 1.0, the Curve team creatively invented the veToken model ($veCRV): that is, by staking $CRV, you can get more mining revenue, and the increase in revenue is linearly related to the duration of the staking.
The ultimate purpose of the Convex protocol is only one: to lock as much $CRV as possible to increase its control over Curve’s revenue. Convex has further improved Cruve’s existing economic model, splitting governance rights ($CVX) and revenue rights, further releasing the vitality of $veCRV:
0x05 summarize
Curve also has access to iEarn, Compound, Synthetix and other lending protocols and synthetic asset protocols, which improve capital utilization while giving liquidity providers additional benefits. This Lego-style financial combination is also a great charm of DeFi.
Market-making revenue, Convex’s completion of governance dolls, advanced bribery votes, and entry protocols also range from Yearn & Stake DAO, to Olympus DAO & FRAX, to various stablecoin projects Alchemix & Abracadabra, to the new project [Redacted] Cartel.
In the foreseeable future, Curve.fi, like Uniswap, Maker, and AAVE, will become the cornerstone of Defi, and it is a project that every Defi player should deeply understand.
As a DeFi protocol for stable coins, Curve Finance provides basic support for upper-layer applications or derivatives. I believe that there will be more innovative attempts in the future, including the combination with the metaverse.
