How Curve Finance Became The Game-Changing Stablecoin DEX!

Curve Finance is a decentralized exchange, or DEX, on the Ethereum blockchain designed for trading stablecoins that uses an automated market maker, or AMM, to buy and sell its orders.

That means there is no need for human oversight, and the exchange runs autonomously thanks to smart contracts.

Running this application is the Curve DAO token, also known by the market ticker CRV, which is an ERC-20 governance token for the Curve network.

But DAO, AMM, stablecoins, smart contracts?! What exactly does all that mean, and what makes Curve different? Today we find out!

So, let’s begin with the basics.
The Curve Finance whitepaper was published in November 2019 by Michael Egorov, the co-founder of a company called NuCypher, a cryptocurrency business that specializes in privacy-preserving infrastructure and protocols.
The CRV token would go live in August 2020

But to really understand what Curve Finance is, we’re going to need to go over some definitions.

Let’s start with DAO, or Decentralized Autonomous Organizations.
A DAO is an organizational structure that operates through smart contracts, allowing for decentralized decision making and governance. DAOs aim to eliminate the need for traditional centralized authorities when running the network.

Next, just so we’re all on the same page, we have smart contracts.
Smart contracts are a type of self-executing agreement that execute when the pre-agreed criteria have been met, removing the need for human oversight and trust in a transaction.

Then we have AMM, or Automated Market Maker.
An AMM is a type of decentralized exchange mechanism that facilitates the exchange of cryptocurrencies without the need for traditional order books or intermediaries.
AMMs also use smart contracts and algorithms to determine their asset prices.

Lastly, we need to explain stablecoins.
Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging it to an underlying asset or group of assets.
Unlike regular cryptocurrencies, like Bitcoin or Ethereum, which can be subject to significant price volatility, stablecoins aim to provide stability and serve as a reliable medium of exchange and store of value within the cryptocurrency ecosystem.
Meaning, stablecoins like USDT or USDC, which are pegged to the US dollar, should always be worth $1 in value.

Cutting a complex topic short, Curve Finance is a trading platform. Its purpose is to allow users to trade stablecoins for the best possible prices.

To achieve this, it uses various mathematical algorithms to ensure the best possible price between its assets is achieved, this is known as its bonding curve.

CRV is an ERC-20 token, with ERC-20 being a token standard blueprint that allows compatibility with the Ethereum network. This means the Curve platform is built on top of the Ethereum blockchain and uses its consensus mechanism and validators.

Though I’ve also been over Ethereum and Proof-of-Stake many times before, so make sure to check my other articles where I discuss it more in depth.

But to generalize real quick, Proof-of-Stake is a consensus mechanism which uses selected validators to verify its transactions rather than making the entire network compete to solve a puzzle.

Technically speaking, this makes it less energy intensive, quicker, and more scalable than Proof-of-Work cryptocurrencies like Bitcoin.

Curve Finance has niched out and targeted stablecoins to be their sector.
Meaning, Stablecoins and wrapped assets are what make Curve Finance unique. Other DEXs exist for those wanting to trade a wider range of crypto assets, but for those looking to get the best price between stablecoins, Curve wants to make itself the ideal platform for you.

While you may initially think this niche is too small, let’s pretend you have a large amount of, let’s say, DAI, but the next crypto purchase you want to buy only accepts USDT.

Suddenly you become thankful for a network that can support large transaction trading between its pairs without drastically increasing one asset’s price in the process.

On a more generalized DEX, where they don’t focus on stablecoins, they might have smaller trading pools, meaning an asset’s price can be increased more easily.

To explain quickly, when one asset is purchased from the trading pool, also known as a liquidity pool, there is less remaining in the pool which makes it more expensive for others to purchase the remaining amount because the pool must maintain a balance of assets to continue trading 24/7.

This can be a downside of trading pools with low liquidity, as when one asset gets low in availability the price has to increase, or the trading pool would collapse.

Therefore by niching into such a specific group of assets, they can ensure their available liquidity isn’t stretched as far, and their prices never deviate too far from their actual value.

There will only ever be 3.03 billion CRV tokens, of which around 900 million in current circulation.

Of the 3.03 billion tokens, 62% went to the Community liquidity providers.

Liquidity providers are those who give their stablecoins to the liquidity pools to be traded. Those who provide liquidity are rewarded for doing so based on how much they gave the pool to trade.

Additionally, 30% was allocated to shareholders, which included the team and early investors. A further 3% went to employees, and the final 5% was given to the Community reserve.
Shareholders and employees tokens are vested over a 2-to-4 year period.

If you’re looking to trade large amounts of stablecoins without slowly increasing the price on yourself, then Curve Finance may be for you, as it has certainly niched down on the stablecoin asset class.

If stablecoins as a class of assets pick up interest, which they could as they are an effective on-off ramp for fiat currencies that is easy to understand for the average person, then it makes sense that any platforms offering services specifically for stablecoins could benefit from that too.

Though, nothing is guaranteed in crypto, of course.