Users are familiar with Curve Finance as a decentralized exchange based on stablecoins. It can give users a low slippage, cheap cost, and minimal impermanent loss cryptocurrency trading experience by enhancing the constant product market maker model and the constant sum market maker model.
By creating the VeToken model, Curve Finance attracted significant project parties to gather veCRV and compete for the governance rights of Curve, striving to have power and influence over Curve DAO, and ultimately providing greater benefits for its users, becoming the protocol representative A model of monetary economics.
Additionally, it promotes the expansion of other linked ecological agreements, such as Convex, at the same time, creating a positive value loop for the project ecology. In order to promote the long-term growth of the ecosystem, Curve Finance also intends to create stable currencies and continually enlarge the ecological domain. This initiative still has limitless potential.
Overview of Curve Finance
Curve Finance is a decentralized exchange (DEX) designed with an automated market maker (AMM) architecture that was founded by Michael Egorov and launched in January 2020. It focuses on stablecoins (USDT, USDC, DAI), synthetic assets/derivatives/anchor assets (wBTC, renBTC, stETH), etc. It is now developing multi-chains such Fantom, Polygon, Avalanche, Arbitrum, and Optimism in addition to using Ethereum as its primary business platform.
In August 2020, Curve Finance launched Curve DAO and the native token CRV. Following that, the protocol Total Value Locked (TVL) started to rapidly increase until it eventually surpassed other TVL decentralized exchanges in size. At one point, it was over $24 billion. The TVL now locked in the protocol is still in the lead among all significant DeFi protocols, with a market cap of roughly $4.1 billion, and the recent daily trading volume is 200 million US dollars. This is despite a year of instability in the whole encryption sector.
Curve was first created for transactions involving secure assets. Curve's AMM technique, which enables traders to easily trade between stablecoin pairs with reduced cost and slippage, was first revealed in its original white paper StableSwap efficient mechanism for Stablecoin liquidity.
Ecosystem of Curve Finance
Many still view Curve Finance as merely a reliable foreign exchange market. In actuality, Curve has evolved into a DAO-governed simple and massive asset liquidity-as-a-service protocol. Many initiatives will actively adopt the Curve ecosystem, which is based on the textbook-like token economics of Curve, in order to lower liquidity costs.
By introducing the DAO in August 2020, Curve Finance began the journey toward decentralized governance. Like previous DAOs, Curve commenced the first pre-mining reward distribution action on August 13, 2020, when it created the native token CRV as the governance token of Curve DAO with an initial issuance of 1.3 billion. Over a 12-month period, tokens will be linearly unlocked.
With the CRV token, token owners have the ability to vote for government officials. Liquidity providers can also gain CRV tokens based on the value of their shares and how long they have been in the pool. Since then, in September 2020, the governance token dividend mechanism has been introduced, giving users that deposit CRV into the governance contract lock-up 50% of the transaction cost.
The entire quantity of CRV is 3.03 billion, and the total number of CRVs that have been issued to date surpasses 1.5 billion. The average daily release of CRV is roughly 1.08 million. The distribution looks like this:
- Within a year, a linear unlock of 62% went to liquidity providers and 5% went to early LP suppliers.
- Within 2-4 years, a linear unlocking of 30% will go to shareholders.
- As a community reserve, 5% of the reserves are flammable
- 3% is given to team members and is unlocked over a two-year period.
Within the Curve ecosystem, the $CRV coin can take on the following roles:
- Voting for protocol governance: Using a time-weighted voting system, lock CRV to gain veCRV and take part in voting for the protocol's governance.
- Value capture mechanism: By using the veCRV governance voting mechanism, facilitate different liquidity pools.
- Using lock-in incentives, liquidity providers can accumulate wealth over time.
- Burning transaction fees is a method of lowering inflation.
The well-known VeToken (Vote-Escrowed Tokens) model was created by Curve Finance. Voting tokens with veCRV according to time weighting can be obtained by locking CRV. The more veCRV you may get, the longer the locking time must be. In contrast to locking for one year, which only yields 0.25 veCRV, 1 CRV can be locked for 4 years to yield 1 veCRV. Since veCRV cannot be transmitted, locking CRV is the only way to obtain veCRV. Currently, 48.94% of CRV is locked, with a 3.6-year average lock-up time.
The following three uses for the veCRV produced via locking CRV are the primary ones:
Fee for transactions
Holders of veCRV receive the remaining 50% of the 0.03% Curve Finance transaction fees. Repurchase the LP Token 3Crv of the Curve 3Pool stable pool (i.e., the DAI+USDC+USDT fund pool) to return to veCRV holders.
Holders of veCRV will earn a liquidity reward of up to 2.5 times the pledge duration if they simultaneously supply liquidity for the protocol, increasing their overall income from doing so. If veCRV is locked, the reward can be increased up to a maximum of 2.5 times, or 0.55%, for LPs who contribute liquidity to 3pool.
Vote on governance
The "Gauge Weights" can be changed by veCRV, and veCRV enables holders to take part in community voting to distribute CRV award emissions. A predetermined number of $CRV tokens are made available to compensate the operators of the liquidity pools that the Curve Finance project hosts. Depending on the votes cast by veCRV holders in the DAO, one pool may receive more CRV payouts than another. Through your unique voting power, veCRV gives you the ability to affect CRV income.
Additionally, if you hold veCRV, you can be eligible for possible airdrop chances for additional collaborative projects. The primary tokens of the Curve ecosystem are shown in the following image in relation to one another.
The most significant of these is the voting rights for government. The foundation of the project will be questioned for stablecoin initiatives if the stablecoin assets move wildly or the transaction depth is insufficient, and the business will suffer as a result. In order to meet the transaction needs of keeping low slippage even under large transactions, the project party must devise a means to create the market in the location with the best transaction depth and the best stability effect.
Curve Finance is currently the top DEX for market making. A proposal must be initiated with at least 2,500 veCRV (equal to locking 10,000 CRV for a year), have more than 30% of veCRV participating, and receive more than 51% of the community's vote to be accepted into Curve's core liquidity pool. Additionally, the veCRV voting rights of each mining pool will be used to determine its liquidity incentives on the Curve Finance platform. Each protocol needs to build up veCRV and compete for Curve Finance liquidity incentives in order to raise their annualized income.
Despite the present market turbulence, Curve Finance is the leading decentralized exchange in TVL and is continually expanding its ecological domain. In the future, it is anticipated to keep up with the larger DeFi industry.