Curve Finance: Staking

Michael Egorov founded Curve Finance, which went live in January 2020, intending to offer a decentralized exchange with a market maker that is an automated (AMM) architecture that would optimize the trading of digital assets with comparable pegs. The formal launch of the curve DAO in August 2020 came after that. The CRV coin is the DAOs governance token and a protocol-specific utility token. A few months after its launch, TVL beat off Aave (AAVE-USD) and compound to become the largest decentralized exchange. The Curve coin, often called CRV, is part of the Curve Finance Protocol. It is primarily employed to encourage liquidity providers on their platforms and to as many users as possible in the protocol’s administration. 

Other DeFi applications can leverage Curve pools as a component of their ecosystem due to the quantity of liquidity that curve offers. The curve is a farming solution used by applications like Yearn Finance and Compound in their ecosystem. 

By the end of this article, we’ll demonstrate Curve Finance’s use. But first, let's examine the group that created this new DeFi Solution.

Curve Finance’s founder and CEO is Michael Egorov. Before the Curve, he founded LoanCoin and NuCypher. He formerly worked for LinkedIn and the Swinburne University of Technology awarded him a Ph.D. in physics. He conducted research on quantum computing and cryptography as a scientist and physicist.

There are few details on the other members of the team, although interviews showed that at least 5 more joined Egorov at the Curve. Ben Hauser and Angel Angelov are developers, along with three community managers.

Algorithms are used by liquidity pools to calculate assets price. The AMM protocol is a smart contract these liquidity pools use to enable trading without an order book. To put it another way, AMM traders do not need a counterparty. You can buy and sell your assets whenever you want with the help of a liquidity pool, even if there isn't a buyer or seller on the opposite side of the deal. Similar to this Curve function by enabling users to add liquidity to their pool. These individuals are called to as liquidity providers. On the Curve platform https://curve.fi/ those that offer liquidity are compensated with CRV. 

You must lock your CRV for a pre-determined amount of time to use it. You will then receive vote-escrowed CRV, also known as veCRV. You will effectively have voting rights for various DAO proposals and changes to pool parameters thanks to your veCRV tokens. CRV can be staked using the platform. Users that stake their CRV will receive a share of the trading commissions that the protocol collects. Users can also choose to vote to lock their CRV to increase their liquidity rewards. 

Using Curves or liquidity tools in general has the drawback of increasing the chance of temporary loss. An impermanent loss in the liquidity pool occurs when a token's price changes after you deposit it there.  When a dollar's worth of your token at the time of withdrawal is less than its sum at the time of deposit, a loss is recorded on paper.  

Similarly, when you run a risk of slippage as a decentralized exchange. Slippage describes a variation in an asset’s price between the time you submit a transaction and the moment it is verified on the blockchain.

You’ll need to use one of the following wallets to utilize Curve Exchange. You must connect your wallet to the platform to utilize the platform. The list is mentioned below:

• Fortmatic

• WalletConnect

• Ledger

• MetaMask

• Torus

• Portis

• Trezor

• Opera

• Authereum

• WalletLink 

• Lattice

The good news for Curve Finance is that volume will keep increasing at the rate it has been, which will result in a level of trading costs that can be sustained while still maintaining liquidity and keeping CRV stakeholders happy with their yield. Our examination of the volume shows that volume has increased yearly, but maintaining that level over the long term will be difficult because emissions will be mostly depleted in five years.

Will cryptocurrency investors continue to seek return wherever it may be found, or will the market mature and investors start to value reputable platforms like Curve? The positive argument is that liquidity providers will stay put even if CRV emissions decline since they can rely on trading commissions from a bigger, more established protocol years from now. In addition, the protocol comes with a brand name and trust that may keep some LPs even if yields elsewhere are higher.

In addition, Curve can introduce new features like the recently announced Curve Stablecoin, which might open up new revenue streams for the network.

Volume growth is not a guarantee, though. A significant hack might happen at any time, Curve could lose market share to more creative rivals, or it could just stop maintaining volume and lose liquidity. Major de-pegs can knock the platform down and cause the book to plummet as users move to safer pools, as will happen with Tether's de-peg in mid-2022.

Volume on all main cryptocurrency platforms is highly correlated with market sentiment; as the market expands, so does volume on those platforms. The volume of the curve closely mirrors the market patterns. According to current projections, Curve will handle a total amount of about $100 billion in 2022, an increase of about 5 times from 2021. With this volume, the curve has an average DEX Volume market share of about 10%, which is controlled by Uniswap. But its TVLs are among the highest in the overall area.

Bottom Line

Blockchain technology is a disruptive industry, and things are constantly moving quickly and failing. Every time a new protocol is developed, the previous successful version is built upon. Even though Curve has proven to be resilient and creative, there is always a chance that superior AMMs and DeFi solutions will emerge and steal market share from Curve. If so, Curve Finance would receive a lower total volume and consequently less money from trading commissions.