Best DeFi app? Read the stable currency exchange protocol Curve in one article
Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
Curve vs. Uniswap
, Author: Ivan on Tech, translation: Liam, reprinted by Odaily with authorization.
Curve is a decentralized exchange (DEX) designed to enable efficient stablecoin trading. It uses the same liquidity pool as Uniswap, which is non-custodial and rewards liquidity providers. However, since Curve only focuses on stablecoins, it is less expensive to use.
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Stablecoins can be traded directly on Curve. This is also one of the most notable differences between it and Uniswap. If you want to trade between a pair of stablecoins on Uniswap, two transactions must occur."1. The No. 1 stablecoin is traded as Ethereum (ETH)."2. ETH is traded as the #2 stablecoin.
So for traders, this will incur double transaction fees. For liquidity providers, Curve has similar advantages to Uniswap, but will not be affected by"temporary loss"degree of influence. This is because Curve only trades between stablecoins, while Uniswap trades directly to ETH. The volatility of ETH will cause temporary losses to Uniswap's liquidity providers.
In other words, if the price of ETH deviates from the price at which liquidity was provided, you may lose money. In this case, directly holding ETH is the best. However, if the price of ETH returns to the original entry point, this loss will disappear. That's why it's called a temporary loss instead of"Liquidity providers don't have this problem on Curve because stablecoins don't fluctuate like ETH. That's why some people call Curve the"。
stable currency
A better Uniswap for stablecoins
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stable currency
Especially with the introduction of liquidity mining, stablecoins play an important role in decentralized finance (DeFi) now. There is now a greater demand for transactions between stablecoins, and this happens to be where Curve comes into play.
Of course, you can still trade stablecoins on popular centralized exchanges (CEXs) or DEXs, but you will pay higher fees and slippage. Curve has an advantage over these methods, you can trade between stablecoin pairs quickly and with lower fees.
How Liquidity Providers Make Money
Liquidity pools are pools of tokens held in smart contracts. They are created by liquidity providers offering tokens. Curve rewards these providers in different ways.
Transaction Fees: Liquidity providers earn fees every time users exchange stablecoins on their platform. All of Curve's pools earn interest on transaction fees.
Interest: Some fund pools provide lending interest.
Incentives: Some pools also offer incentives.
Here's a simple example to illustrate how a liquidity pool works:
For example, there are two stablecoins in the pool at the beginning, 1,000 USD coins (USDC) and 1,000 Tethers (USDT).
So when a trader comes in and exchanges 100 USDT for 100 USDC. Now there are 1100 USDT and 900 USDC in the pool. Then, another trader comes in and exchanges 300 USDT for 300 USDC. Now the proportion of funds in the pool will start to tilt, there are 1,400 USDT, but only 600 USDC. If the goal of the liquidity pool is to maintain balance, then an incentive mechanism will be adopted in the smart contract to allow traders to provide more USDC and buy more USDT to restore balance.
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Currently, Curve has seven liquidity pools. The first four (Compound, PAX, Y, BUSD) are lending protocols. That is, if you participate, you can make money not only from transaction fees, but also from lending. These four pools perform better when lending rates are high, but they have more risk layers.
Compound(cDAI, cUSDC)
Two of these pools (sUSD and sBTC) provide incentives (Synthetix and Ren). They are not lending pools. There are also two tokenized bitcoin pools (ren and sBTC)."c "No matter which pool you choose, you will earn interest on transaction fees. Next let’s take a closer look at each pool and the stablecoins they offer.
1. PAX (ycDAI, ycUSDC, ycUSDT, PAX)
2. Y (yDAI, yUSDC, yUSDT, yTUSD)
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4. BUSD (yDAI, yUSDC, yUSDT, yBUSD)
5. sUSD (DAI, USDC, USDT, sUSD)
This is the longest running pool on Curve, prefixed by Compound's native token
7. ren (renBTC, wBTC)
indicate. The stablecoins in this pool will only be lent on the Compound protocol.
9. sBTC (renBTC, wBTC, sBTC)
6. sUSD is a newer pool and one of the best performing pools. Because it gets incentives from Synthetix and REN. This is a non-lending pool where you earn rewards in sUSD with SNX.
8. The ren pool provides two versions of Bitcoin based on Ethereum - renBTC and wBTC. renBTC is decentralized and relatively new. The annualized income in this pool is often relatively low, because Bitcoin based on Ethereum has appeared for a short time and the transaction volume is not so high.
10. This is also a non-lending pool. Note that sBTC is a synthetic version of Bitcoin. This pool offers the best returns in Bitcoin, but comes with more risk.
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200 USDT, 200 USDC, 500 DAI,Choose the right liquidity pool
For example, if you choose a pool, the ratio of stable coins is as follows: USDT 20%, USDC 20%, DAI 50%, TUSD 10%. Then if you are going to deposit 1000 stable coins, it will be processed as follows Proportional distribution:
and 10 TUSD.
Again, it is important to choose a pool with a coin type that you feel comfortable with. This is because no matter which stablecoin you deposit, you will be exposed to (and automatically assigned to) every token in the pool.
sUSD
reward pool
All in all, for a stablecoin, it is not a good thing for the exchange rate to go up and down. With a 1:1 peg to the U.S. dollar, a deviation of even a penny of $0.97 looks bad to a trader. So, liquidity pools are a great way to keep stablecoins pegged.
This is why sUSD and sBTC pools will have incentives. Synthetix and Ren (at the time of writing) reward liquidity providers. These rewards are in addition to transaction and lending fees.
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Risks and Rewards of Curve Pool
To recap, rewards come from transaction fees, interest, rewards, and bonuses. Every time a trade occurs on Curve, liquidity providers get a small fee split between them. Transaction fees depend on transaction volume. Therefore, if you are a liquidity provider, you can see high annualized yields (APY) on days of high volume and high volatility. Likewise, the annual yield may be low on a given day as yields fluctuate on the Curve.
Since you bear all the risk associated with the tokens in the pool, you can mitigate some of that risk by spreading out the supply. In other words, you can provide liquidity to all pools instead of just one pool. Just be aware that such a strategy will lead to increased gas and slippage fees, and the number of smart contracts will increase and thus introduce more risks.
yPools
bitcoin pool
Bonus: You can only earn transaction fees. The annualized rate of return is likely to be lower until Bitcoin on Ethereum generates greater transaction volume. Among them, sBTC is one of the better-performing products.
Risks: Smart contract issues with Curve and iEarn have been reported. There are also systemic issues with wBTC, renBTC, and Synthetix (only on sBTC pools).
cPools
Bonus: This is a pool that performs better than sUSD.
Risk: Pools using yTokens use the iEarn protocol. yToken providers need to monitor iEarn to reduce risk.
The pool using yToken uses the iEarn protocol. yToken providers need to monitor iEarn to mitigate risk.
sUSD pool
Rewards: This is the top performing pool due to incentives (discounts depend on market conditions).
Risks: Curve has smart contract issues, stablecoins and Synthetix also have some systemic issues. You need to monitor what's going on with Synthetix. Translated with www.DeepL.com/Translator (free version)
Profitable Liquidity Provider
When determining profit potential, don't forget to factor in the cost of paying gas fees and slippage. Curve integrates with external projects. Since liquidity is distributed among multiple pools, it may result in higher gas costs. Also, depending on the coin, there can sometimes be high slippage.
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Governance tokens CRV and YFI
Curve will transition to a DAO (Decentralized Autonomous Organization).
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Decentralized Autonomous Organization
In addition, CRV will become its governance token, with the functions of value accumulation and voting mechanism. But this will not have an initial coin offering (ICO). Instead, liquidity providers are rewarded in the form of CRV based on the amount they provide.
The initial circulation will start at approximately 2 million CRV per day. All supply (approximately 3 billion) will be distributed as follows:
61% to liquidity providers
31% to shareholders
3% to employees
YFI will be the governance token of the iEarn yield aggregator. YFI will allow its holders to make decisions as well as earn fees from the iEarn ecosystem. But the token itself has no value.
YFI’s staking contract works the same as Mintr. Although both YFI and CRV are governance tokens, YFI will serve as a reward for yPool. So, if you provide liquidity for yPool, you can stake your liquidity provider tokens in the issuance contract interface to earn YFI.
Curve's position in DeFi
One of the great things about DeFi is its design. It works like Lego bricks, with powerful new protocols being put together all the time. And Curve has proven to be one of the best integration platforms out there. But the increase in integration may lead to increased risk, because when you enter this integrated platform, you will also be exposed to more protocols. In other words, if you hope to successfully provide liquidity on Curve, you also need to understand the various other platforms it integrates with.
The good news is that the protocols mentioned here have been extensively tested. And the Curve pool has held and transferred millions of funds, and no hacker has yet successfully profited from it. Of course, in the case of so much money, hackers certainly did not give up trying.
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