A closer look under the hood of this rising DeFi protocol
The latest DeFi dapp to attract the attention of ‘degen speculation machine’ – thanks to the launch of its CRV governance token – Curve is actually a fascinating example of how fast blockchain finance is developing.
Effectively a specialized version of a Uniswap-style AMM (automatic market maker) exchange, Curve is designed to be an extremely efficient exchange for stablecoins.
For this reason, it only supports a tiny number of tokens – currently seven stablecoins and three BTC-based tokens – the exchange of which is handled by highly optimized bonding curves to ensure very low price slippage.
This is important as stablecoins are one of the key building blocks of the entire Ethereum DeFi ecosystem.
Of course, given its specialized nature, Curve is not really designed for the average user, although anyone with an Ethereum wallet, some stablecoins, and the ability to handle its old school UI, can do so.
Instead, it’s designed for crypto DeFi whales, with large amounts of value to exchange and/or lock into its liquidity pools, earning an interest rate – and now also the CRV token – from the activity they enable.
However, as its website sagely notes under its ‘Risks’ tab, “Please don’t supply your life savings, or assets you can’t afford to lose, to Curve, especially as a liquidity provider.”
Compared to other DeFi dapps, an additional risk with Curve is that if one of the stablecoins you’re supplying breaks its peg with the US dollar (1 stablecoin should always roughly equal $1), the liquidity providers could lose a substantial amount of their supplied value as the majority of their liquidity will accumulate in the ‘broken’ token.
As the fast-evolving DeFi ecosystem expands and bleeds across to other protocols we will continue to monitor and report on the space. Make sure you bookmark DappRadar and sign up to our newsletter below to get updates direct to your inbox.