Curve: DEX is in stark contrast to her appearance level

Curve: DEX: A stark contrast to your appearance level.

Source: Blue Fox notes

When it comes to the DEX track, Curve is an inescapable event. With more than $73m in assets locked up, it is currently (as of writing) second in the DEX category, behind Balancer and ahead of Bancor. The diagram below:

(Curve locks asset quantity, Source:DEFIPULSE)

In addition to the number of locked assets, its trading volume has been among the highest for a long time. As shown in the figure below, the trading volume in the last seven days has exceeded 68 million DOLLARS, second only to Uniswap and higher than Balancer and 0xAnd Kyber, etc.

(Curve last 7 days, Source:DUNEANALYTICS)

So, as one of the important DEX racers, how to understand Curve simply?

Curve: Stable coin version of Uniswap

The average Curve user who sees it for the first time will be surprised by its level of appearance. Its unique UI and endless exchange experience make it less approachable but impressive. Actually used, it is not complicated.

To understand Curve, you can compare it to the familiar Uniswap, a decentralized trading protocol that can be simply understood as a decentralized trading platform. On the other hand, DAI, USDC, USDT, sUSD, renBTC, wBTC, sBTC and other tokens are mainly traded on Curve, which can be simply understood as Uniswap focusing on trading stability COINS.

At present, THE DEX of AMM mode is all the project description with Uniswap as the ruler. If Balancer is the generalized Uniswap, then Curve is the stable coin Uniswap. About Balancer, please refer to the article"Balancer: Universal Uniswap".

The AMM model USES the liquidity pool model to exchange tokens through the liquidity pool, which is completely different from the order book model. For the liquidity pool model, please refer to blue Fox's previous article Uniswap. There are seven token pools on Curve. There were 5 stabilisation pools and 2 token BTC pools (BTC circulating over Ethereum).

(7 token pools on Curve, Source: Curve)

Curve is primarily a DEX focused stability coin. Why is it growing so fast?

* The first half of 2020 is the outbreak period of stabilization currency

Various stability COINS such as USDT have developed rapidly, and the demand for stability COINS has risen sharply.

* Stability currency is becoming more and more diversified. Besides USDT, there are USDC, TUSD, sUSD, BUSD, DAI...

There is also a demand for transactions between different stabilizers. In CEX, transactions between different stabilizers are relatively fragmented and the slip point may be higher. There is real demand for stability coin-based DEX.

* Fluid mining effect

Starting in mid-June, Compound and Balancer started liquidity mining, generating substantial demand for stabilization currency.

With the concept of mobile mining gaining popularity, Cuvre also launched CRV token mining, and some token pools also rewarded other tokens, such as SBTC pool, SNX, BAL and other tokens.

In addition, it also earns revenue from Compound, Aave, dYdX and other lending agreements, making providing liquidity for Curve attractive. These injections further increase liquidity, further reduce slippage, and bring greater user appeal, thus creating a positive cycle.

Also, it should be noted that Curve today is not exactly a transaction between stability COINS. It also introduced coinage transactions between BTC, such as sBTC, renBTC, wBTC.

Curve liquidity provider income

Providing liquidity on Curve yields a higher annualised return than in the real world, as shown in the figure above, where APY at writing time ranges from 1.30% to 9.27%.

In Curve's yield structure, the benefits that a liquidity provider can capture include transaction fees, additional interest, token incentives (CRV and possible external token incentives).

These are all Curve transactions, whether through curb.com or through DEX aggregators such as 1Inch and Paraswap, which collect a transaction fee that goes to the flow provider. Transaction fees are currently mainly charged at 0.04%, and the higher the volume, the higher the annualized return of the liquidity provider.

In addition to the transaction costs, there is additional interest. Interest mainly comes from loan agreements or loan aggregators such as Compound and iEarn. For example, in Curve's Compound pool (cDai, cUSDC), the liquidity provider gets extra interest from the Compound. In the Y-pool of Curve, it is YToken, which can obtain benefits from iEarn. IEarn is a revenue aggregator that helps the asset (yToken) get the best revenue configuration for various protocols, including Compound, Aave, dYdX, and so on.

For Curve token pool Y, yDAI, yUSDC, yUSDT and yTUSD can all earn interest income from external different agreements. Some users may wonder how they got a USDC instead of a yUSDC. That's because Curve helps wrap tokens, converting them from a USDC to a yUSDC, and earning from the loan agreement. However, there are also risks to be taken into account. The more agreements you participate in, the higher your returns will be, and the greater your systemic risks will be. This is something to consider when a user chooses to provide a liquidity pool.

And of course there are pools that have no outside revenue. Fees and interest income from external agreements make up the bulk of Curve Pool's current annualized income.

Another thing that may be difficult for users to understand is that after the user deposits 100DAI into the token pool as shown in the figure below, the user's 100DAI will be divided into 8.15DAI, 22.87USDC, 36.13USDT and 32.86PAX according to the current proportion. At the same time, it also changes constantly with people's exchange and arbitrage. This is also proportional to Curve.

(Source: the CURVE)

Curve also has a reward adjustment mechanism that encourages people to deposit a smaller proportion of their scrip in the pool. In order to encourage people to deposit more DAI into the pool, users will be rewarded after depositing DAI.

The reward comes from a higher market price and a lower than expected proportion of the pool. At the same time, when people withdraw tokens, although it's up to the user to withdraw that token, it also has incentives, incentives for people to withdraw a higher percentage of tokens, to get a reward.

Therefore, when depositing stability COINS or packaged BTC in Curve, the best strategy is to deposit less tokens to get rewards.

In addition, when the user's 100DAI is divided into 8.15DAI, 22.87USDC, 36.13USDT and 32.86PAX, it will not affect the user's income.

Curve serves as the DEX for the liquidity pool model, on which some tokens can guide liquidity, including sBTC, wBTC, and renBTC. As one of the earliest practitioners of liquidity mining, Synthetix found a sweet spot with Uniswap and is now doing the same thing for Curve: If a user provides liquidity to the sUSD pool (which includes DAI, USDC, USDT and sUSDT), they can receive transaction fees as well as SNX tokens. In addition to sUSD pool, sBTC pool liquidity providers can also receive additional SNX/REN/BAL token rewards. These are all perks that provide liquidity on Curve.

(Source: the CURVE)

As multiple rewards are available, Curve is constantly incentivised to provide liquidity to more people, which further increases liquidity and depth and reduces trading slippage. As a result, Curve has surpassed CEX in the trading experience of some tokens.

The current Curve's yield is well below the annualized yield it once was, and the market is moving toward equilibrium.

CRV tokens,

I've been talking about fees and perks on the Curve, but the latest prize is its native CRV token. As Curve Governance tokens begin to surface, all liquidity providers that have provided liquidity to Curve have the opportunity to receive their governance token CRV rewards.

So, what are CRV tokens?

CRV is the governance token of Curve, which is an important step towards decentralized DAO governance. CRV is scheduled to launch in July, and Curve should be out soon, though details of the CRV have not been fully disclosed.

Currently, the only way for users to get CRV is to provide Liquidity to Curve, as there are no public sales or any airdrop plans, and anyone who has provided liquidity to Curve will receive CRV tokens, which will be accumulated from day one. That is, the first allocation of its CRV will be proportionate to total liquidity.

When CRV comes out, users will also be able to buy it on DEX, perhaps Uniswap or Balancer, details unknown. The initial issuance of CRV will be 1 billion, followed by additional issuance with a cap of 3.03 billion. Depending on the specific conditions, CRVS held by teams and investors can be awarded for 2-4 years.

(Source: the CURVE)

CRV token is governance token, it has the time weight voting function and value capture mechanism.

Speaking of governance, it involves the Curve DAO. For Curve DAO, see the following figure:

(Source: the CURVE)

CurveDAO includes a number of intelligent contract, through Aragon connection. However, it does not adopt the model of 1 token and 1 vote, but adds the weight of the locking time, that is, the voting weight of each token is different, the longer the locking time, the higher the voting weight of the same token. CRV votes have a dual weight of number and lock time. This voting mechanism not only increases the difficulty of governance manipulation to some extent (locking THE CRV itself has costs), but also plays the role of locking the CRV to reduce the circulation.

Value capture mechanism, mainly through the token destruction mechanism. There are token pools on Curve, each of which captures the overheads. These overheads will be used to purchase and destroy CRV tokens. This means that the greater the volume on Curve, the more value it can capture later. There are currently no administrative fees, only transaction fees, which are allocated to liquidity providers.

risk

Any high yield is accompanied by high risk, as is the case with any DeFi project. Curve is no exception, including the risks associated with the intelligent contract for Curve, the risks associated with the external lending agreement (Compound, iEarn, etc.), and the system risks associated with the stabilization currency and the coinage BTC in the token pool. To participate in DeFi, while enjoying the feast, you also need to control the risk.

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