What is Curve Finance and how does it work?

The person behind the development of Curve Finance & nbsp; is Michael Egorov, who is present & oacute; the whitepaper of this project on November 10, 2019. At that time, the platform was known & iacute; a by the name of StableSwap (a clearly alusi & oacute; or “Uniswap of stablecoins”), but then it was changed to Curve Finance.

Related to: 3 reasons why the price of Curve (CRV) has risen by 150%& nbsp;

& iquest; C & oacute; mo funciona Curve Finance?

Curve Finance works based on two components:

  1. Liquidity pools, where investors offer liquidity of stablecoins or tokens supported by the platform.
  2. A m & oacute; end of exchange and pr & eacute; stamo of those tokens.

This allows you to create a mechanism that allows you to exchange your stablecoins in a very simple way with another supported on the platform. But at the same time, investors are offered mechanisms to make money through their investments. This thanks to the commissions generated for the operations carried out in these pools. In any case, the system is similar to what goes on in Uniswap and other DEX protocols that make use of pools.

Without a doubt, the main difference is that the economy of c & oacute; mo manages the prices and the impact it has on the profits of investors. As we specify, Curve Finance uses an economic invariant that is distinct from the one used in other AMMs, and is known as the StableSwap invariant, which was clearly specified in its whitepaper.

The main advantage of using its own invariant is that it offers a small price reduction (price difference between the purchase price in an order and the actual purchase price of a token). In Curve, this depreciation is maintained at the m & iacute; nimo, which clearly offers a huge advantage in terms of the purchase prices of tokens. & Nbsp;

A clear difference favorable to Curve, in front of its competitors m & aacute; s generalists. Another point in favor, is that allows to offer a large profit margin in the long run, and even reduce to its m & iacute; nima expression & oacute; n, the risks of permanent p & eacute; rdidas, which other projects such as Uniswap or Compound cannot offer.

Exchange of stablecoins

The exchange of stablecoins in this sense takes place in the best possible conditions, which in the eyes of large investors results in a lot, in particular, if they do a lot of trading with said tokens. In any case, Curve guarantees a smooth exchange rate of stablecoin, with a small exchange commission, and a balancing system that keeps the value of the price adjusted to reality, without reimbursing the profits to its investors.

For example, if it is assumed that a pool is 50% DAI and 50% USDT and the current balances are 50% DAI and 50% USDT, do not have & aacute; reequilibrio commission (m & aacute; s all & aacute; of the amount you buy). Meanwhile, if the current balances are 25% DAI and 75% USDT, pay & aacute; a balance commission & oacute; n buys DAI with USDT, but obtendr & aacute; a refund (commission & oacute; n negative) if you buy USDT with DAI. The magnitude of this balancing commission depends on the “flexibility” factor I mentioned earlier.

In this case, the system promotes price balances, and at the same time, impels buyers to maintain this system to earn profits on their exchanges. But & iquest; Qu & eacute; so much profit can allow this system of exchange with stablecoins? Well, we are talking about APY (annual interest rates) of up to 45 % in determined high demand pools. This may sound very small, especially if we see the APY from other platforms, but taking into account that we are talking about stablecoins this is much & iacute; simo.

Lending Pools

Curve Finance also offers so -called lending pools or pr & eacute; stamos pools, which are united to platforms such as Compound and Yearn Finance, with the end of allowing pr & eacute; stamos. These pools are & aacute; n formed by “wrapped” versions of the tokens that form and the system allows it to interconnect & oacute; n with distinct DeFi protocols such as Compound, Yearn Finance or AAVE.

Curve DAO Token (CRV)

Another important aspect in the operation of Curve is & aacute; related to the CRV token. This token seeks to allow decentralized governance of the protocol through Curve DAO. The idea of ​​this system is to allow investors and users of Curve to not only decide on the future of the protocol development, but also to receive compensation for being liquidity mining providers.

Adem & aacute; s, you can perform staking with the CRV token, facilitating the & iacute; another way to receive rewards within the system. The issuance of these tokens is inflationary, and there can only be a maximum of 3,303,030,299 CRV tokens.

Related to: The new launch of Curve Finance places the project among the creators of automated markets

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