Although it was launched in January 2020, Curve Finance already appears to be expanding to become a leading platform in the decentralized finance space. By description, Curve Finance is a service that is invested in offering a functional platform for individuals interested in trading in virtual currencies to conduct their activities based on the Ethereum assets.
Michael Egorov created the Curve Finance service in January 2020. Egorov is a doctor of physics. The service is currently running on a decentralized network and has now become one of the leading companies in the Ethereum-based trading space.
Taking advantage of the automated market, this service uses pseudocodes to increase the liquidity of its assets in the market which is opposed to many other platforms that just attempt to link orders to purchase to sell orders.
The automated system guarantees that trades and orders are carried out at faster speeds which reduces the probability of fluctuation in the value of the asset that the user intends to buy. Apart from that, the automation offers greater depth to its markets which is almost 100 times greater than most of the other online platforms that offer similar services.
Executing trades while simultaneously using this service normally has low risks, with a single transaction mechanism engaged in the process. However, providing liquidity in pools results in a little higher risk but the rewards are great. Some of the features that are available on this platform include:
The combination of several forms of cryptos to increase profits for the traders is one of the many benefits that come with decentralized exchange systems. These combinations are known as mergers. But, with such a combination comes the increased need to continuously watch the exchange rates between the linked assets to avoid raking in big losses.
Minimal Temporary Losses
These are the losses that are incurred mid-transaction. Most of the available services do not execute orders instantly; they first receive the order, change the asset to be traded into Ethereum, store, and then convert back into a new asset or coin that is needed.
In the scenario that the value of the new asset rises between the time of the order and delivery, the service absorbs the loss to offer users the value that they expect. Since Curve Finance is designed to trade in stablecoins, with an instant transaction system, the probability of such happening is quite small.
This service makes use of various pools for liquidity. They reward the providers with percentages of the profits acquired from the users’ patronage. However, it is legally not responsible for any losses that are incurred by the customers.
Pools come in three subdivisions which include high yield, medium yield, and low yield. Just like the name suggests, every one of these pools offers a different level of profits. But, the more the profits, the more the risk involved.
Nonetheless, it is important to note that every pool, subject to its success and liquidity supplier can switch in value; with the low yield having all the potential to surge to a medium or even high yield pool and the vice versa is true.
The service has a total of seven unique pools with four of them being lending pools. The four include PAX, Y, BUSD, and Compound. The next two, sUSD and sBTC, give incentives on trade processes, and two others, REN and sBTC, are token-based pools.
Fluctuations In Returns
The pools available on this platform are quite unstable, with the pools that offer high returns reducing gradually to medium and low return pools over a long period. But, switching between these pools is not advisable due to the amount of fees needed to enter and trade in pools.
Experts say that spreading trades across pools is the best strategy, guaranteeing that the user records significant returns after all the fees have been deducted.
As it was highlighted previously, the Curve Finance platform charges its users fees for entering and trading in the pools. The fees are the money that is realized from these charges that are used to run the service efficiently. Switching pools to get the high-return pools are unadvisable because you may end up accumulating high fees.
In the end, the fees may eat into and maybe surpass the amount of profit realized or cut a chunk of yield gotten.
Curve Finance Versus Uniswap
Both Uniswap and Curve Finance trade entirely in stablecoins due to their crucial role in the world of DeFi systems and the high demand. Although they are also available for trading on more popular exchange systems, DEXs and CEXs, the fees that are charged on the popular services are quite higher than employing Uniswap or Curve Finance.
By description, Uniswap is an Ethereum asset-based online platform designed to support the exchange of ERC20 tokens between users.it easily provides a trading platform for selling and buying digital currencies while simultaneously removing a majority of the issues encountered by many decentralized exchange systems subject to raising profits.
Trading on Uniswap comprises of two steps:
- The first stablecoin is traded in for an amount with an equivalent value of Ethereum.
- The Ethereum value is then converted to its equivalent value for the second stablecoin.
In doing that, the user incurs double fees, one for each of the stages of the process. The flux in value of ETH assets can quite easily shorten the profit of the suppliers of liquidity. That is the reason why Curve Finance just trades stablecoins against each other directly.
Both of the services are quite similar because Curve is an automated and simpler version of Uniswap. It has a superior user interface, lower trading fees, and better profit rates than Uniswap.
Curve Finance Risks
While the possibility of these risks has been reduced considerably to a bare minimum, the risk of encountering impermanent losses still exists. These losses are subject to most online platforms that use automated processes in operations instead of storing the cryptos in a wallet.
The losses come up either where the value of the assets contained in a specific pool moves in separate directions, or when the suppliers of the liquidity decide to rebalance the prices of the assets in the pool at the value that is traded in the real market as a result of some changes.
Since Curve Finance only deals in stablecoins, it is highly unlikely that divergence of the values will be quite great enough to result in great effects in the loss of profits; keeping in mind that the values of securities may change at any time.
CRV is Curve Finance’s base token that is obtained when a user utilizes the platform by depositing and trading a stablecoin against the others. Normally, it serves as a form of payment to suppliers of this liquidity to pools on the platform as their share of the money is made in levies.
This token was released on the platform 8 months after the start of the service by an independent developer without having the approval of the developers of the service. The company decided to take control of the situation by spreading the word widely to the general public that the token was not developed by the team of the establishment’s developers.
However, after a great deal of involvement from many users on the platform in mining, the establishment decided claiming the token as theirs, particularly after the checks were made on the token and confirmed that the token was highly dependent on their service without any foul play involved.
The service had managed to record almost 100,000 mined tokens by users in a few hours of the launch, ruffling many feathers in the crypto industry. This CRV token hit a value of more than $50 on the day of its launch but has since plunged to around $5 per token. That price movement suggests that it is quite unstable, so the traders and users are advised to tread with caution when buying tokens.
The token serves as a form of payment that caters to the suppliers of liquidity of the pools on the platform; since some of the money is generated by the service on fees paid by others. It also provides the holders with a specific percentage of rights coupled with voting power in making various decisions that affect this service and its users, subject to how much of the tokens a user owns.
It is gradually becoming clear that the future of finance and technology is heading towards cryptos and decentralized network systems. Due to these facts, it is not a wonder that an increasing number of individuals are businesses are interested in getting aboard the next big thing.
Curve Finance is now poised to become a leading platform in the decentralized finance space even though it is relatively new in the business. Hence, it is always advisable to limit one’s investments since the service and the token are quite new, particularly if you are an investor with a low-risk tolerance.