What is Curve? (CRV)

The Beginner's Guide

Curve is a blockchain protocol that uses multiple cryptocurrencies to operate an automated market making service focused on stablecoins (cryptocurrencies programmed to mimic other assets).

One of a number of emerging decentralized finance (DeFi) protocols built on Ethereum, Curve facilitates trading not using a central order book, but rather pools of cryptocurrencies provided by users, who in turn can earn fees through their deposits.

Like Uniswap or Balancer, Curve gives cryptocurrency users a way to earn fees on their assets, while letting traders buy and sell those assets at potentially better prices.

What sets Curve apart from similar platforms, however, is its focus on markets for stablecoins like Maker and USDT, meant to track the price of U.S. dollars, as well as stablecoins like wBTC and renBTC designed to track the price of Bitcoin.

Because of the variety of options on the market, each with its own level of risk, Curve’s goal is to allow stablecoins to be traded with low fees and minimal variation in price.

Who created Curve?

The Curve project doesn’t list any team members or founders on its website, and it does not state when the project was officially conceived or launched.

Rather, Curve’s white paper was published in November 2019 and lists a single author, Michael Egorov, who is also co-founder of a company called NuCypher. The firm is launching a network on Ethereum that allows applications to encrypt their data and preserve user privacy.

According to the news publication The Defiant, Curve has raised financing from well-known figures involved in DeFi, but it didn’t report any further details.

As of 2020, Curve had over $1 billion worth of cryptocurrencies locked on its platform.

How does Curve work?

Curve’s trading platform is governed by a mathematical feature that’s designed to let stablecoins trade for one another at the best possible price. This feature is known as a bonding curve.

Bonding curves are employed by other DeFi cryptocurrencies, like the decentralized exchange Uniswap for example. But unlike Uniswap’s bonding curve, which is focused on serving a great variety of cryptocurrencies, Curve’s bonding curve is focused only on stablecoins.

In practice, this means that Curve’s bonding curve allows larger amounts of stablecoins to be traded with less change in their relative prices.

Lending Pools

Curve doesn’t just need traders to operate, however. Crucially, it also requires a group of users who will lock up cryptocurrencies so they can be traded by others.

Curve keeps these coins in certain ratios to one another, so that as their amounts fluctuate, they become cheaper or more expensive, thus attracting traders to buy or sell them.

In order to attract users to lock their coins in the first place, Curve offers them a return on their coins, as well as a proportion of the fee from trades.

This return is generated when Curve supplies the locked funds to protocols like Compound or yEarn, which in turn lend the coins out to users.

Governance

In 2020, the Curve platform issued its native token, called CRV. At this time, some 3 billion CRV tokens were generated.

Roughly 60% of CRV tokens were allocated to users who had locked coins on the platform, while 30% was reserved for the Curve team and investors. The remainder was set aside for employees of the project and for a reserve for community initiatives.

Today, 2 million CRV tokens are released daily, which means 750 million are issued annually. The tokens will be used to vote on proposals that set the rules of the Curve system.

Why does CRV have value?

As it will be needed to vote on decisions governing the platform, the CRV token may prove essential for users who want to ensure Curve’s proper management.

As mentioned, anyone who owns CRV tokens will one day be able to vote on proposals that impact all users of the platform. These votes favor those who have held CRV tokens the longest, meaning loyal holders of the token get more say.

CRV holders are also expected to be able to determine which types of locked assets should be promoted, how users who lock coins on the platform will get rewarded and whether CRV tokens should be eliminated from the economy (thus potentially raising their price).

Curve’s early popularity among DeFi platforms suggests that users locking funds in the platform may continue to enjoy exposure to the fees it generates. This in turn helps them earn more CRV from the platform, therefore increasing the demand for CRV tokens.

Why Should I use CRV?

You should consider using CRV if you believe that stablecoins will continue to grow in diversity and usage. If more applications use stablecoins to deliver lending, insurance and other DeFi services, the Curve platform could continue to grow.

You may also want to use CRV if you wish to participate in setting rules on the Curve platform. Holding CRV for the long-term allows you to determine which coins are allowed on the platform and to have a say in the rewards that loyal users should receive.