By controlling the pools and the types of assets in each pool, Curve minimizes impermanent loss.
Before we step into the world of curve, we need to understand a concept called Automated Market Makers (AMMs). What is AMM?AMMs allow digital assets to be traded without the need of a centralized exchange by using liquidity pools as opposed to traditional trading between buyers and sellers. At its core, users supply liquidity pools with tokens, and the prices of the tokens in the pool are determined by a simple mathematical formula. Anyone with few ERC-20 tokens can become a liquidity provider by supplying tokens to an AMM’s liquidity pool. Liquidity providers earn a fee for providing tokens to the pool.
The fee is paid by traders who use a liquidity pool to swap tokens. So, how does Curve work?By focusing on stablecoins, Curve allows investors to avoid more volatile crypto assets while still earning high interest rates from lending protocols. On AMMs like Curve, liquidity pools are constantly trying to buy low and sell high. Here’s a refresher on how that rebalancing functions, this time with USD-pegged stablecoins USDT and DAI. If you were selling DAI on Curve, then more DAI is added to the pool. The pool becomes unbalanced because there is now more DAI than USDT. So, the pool sells DAI at a slight discount compared to USDT to incentivize balance. The pool rebalances its ratio of DAI to USDCBy selling DAI at a discount, the pool is trying to restore the pool to its original state.
By controlling the pools and the types of assets in each pool, Curve minimizes impermanent loss, an AMM phenomenon in which liquidity providers suffer a loss in token value relative to the market value of that token from volatility in a liquidity pool.Incentivizing Liquidity ProvidersOn an AMM exchange such as Uniswap, you can earn fees whenever a trade is made. On Curve, trading fees are lower than they are on Uniswap, but you can also earn rewards from outside of Curve with interoperable tokens.Compound is one example of an external DeFi protocol with which Curve integrates. The protocol also integrates with Yearn Finance and Synthetix in order to maximize incentives for liquidity providers.
CRV TokensThe Curve protocol started its odyssey toward decentralized governance by launching a decentralized autonomous organization (DAO). The Curve DAO is controlled by the CRV token. The CRV token can be bought as well as earned through yield farming — when you deposit assets into a liquidity pool and earn tokens as a reward. With Curve offering stability and composability, it is one of the most popular platforms that’s interconnected with the DeFi ecosystem. We have launched Cryptogram, an India-focused free weekly newsletter on blockchain tech, global crypto markets, and Web 3.0 technologies which promise to change our future. If you would like to subscribe to this newsletter, click here. You can read our past editions here. Also, check out our website here.
Source : [What is curve (CRV)?The News Minute / December 06, 2022 at 01:59PM//keep unread//hide](www.thenewsminute.com/article/what-curve-crv-170489) undefined - December 06, 2022