Ethereum’s decentralized exchanges, or DEXs, are currently booming like never before. Monthly DEX volumes hit a new all-time high above $4 billion in July 2020, and the month also saw a new record DEX-to-centralized exchange volume ratio of ~4% achieved.
That said, DEXs are having a breakout year and the era of their prominence has effectively begun. In this advance forward, DEX projects like the general-purpose token trading protocol Uniswap have become some of Ethereum’s brightest early stars.
Yet there can be specialized DEXs, too. The most exciting effort in that arena right now is Curve, a DEX liquidity pool protocol that allows for extremely efficient trading of stablecoins like USDC, USDT, Dai, and beyond.
Moreover, not only is Curve already one of the most exciting projects in the Ethereum ecosystem, but the pieces are falling into place for Curve to finish out 2020 in very strong fashion, too. In today’s post, let’s explore the growth of this stablecoin DEX, how it works, and where it’s heading from here.
The Rise of Curve
Curve’s creators started work on the exchange last fall, put out an inaugural release in December 2019. One month later, the DEX hit the limelight of Ethereum’s decentralized finance sector, and the project’s been on the rise ever since.
For instance, at the start of February 2020 Curve had around $1 million worth of assets under management and was facilitating ~$10 million in weekly volume. Fast forward just five months later, and Curve now boasts $255 million worth of assets under management and weekly volume upwards of $400 million.
That’s explosive growth in a very short amount of time. Yet it’s come because Curve is excellent at its bread and butter: extremely efficient, low-slippage, and low-fee trading.
How It Works
Curve employs an automated market maker (AMM) model. This means as opposed to an order-book system where buyers’ and sellers’ orders are matched, Curve uses an on-chain liquidity pool that ensures trades are pre-funded.
Additionally, Curve’s AMM model means the exchange relies on liquidity providers (LPs) to create liquidity pools for its trading pairs. LPs earn a portion of Curve’s trading fees for their service, and since Curve also supplies pools’ underlying tokens to the Compound protocol, Curve LPs also earn a cut of the interest generated via Compound.
The yEarn Factor
Yield aggregator project yEarn has quickly become one of the biggest hits in Ethereum’s DeFi sector this year. Relatedly, one of the most fruitful DeFi melds in recent months was the yEarn team’s creation of Curve’s signature Y pool, which is composed of liquidity from four different stablecoins.
The relationship’s a powerfully mutualistic one. yEarn routinely makes Curve’s trading fees an integral part of its yield strategies on the one hand, while Curve uses yEarn’s infrastructure to draw in and facilitate volume on the other.
Of course, it’s entirely possible that yEarn and Curve respectively evolve and embrace each other in future extensions, and that’d undoubtedly be good for the DeFi space in general.
CurveDAO and CRV Introduced
Back in May, the Curve team first announced it was working on decentralizing its ownership through a Curve governance token.” Upon release, this token, dubbed CRV, would be allotted retroactively and on a pro-rata basis to anyone who’s served as a Curve LP since January 2020.
Things started picking up speed over the summer when the Curve team published its tentative plans for the CRV token and an Aragon-based CurveDAO governance group. The DAO will steer the Curve project going forward and uses time-weighted voting, so longtime CRV voters will have more say than first-time voters.
The max supply of CRV is set to be 3.03 billion when the issuance is all said and done, but the initial supply will be around 1 billion tokens. Notably, the Curve team plans to collect the protocol’s transaction fees and send them to CurveDAO, which will use the revenues to buy and burn CRV tokens as a value accrual mechanism.
For now, it’s not publicly known when CRV tokens will be launched and distributed, but the general sense is they could be released any day now as of early August 2020.
Next Big Thing in DeFi?
It might not be clear yet when CRV is arriving, but that doesn’t mean DeFi traders aren’t already prepping for the token’s release.
Here, prepping means either 1) setting funds aside to buy CRV when it hits the open market, or 2) serving as a liquidity provider on Curve in order to rack up CRV rewards retroactively and on an ongoing basis once they’re live.
We’ve seen a few DeFi crazes this year, like that beset the releases and ensuing yield opportunities around tokens like Compound’s $COMP, Balancer’s $BAL, UMA’s $UMA, mStable’s $MTA, yEarn’s YFI, and so forth. Now, CRV is the newest major DeFi token on the block, and the increasingly bullish ecosystem (at least as of late) is primed to go into a frenzy upon its launch.
Primed for Mutualism
We’ve already mentioned previously how Curve and yEarn have been mutually beneficial to each, but this is just one interesting and fruitful DeFi tandem.
Curve’s useful and open protocol has already undertaken integrations with other major DeFi project’s too, like the dYdX exchange and Synthetix’s sUSD token. These integrations are just the beginning, too. Curve’s not even a one-year-old platform, so the future is wide open with regard to further collaborations and melds in the future. The stablecoin exchange is well-positioned in the middle of DeFi right now, and even though that centering happened quickly, it could help the project gain more and more network effects going forward.
New Kinds of Assets Coming?
In an interview with defiprime earlier this year, Curve creator Michael Egorov said that the project will eventually look to embrace other kinds of assets beyond just stablecoins, like foreign currencies:
“[W]e want to explore other types of assets, like different cryptocurrencies, foreign currencies, staked assets, and so forth. Whatever we manage to optimize algorithms for in a spirit similar to our stablecoin AMM, in other words.”
So while it’s true that Curve has made itself a name as a premier stablecoin exchange early on, it doesn’t mean Curve will always be as narrowly focused as it is now.
Can the Competition Catch Up?
Since the cryptoeconomy and DeFi are young in general, there’s a lot more room for market saturation across the board, and DEXes like Curve are no exception here. In short, expect competition often and routinely for now.
Curve is getting a taste of that now as oncomers are rising to try and take up the mantle of the space’s reigning, efficient stablecoin exchange. For example, the BlackHoleSwap project was recently announced, which is a new stablecoin exchange that aims to offer “nearly infinite liquidity with the lowest price slippage, maximizing capital utilization.”
Simply put, BlackHoleSwap is trying to move into Curve’s territory, and this is the cryptoeconomy, so let the best protocol win. Even still, what Curve has accomplished so far this year is nothing short of incredible, and any competitors are going to have a considerable amount of catching up to do before they can even get into striking distance of Curve.
This doesn’t mean Curve will always be the king of its hill, though it certainly is the king for now.
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