One of the biggest deterrents of crypto trading is the market’s volatility. While the returns are high, the raging popularity of crypto has also resulted in some massive losses. That being said, one of the most accepted features of blockchain technology is the decentralisation aspect.
Investors love that the intermediaries, along with their unnecessary charges and compliance procedures, have been eliminated. However, there is still a long way to go to make the decentralised processes more efficient.
Curve Finance is taking one such step in the right direction. Here’s how.
Busting the jargons
What is Curve Finance? Before hitting this topic, let us first understand the meaning of some common technical terms that you may encounter.
Stable coins –
While the prices of most cryptos are highly volatile, some crypto tokens maintain a stable price. These tokens are typically linked to a commodity or currency from which they derive their value.
We can use stable coins to pay crypto brokerage as they are more accessible compared to the underlying asset (currency or commodity) that they are tracking.
Automated market maker –
Most decentralised exchanges use this protocol to facilitate trading. Simply put, market makers are liquidity pools where people provide their coins for others to come and purchase.
Unlike centralised systems, the demand and supply are driven by investors entirely in a decentralised system. AMM uses smart contracts to facilitate trade between investors. However, buyers don’t have to interact with the seller. Instead, they only interact with the AMM or the liquidity pools.
Slippage in crypto refers to the difference between the price at which the order is executed and the expected price of an order. This typically happens when the crypto price changes significantly in a short period.
What is Curve Finance?
Curve Finance is an AMM, but what makes it unique is that we can trade only stable coins through it. By focusing on stable coins alone, Curve Finance eliminates most of the volatility risk associated with crypto trading.
Another important benefit of Curve Finance is that the usually decentralised systems come with the risk of impermanent loss. It means that if the crypto price changes while it is locked in a liquidity pool, the investor will have to bear the loss. However, by using stable coins, there is a lesser chance of dramatically changing prices, thus keeping investments safer.
Curve Finance obviously uses the AMM protocol and liquidity pools. These liquidity pools are supported by algorithms that decide the price of any token within the network. This system facilitates trade without the need for an actual seller or buyer to be present.
Now that we have understood what is Curve Finance, it’s time to know how it works.
Investors submit their crypto into the liquidity pools, and in return, they earn rewards. Curve Finance offers their native token CRV as rewards. Therefore, instead of buying CRV, one can earn it by providing liquidity on the Curve network.
There are many benefits of owning or buying CRV. However, users have first to lock their CRV for a specific time before using it. The locked CRV is called vote-escrowed CRV or veCRV. This token will give investors governance capabilities which means they can vote on how Curve Finance will function.
Furthermore, CRV can also be staked. By buying CRV for the purpose of staking it, investors earn a portion of the trading fees that Curve Network collects. Users can also opt for exclusive discounts and increase the liquidity profits they get while locking their CRV.
5 Benefits of Buying CRV and investing in Curve Finance
Low risk –
Volatility is reduced because of the focus on stablecoins.
Liquid investment –
Investors can choose to remove their funds from the liquidity pools when they wish to.
Boost rewards –
CRV staking can help investors boost their rewards from liquidity pools.
Multiple applications –
Buying CRV or earning CRV can also be used in other applications. They are typically used to pay fees.
Minimum slippage –
Using a unique concept of trading pairs whose price is extremely similar, the slippage is avoided in transactions.
Though there is always a considerable amount of risk with decentralised platforms due to the lack of regulations, a good amount of research and insight into the system’s governance can help investors take the right call.
Now that you know what is Curve Finance, you also know that among all decentralised platforms, Curve Finance is gaining popularity because of its focus on stable coins only. Now that you are well-versed with what is Curve Finance, you can make a more informed investment decision.
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