What is Curve


Just like Uniswap, Curve Finance is also a decentralied exchange protocol on Ethereum and with a better AMM aglorithm (low slippage and low fee) for stablecoins (USDT, USDC, DAI) and other tokens with similar values such as stETH and ETH, renBTC and WBTC, etc.

In Uniswap's Constant Product AMM, the price of a coin is determined by the proportion of two tokens in the pool, so the price of a coin will constantly change with user transactions. In addition, when there is a shortage of liquidity in the pool or the proportion of two coins is unbalanced, the impact on the token price of a single transaction pair is significant, resulting in high slippage.

Instead of using constant product method, Curve uses the "constant sum market maker" algorithm to provide liquidity. This algorithm is optimized for stablecoins, and allows for trades with minimal slippage, making it a popular choice for those looking to trade stablecoins.

In Uniswap, if there are 10ETH and 10,000USDT in the liquidity pool, users can exchange 1ETH for 1,000USDT, indicating that 1ETH is worth 1,000USDT. When a user withdraws 1,000USDT, the liquidity pool remains with 11ETH and 9,000USDT, and the value of 1ETH becomes 818.18 USDT.

When the proportion of two tokens in the pool is unbalanced, such as when there is only 1ETH and 10,000USDT in the pool, if a user exchanges 0.5ETH, the price of ETH will change drastically from 10,000 to 30,000 USDT.

The chart below compares the bonding curves of Curve and Uniswap. It is easy to see that compared to Uniswap, although the Curve curve has high slippage at both ends, the slippage is very low in the middle, even overlapping with the part of the curve with a slope of 1. This is in line with the characteristics of stablecoins because their prices usually fluctuate within a small range around $1.

Curve constant sum




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