Curve Finance Upgrades Algorithm For Concentrated Liquidity

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In Brief
  • Curve unveils hybrid low-slippage swaps.

  • Challenges Uniswap with new volatile tokens model.

  • CRV token prices pump 12% on the day.

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Decentralized finance (DeFi) protocol Curve has been tweaking its mathematically complex algorithm to introduce dynamic automated market making.

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In an announcement on June 9, Curve Finance unveiled its latest upgrade which introduces a method for creating liquidity for assets that are not necessarily pegged to each other in a way more efficient than current automated market makers offer.

The DeFi protocol is combining two popular asset swap models into a hybrid system that builds upon the current mathematical formula (x·y = k) for AMMs.

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The “algorithm for exchanging volatile assets” went live on June 10 according to the latest tweet from Curve which explained:

“When swapping or depositing: treat it to be similar to typical crypto pools elsewhere, except with smaller slippage on average,”

Heavy math

The whitepaper, penned by Curve Finance CEO Michael Egorov, goes into the complex mathematics behind the new algorithm. The upgrade essentially allows low-slippage swaps between volatile pairs of assets or between assets that have constantly fluctuating prices.

There are two versions, one on Ethereum which contains USDT, wBTC, and wETH, and the Layer 2 Polygon version which has am3Crv (Curve’s stablecoin pool), wBTC, and wETH, it added.

Yearn developer “Banteg” described it as “concentrated liquidity which doesn’t require manual rebalancing,” adding that the fee calculation system is also dynamic.

SushiSwap CTO Joseph Delong tested out the new pools and commented:

“Only 5% slippage for a 1 ETH trade on a pool with 20 ETH in liquidity. Guys, this is fantastic. Can’t wait to learn more,”

Curve’s new version should appeal to liquidity providers as it will offer much of the attractive liquidity depth that Uniswap has enabled but without any active management.

“We concentrate liquidity given by the current ‘internal oracle’ price but only move that price when the loss is smaller than part of the profit which the system makes. This creates 5-10 times higher liquidity than the Uniswap invariant, as well as higher profits for liquidity providers.”

Additionally, there are yield farming opportunities available with Curve whereas Uniswap has yet to enable any new mining incentives. The new system is a precursor to a full version 2 upgrade that will intensify the competition between the stablecoin AMM and Uniswap v3.

CRV price outlook

At the time of press, the protocol’s native Curve DAO Token was trading up 12% on the day at $2.52 according to CoinGecko.

CRV has taken a hit with the rest of the crypto market over the past three weeks but has shown steady recovery since hitting a local low of $1.04 on May 24.

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Martin has been covering the latest developments on cyber security and infotech for two decades. He has previous trading experience and has been actively covering the blockchain and crypto industry since 2017.

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