Curve Finance’s new release positions project for AMM takeover

A new release from a foundational DeFi protocol seeks to combine two popular asset swap models into a hybrid that may reshape the nature of the automated market maker (AMM) space — a DeFi primitive currently accounting for well over $40 billion in total value locked, per DeFiLlama. 

Earlier today Curve Finance announced the launch of a new “algorithm for exchanging volatile assets.” Curve’s base functionality is designed to enable low-slippage swaps between similar assets, such as one type of stablecoin to another — USDC to DAI, etc — by concentrating liquidity on a bonding curve weighted towards a particular price.

When swapping or depositing: treat it to be similar to typical crypto pools elsewhere, except with smaller slippage on average https://t.co/yrhzW35y1B

— Curve Finance (@CurveFinance) June 9, 2021

However, the new release will allow low-slippage swaps between “volatile” assets, such as a ETH/WBTC pool, or between assets that have ever-changing changing prices. The new pools will accomplish this with a combination of internal oracles relying on Exponential Moving Averages (EMAs), as well as a bonding curve model deployed by popular AMMs such as Uniswap. 

“This creates 5 − 10 times higher liquidity than the Uniswap invariant, as well as higher profits for liquidity providers,” an accompanying whitepaper reads.

While the math and architecture may be difficult to understand, the end result is not: Curve is now taking on the broader AMM space with what it believes to be a more efficient product for both traders and liquidity providers, using automatically rebalancing fee (between .04% and .4%) and price structures.

“Most common pairs will be added in coming weeks before we go to a fully permisionless factory where anyone can spin up their own metapool,” said Charlie, a Curve team member.

Curve shipped concentrated liquidity which doesn’t require manual rebalancing. Dynamic fees too. https://t.co/MsDtOSZl4y

— banteg (@bantg) June 9, 2021

The DeFi community has reacted glowingly, with many christening the release as “Curve v2.” Observers have been gushing about the capital efficiency and liquidity optimizations the new model offers. 

“[Curve v2] extends Curve v1, instead of optimizing for target price of ‘1’ to a dynamic price based on pool Exponential Moving Average (EMA), which is a good indicator of the current pool price,” said whitehat hacker and co-founder of DeFi Italy Emiliano Bonassi, comparing the product to a verison of Uniswap v3, but which concentrates all of liquidity at particular prices.

“It continuously rebalances (and concentrates) the liquidity to [the EMA]. You can think like (not equal) to rebalancing a whole Uniswap v3 pool at once.”