Curve Finance, long distinguished by its homogenous-asset pools, has taken a walk on the wild side.
The automated market maker (AMM) rocked DeFi yesterday by releasing a pool containing USDT, WBTC, and ETH on Ethereum and another including USDC and DAI as well on Polygon. This was a first for Curve, which had up until then only served trade between different versions of the same asset, such as WBTC and renBTC.
Curve’s new algorithm reduces slippage by concentrating liquidity around what the associated paper calls an “internal oracle.” As trades happen the oracle will register the new relative prices, with protocol moving liquidity to that point.
This contrasts with Uniswap’s V3 which requires manual rebalancing of concentrated liquidity positions, though developers may build services to automate this.
Projects will also be able to create their own pools using Curve’s new algorithm, potentially leading to the AMM becoming a full-fledged exchange and a full blown competitor to Uniswap and other exchanges.
It’s not all good news for liquidity providers to Curve’s new pools — LP positions will be subject to impermanent loss.
The development ratchets up the contest between Uniswap and Curve. When Uniswap V3 released its specs in March, Curve core team member Julian Bouteloup called it “a killshot at Curve V1.” This is because the concentrated liquidity on Uniswap’s V3 allows the project to theoretically compete with Curve, which, until yesterday’s release, specialized in concentrated liquidity around homogeneous pairs.
With Curve’s V2 it appears that Michael Egorov, Curve CEO and the paper’s author, made good on his statement to counter Uniswap’s V3 with “Math.”
With V2, Curve may have started their own battle, in addition to the raging “Curve Wars” for the project’s CRV token. In the meantime many people are scratching their heads trying to understand the math behind the new V2.