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Traditional finance (TradFi) markets are often subject to variables like the United States Federal Reserve, treasury yield curve, long term interest rates, and more. Decentralized finance (DeFi) was created as an alternate financial ecosystem that is less susceptible to manipulation while also being more accessible and transparent than traditional financial markets.
Through DeFi summer in 2020, applications on Ethereum began to attract billions of dollars into their smart contracts, and users flooded the network to start earning yield on their digital assets.
Fast forward to 2022, and the bankruptcies of Celsius, FTX, and Voyager showed the need for self-custodial, transparent services that are powered by DeFi. These centralized firms were empowered by the fact that no one had a clear view on their financials, while their executives had free reign over customers’ assets.
Curve Finance serves as the backbone for many DeFi protocols, and the application itself has billions of dollars worth of digital assets locked in it. Alongside Aave, Compound, Yearn, Maker, and others, Curve attempts to recreate the financial system to be more transparent, accessible, and fair to all.
On regular cryptocurrency exchanges, there are usually buyers, sellers, and market makers rapidly placing buy and sell orders for tokens on an order book. However, the Ethereum network is unable to support this high-frequency type of trading activity without excessive transaction fees, as each network validator would have to record each transaction.
Hence, decentralized exchanges like Curve use automated market makers (AMMs) to replace order book trading. Instead of having an order book, AMMs uses a mathematical algorithm to quote asset prices for buyers and sellers. But before buyers or sellers are able to trade on the exchange, external users must deploy capital into the liquidity pool for the AMM to utilize. External users that provide capital for AMMs are addressed as liquidity providers.
Liquidity providers for Curve pools are able to earn yield via trading fees from buyers and sellers, and also earn Curve’s native token, CRV. CRV’s is Curve DAO’s governance token, which allows CRV stakers to earn trading fees generated by the protocol, earn more CRV, and vote on governance proposals like raising trading fees.
Launched in January 2020, Curve has been wildly successful and popular for stablecoin trading, generating over $250 billion in cumulative trading volume and over $100m in trading fees since its launch.
The risks of using Curve change depending on whether the user is a trader or liquidity provider. Traders bear little to no risk, as they only briefly interact with the protocol to exchange tokens. Liquidity providers deposit their capital for a longer period of time, and may be concerned with potential smart contract bugs that would allow a hacker to drain their capital.
Similar to Aave, Curve has been operating since January 2020 without any major exploits or hacks. It had over $24 billion dollars of total value locked in the protocol at its peak, acting as a huge bounty for any hacker to exploit the protocol if it were possible.
Liquidity providers on Curve can earn yield varying from 0% to over 200%, as yields depend on trading activity and token incentives. The higher yields usually come from providing liquidity for small market cap coins, with increased directional risks for liquidity providers. These sorts of opportunities are usually more attractive to users involved in yield farming.
Interest earned for providing liquidity on safe stablecoins like USDC, USDT, and DAI usually hovers around 1-3% during average market conditions. These yields do not bear directional risks and are attractive for users who want to earn yield on USD while staying liquid.
OUSD has integrated a list of curated DeFi protocols to earn yields for its users, Curve being one of them. By having a variety of DeFi protocols that OUSD can deploy stablecoins to, OUSD has the ability to deploy capital to the strategies that earn the highest yields at that time. By doing so, OUSD has been yielding approximately 5.3% for holders.
Since yields are dynamic, OUSD can earn more yield than lending on Curve, Aave, or Compound alone. It’s also ideal for holders dealing with less capital, as OUSD rewards accrue directly to your wallet daily. This means you will not have to pay prohibitive gas fees to harvest your rewards, and OUSD remains fully liquid while earning interest.
OUSD can be bought directly on the Origin dapp, through Curve itself, or on centralized exchanges such as Kucoin or Gate. If you purchase through the OUSD app, you’ll be minting fresh OUSD with Dai, USDT, or USDC, whereas buying on a secondary market can be done through stablecoins, USD, or crypto.
Most of the differences between Curve’s biggest competitors stem from their pricing algorithms, and are known as:
Is Curve Finance safe?
Curve is considered as one of the DeFi blue-chips due to its lack of exploits, age, and popularity. Given its smart contract performance in an adversarial environment where code is law, we believe that Curve is one of the safest protocols in crypto.
How do short term interest rates affect the DeFi market?
Short term interest rates, like those for treasury bills or short term bonds, can influence DeFi yields. When treasury bill rates are low, investors often seek higher returns in DeFi platforms, which can offer more attractive yields through protocols like Curve Finance.
What is an inverted yield curve and why does it matter to DeFi investors?
An inverted yield curve occurs when short term interest rates exceed long term rates, such as the 30-year treasury and the 10-year treasury. This inversion can signal economic downturns, leading bond investors to seek safer, more liquid assets, sometimes pushing them towards DeFi platforms for better yields and stability.
How does the yield curve reflect the stability of DeFi investments compared to traditional treasury bonds?
The yield curve reflects market expectations for future interest rates and economic conditions. While traditional investments like treasury bonds offer predictable returns, DeFi investments on platforms like Curve Finance can offer higher, albeit more volatile, yields. Understanding the yield curve helps investors balance their portfolios between stable assets and high-yield DeFi opportunities.
