If you’re plugged into the DeFi world, you’ve probably seen a lot of excitement lately around this announcement from AC and Curve.fi:
As a DeFi user or yield farmer, you’re probably wondering what all this means for you. Is it a gamechanger? or just more fees to pay with potential pool and token migrations on the horizon?
Let’s dive in…
It’s all about the curve
Currently, all the major algorithmic stablecoins conduct most of their trading on Uniswap or similar AMMs like Sushiswap.
Uniswap is a Constant-Product Market Maker that uses the equation x * y = k in order to determine pricing along a curve that looks like this:
The key takeaway here is that large trades relative to the size of the pool move price further along the curve in both directions. This is an elegant solution and one that is well-suited to most crypto assets that behave more like traditional ‘stonks’.
However, while the Uniswap model is a great leap forward for DeFi as a whole, it isn’t ideal for pegged assets like stablecoins. In fact, it actually works against the stabilization mechanism by exacerbating price volatility away from the intended peg when large trades are made. For a stablecoin to remain, well, stable, it is essential that large trades are executed with minimal slippage and deviation from peg.
This is where StableSwap comes in.
The Curve.fi model uses a more complex algorithm called the StableSwap invariant that is optimized for minimal slippage. Without going into the math here, it results in a price curve that is flatter around the optimal peg range. This means that large trades will have a much smaller impact when made around the peg, which is exactly what algo-stables need.
This is also the reason why swapping stablecoins on Curve is so efficient. Traders are able to easily move 6, 7 and even 8 figures between DAI/USDC/USDT with minimal slippage through the combination of the StableSwap algorithm and deep liquidity in the Curve pools.
Implications for Basis Cash
As we work towards the launch of Basis Cash V2 in the coming weeks, subject to governance approval, we intend to migrate our BAC/DAI liquidity from the current Uniswap pool to a Curve BAC/DAI/USDC/USDT metapool in order to take advantage of the inherent pegging mechanism outlined above.
A token migration (creating a new BAS token) will be necessary to move the BAS emissions to the new pool, since the current pools have been hard-coded into the smart contracts since the inception of the protocol and there is no way to modify them.
The BAC/3crv metapool is already live. However, LPs do not yet earn any rewards, so please use it at your own risk.
More updates to follow soon!