The Journey of Curve Finance
In recent days, Curve Finance has once again captured the market’s attention. Despite its early success, recent months have severely tested Curve’s resilience, marked by a $70 million exploit and the personal liquidation issues of Michael Egorov, the founder of Curve Finance. Notwithstanding successfully navigating these crises, the question remains: can Curve Finance reclaim its former glory?
Curve Finance’s Rise
Launched in January 2020, Curve Finance quickly captured market attention as a Uniswap-like exchange for stablecoins, offering the lowest fees, slippage, and impermanent loss among Ethereum-based DEXs. Over the years, Curve Finance has built a dynamic ecosystem and a loyal community through its innovative ve-tokenomics and active platform development. Despite the cooling of the DeFi boom, the $CRV token managed to maintain a relatively healthy price range. So, what led to the recent liquidation issue?
The Exploit and Aftermath
On July 30, 2023, Curve Finance experienced a significant setback when several of its liquidity pools were exploited due to a reentrancy vulnerability in the Vyper compiler, resulting in approximately $70 million in losses. The $CRV price dropped nearly 30% following the hack, amid fears that Egorov’s $100 million loans, backed by 47% of the circulating supply of $CRV, would be liquidated.
Although the crisis was mitigated by selling over 160 million $CRV to investors, $CRV’s price since then has struggled to recover. As whales who initially supported the price during the hack began offloading their holdings, the price dropped even further.
Under these pressures, Egorov’s loans backed by $CRV faced another liquidation risk in June 2024. Egorov has since repaid 100% of his bad debt and committed to building Curve Finance more than ever. However, liquidations could occur once again if the downward price trend persists. Several factors are contributing to these challenges.
Competition and Market Position
Back in 2020, Curve’s innovative AMM algorithm quickly established it as the top platform for stablecoin swaps, at one point achieving over $20 billion in total value locked (TVL), the highest among all DeFi projects.
But now, Curve no longer dominates stablecoin swaps as it once did, with Uniswap V3’s concentrated liquidity and customizable fee tiers diminishing Curve’s advantage and significantly drawing liquidity away. Additionally, other DeFi projects have also played a role in reshaping the landscape, further impacting Curve’s market position. Curve’s current advantages primarily lie in large amount stablecoin swaps or specific token pairs, catering mainly to institutional investors.
In the current bull market, DeFi projects have underperformed compared to the hype surrounding MEME coins and AI. With fewer money inflows, pioneer DeFi projects like Aave, Curve, and Uniswap face pressure as they continuously unlock large amounts of their tokens. Particularly for Curve, which unlocks $2.42 million worth of tokens every week, equivalent to 2% of its current market cap every month. Consequently, Curve has consistently faced issues of decreasing liquidity and $CRV price drop.
Furthermore, the SEC’s case against Uniswap, alleging it operates as an unregistered securities exchange and broker, adds another layer of complexity to the already challenging environment for DeFi projects.
The Road Ahead
Despite these challenges, Curve Finance still holds significant advantages. Its innovative AMM algorithm and focus on low-slippage stablecoin swaps make it a preferred platform for large-scale transactions. Besides, Curve’s own stablecoin, crvUSD, with a rebalancing structure, effectively minimizes the risk of liquidation and benefits both borrowers and the CurveFi protocol.
Additionally, Curve is more than just a DEX; it has evolved into a mature DeFi ecosystem, including various aspects like Curve Lending, which allows the creation of permissionless lending/borrowing markets to borrow crvUSD against any token. As the DeFi landscape continues to evolve, Curve’s ability to adapt and innovate will be crucial in maintaining its competitive edge. As they say, “the darkest nights produce the brightest stars.”
