Curve Finance to Leverage FTX Crash?
Curve Finance's decentralised exchange Curve may be just two years old, but it has made some giant strides at a time the crypto industry is in a state of "quo vadis".
The collapse of FTX, the second-largest cryptocurrency exchange at the time, has massively shaken traders' trust in centralised exchanges. A recent report by the Financial Times indicates that traders pulled out a record 91,363 BTC worth $1.5 billion from several notable centralised exchanges in November 2022. According to data from CoinCompare, this is the largest outflow of Bitcoin from exchanges on record.
Every day, new stories come out to add new dimensions to what continues to be an unfolding saga. The saying "not your keys, not your tokens" has come to haunt many who had funds in the bankrupt exchange. The collapse of FTX and several other centralised crypto exchanges have inadvertently opened the door to new opportunities for decentralised exchanges such as Curve Finance. But what does this all mean for you as a crypto investor and for Curve and other decentralised exchanges?
Curve Finance: A pathway to the new crypto future
Before the FTX saga, there were already problems in the centralised exchange ecosystem. Some of these issues date back to 2014 when the first high-profile crypto exchange hack occurred. Since then, several other hacks of notable crypto exchanges have happened. Others went bust and took down investors' funds with them. Even as customers of Mt.Gox are now getting back their holdings after an eight-year process, many other investors have yet to be as lucky. Clients of collapsed exchanges WEX and QuadrigaCX still don't know what happened to their funds.
The setup of centralised crypto exchanges requires users to leave their cryptos on these exchanges to be able to buy, sell or transact with them. This exposes such tokens to being stolen, hacked, or disappearing outright.
Even more unnerving are details that have emerged from the FTX collapse. One of these is that the unregulated operation was basically being run from a penthouse in the Bahamas by a 10-man team of acquaintances of Sam Bankman-Fried, some of whom were romantically involved. There has yet to emerge any information on these individuals to suggest that they meet the strict competency requirements that operators in the forex, commodity, and equity markets are guided by to control such a large multi-billion dollar operation.
These problems spurred the next generation of crypto exchanges which captured the decentralisation essence of the blockchain. By keeping their crypto holdings in an external wallet that only required connection to the DEX for a transaction, users could at least be sure they are in control of their funds, sparing them from some of these unfortunate events. This was the environment that birthed the Curve DEX platform.
Curve is a decentralised exchange from the stable of Curve Finance. It features a governance token (CRV) and a crypto economy providing decentralised finance tools access. Curve Finance came on board in 2020, when global financial markets were in a pandemic-induced tailspin, and the crypto market underwent a renaissance after a three-year downturn.
How has Curve been able to ride the latest crypto storm, and should users consider this a safer alternative to centralised crypto exchanges?
What has been Curve Finance's story since the FTX contagion?
The data on the performance of Curve and other decentralised exchanges shows that the trust of crypto market participants has mainly remained unblemished in the period following the FTX saga. There is every reason to be hopeful about the performance of the CRV token in the months and years ahead.
A 17 November, 2022, report by Delphi Digital on its Twitter page indicated that DEX tokens massively outperformed tokens of centralised exchanges. CEX tokens lost 2.5% in the week under review, while DEX tokens, such as CRV, gained 26%. Crypto research portal Messari indicated that Uniswap and Curve Finance were the two decentralised exchanges expanding their user base.
DappRadar currently ranks Uniswap as the top DEX with a total value locked (TVL) of $4 billion. However, the value of the Uniswap token UNI fell 36% in November following the FTX collapse. It was able to claw back some of these losses, gaining 25% as of the first week of December. In contrast, Messari found that not only did CRV gain 66% after dropping to an initial low of $0.4, but Curve's unique user base grew to an all-time high in November 2022, following an 11% increase over the May 2022 previous all-time high.
In essence, Curve Finance performance in terms of CRV's price appreciation and the number of new users has exceeded that of Uniswap in the period following the collapse of FTX. It is also noteworthy that in September 2022, the total value locked on Curve Finance briefly topped that of Uniswap.
The figures show much potential in investing in the CRV token over the long term and participating in various crypto investment activities on Curve's decentralised exchange.
What activities are performed on Curve's DEX?
Currently, Curve provides two levels of service:
• Quick Swap (the service for buying and selling crypto tokens)
• Liquidity pool (the crypto lending portal).
Decentralised exchanges are, by nature, non-custodial. They do not maintain a centralised wallet to which investors must move funds before they can transact.
Therefore, users must connect their wallets to use the platform. Compatible wallets include Trezor, Ledger, Metamask, Coinbase Wallet, Fortmatic, WalletConnect, Torus, and Portis. Base wallet currencies supported include Ethereum, Avalanche, Gnosis, Kava, Celo, Fantom, Polygon, and MoonBeam. Once connected, you can swap CRV, DAI, USDT, USDC, LUSD, ETH, and wBTC for each other and an extensive list of other non-descript tokens.
Curve also features liquidity pools for crypto lending and borrowing and presents traders with the Quick Swap exchange portal, where non-custodial crypto tokens are swapped. Liquidity pools are maintained in various cryptos: Bitcoin, Ether, DAI, USDT, and the US Dollar are all featured currencies.
The data points are clear: investors are trooping to Curve. This shows that the future of crypto lies in decentralised exchanges. This segment of the crypto market is still nascent, with room for growth in 2023 and beyond.
Author: Eno Eteng
Eno is a certified financial technician and member of the UK Society of Technical Analysts. He loves to trade and write about cryptos, FX and CFDs. Since 2009, he has been a consultant for several companies in the financial market space. His work can be seen on several forex and crypto-related blogs and trading educational websites.