As you should know, providing liquidity doesn’t come without its fair share of risks so in this article, we review the different Curve pools to help you find one that matches your risk tolerance while explaining the risks involved with being a liquidity provider on Curve.

There are currently seven pools on Curve, the first five are stable coin pools and the last two are tokenised Bitcoin pools (Bitcoin on Ethereum).

It’s important to understand that when you provide liquidity to a pool, no matter what coin you deposit, you essentially gain exposure to all the coins in the pool which means you want to find a pool with coins you are comfortable holding.

If you’d like to learn the basics of Curve, click here to read a beginners guide.

Another important note is that all liquidity providers receive CRV regardless of what pool they contribute to.

Where are those interests coming from?

To understand what the different pools do, it’s also important to understand how Curve makes money for liquidity providers. Curve interests come from trading fees. Every time someone uses Curve to exchange stable coins, through the Curve website, 1inch, Paraswap or another dex aggregator, a small fee is distributed to liquidity providers. This is why the more volume on Curve, the higher the APY are.

Some pools (Compound, PAX, Y, BUSD) also earn interests from lending protocols. Behind the scenes, those four pools also use lending protocols (like Compound or AAVE) to help generate more interests for liquidity providers. Whilst it means those pools can be better performers when lending rates are high, it’s also worth noting it also add more layers of risks.

So all pools earn interest from trading fees, some pools also earn interest from lending and there are also two pools with incentives. sUSD and sBTC which are non lending pools have been incentivised by Synthetix and REN. As a result those two pools earn rewards in SNX for sUSD and SNX, REN, BAL for sBTC.

The lending pools: Compound, PAX, Y and BUSD

The four first pools are the lending ones which means as explained above, you earn interest from lending as well as trading fees.

The Compound pool is the first and oldest. The (c) you see above stands for cTokens which are Compound native tokens. This means your stable coins in the Compound pool would only be lent on the Compound protocol.

The other pools are yPools which are tokens for iEarn. iEarn is a yield aggregator. You might think that Compound doesn’t always have the best lending rates and you would be right and thus the yToken balances automatically rebalance your stable coin to the protocol(s) with the better rates (Compound, Aave and dYdX). It’s free and non-custodial (as is Curve) but it is also why the yPools are considered more risky as you use a series of protocols that could themselves have critical vulnerabilities.

The y pool along with the sUSD pool usually offer the better returns in the stable coin pools.

In those pools, your risks are as follow:

  • Smart contract issues with lending protocols
  • Smart contract issues with Curve
  • Smart contract issues with iEarn
  • Systemic issues with the stable coins in those pools

Whilst it’s important to not underplay risks associated with providing liquidity on Curve or DeFi in general, it’s worth noting that all the protocols mentioned above have existed for several months (or more for Compound or iEarn) meaning they have been extensively time tested and exploit attempts have been numerous.

The sUSD Pool

sUSD is a newer pool on Curve, it doesn’t have any lending but is still one of the best performers because of its incentives which come from a partnership between Curve and Synthetix.

When you lend on this pool, you can stake your LP (liquidity provider) tokens and earn SNX which makes it an attractive proposition. It’s worth noting that sUSD is Synthetix stable coin which is a synthetic product which means it may not be backed 1:1 like other stable coins are supposedly meant to be.

In this pool, your risks are as follow:

  • Smart contract issues with Curve
  • Systemic issues with the stable coins in those pools
  • Systemic issues with Synthetix

As you can see, risks are different which might make this pool a better choice for you depending on what your concerns in the cryptosphere are.

The Bitcoin pools

Recently introduced to Curve, it is now possible to participate in two tokenised Bitcoin pools.

The first one pool has renBTC and wBTC, two fully backed versions of Bitcoin on Ethereum. renBTC is fully decentralised but has only existed for a few weeks and wBTC has a lower level of decentralisation but has been around for a bit longer.

This pool receives trading fees only and is likely to have a small APY as Bitcoin on Ethereum is only getting started and thus not generating large volumes yet.

The second one is the sBTC pool which is one of the most talked about pools in recent weeks as it is heavily incentivised with REN, SNX and BAL (on top of CRV). Find a guide on providing liquidity to this pool by clicking here. On top of having wBTC and renBTC, it has sBTC which is a synthetic version of Bitcoin on the Ethereum chain. It is the Bitcoin pool offering the best returns but it also has more risks.

In those pools, your risks are as follow:

  • Smart contract issues with Curve
  • Systemic issues with wBTC or renBTC
  • Systemic issues with Synthetix (sBTC pool only)

FAQ

You should now have a good understanding of the key differences between the pools on Curve, we can now go through a few common questions you may have.

Has Curve been audited?

Yes, Curve smart contracts were audited by Trail of Bits but it’s worth noting that audits don’t eliminate risks entirely.

Are there admin keys for Curve contracts?

Admin keys allow the Curve team to pause the contract in an emergency for the first two months.

Smart contracts cannot be upgraded with the admin key. This limits actions in a case of emergency but leaves users fully in control of their funds.

Curve will be transitioning to a DAO to be fully decentralized with the help of the CRV token starting in July 2020.

Which pools provide the higher returns?

For stable coins, the sUSD pool thanks to its incentives and the y pool are generally the best performers although that can often change depending on market conditions.

For Bitcoin pools, the sBTC pool is the best performer thanks to its incentives.

Will I get CRV regardless of the pool I contribute to?

Yes, all pools will retroactively receive CRV.

What happens if one of the coin in a pool loses its peg?

Due to the liquidity pool mechanism, if one of the coin in a pool were to significantly lose its peg, the liquidity providers would hold almost all of their liquidity in that currency.


As you can see, Curve offers attractive returns but that doesn’t come without risks and it is always best to understand what depositing entails.

If you have any other questions, join our community:

Telegram https://t.me/curvefi

Twitter https://twitter.com/curvefinance