Curve Finance

Liquidity Pools (LP) in Curve

A liquidity pool is a smart contract holding pools of tokens (e.g. DAI and USDC) w/ a set ratio between the two (e.g. 1:1). If a trader comes and exchanges one for the other, the pool would become unbalanced forcing the exchange fee to go up (e.g. according to the AMM formula).1

LP recieve high APR because the pools are supplied to Compound to generate interest in combination to the fees when people trade.

How it Works

  1. Deposit coin (e.g. 100 USDC)
  2. Coin gets split up according to the reserves, so now you have 4 DAI, 30 USDC, etc. You’d get a bonus depositing the smallest reserve currency (i.e. DAI in this example) or withdrawing the largest currency (e.g. USDC in this example)
     DAI: 300k (4%)
     USDC: 2M (30%)