The Slippage Ratio: A New Metric to Understand Curve.fi’s AMM Protocol
The Curve Whitepaper concisely highlights an approach to building an AMM that allows developers to control slippage. Curve’s primary use case is swapping stablecoins, where low slippage is essential to compete with centralized exchanges. In contrast, Uniswap and Balancer use a constant-product invariant (as the Curve Whitepaper describes it); on Uniswap, slippage would be 25% for a trade that is 10% of the size of a liquidity pool. Intuitively, this isn’t acceptable for two assets that are nominally equivalent e.g., USDC vs DAI.
Curve.fi has maintained a large and stable market share, indicating the success of its approach (see figure 1). It’s natural to consider whether the protocol might be applicable to any token pair that has a notion of parity. By parity, I mean that there is some kind of “normal” or mean-reverting price implicit in the asset. For example, a corporate bond issued by General Motors would be expected to trade around 1.0 (i.e., par), barring some kind of credit or interest rate event. We can characterize GM-bond/USD as a parity token pair. A stablecoin is just one example of a parity token pair.
The rest of this post considers the Curve AMM protocol (also called the StableSwap Invariant in the Whitepaper) in the context of any parity token pair. Stablecoins are expected to always…
