Decentralized liquidity protocol Curve is trying to reduce its reliance on third-party protocols.
Using its Lending-Liquidating Automated Market Maker (LLAMMA) algorithm — an algorithm that combines both a traditional loan pool and an Automated Market Maker (AMM) — Curve has made it possible to gradually liquidate collateral across a price range — and not only easy at a price.
LLAMMA currently relies on an external Chainlink oracle to run its loan pools. If the collateral price is higher, all user deposits remain protected within the collateral posted. However, if the value of the security falls below a certain threshold, the user’s deposits will be liquidated.
“Pretty much everything depends on Chainlink, but recently curve governance passed a proposal that fundamentally allows new types of pools to have their own internal oracle,” explained Dan Smith, senior analyst at Blockworks Research.
This means that these liquidity pools can track an exponential moving average of the traded price by averaging based on trade size and time, much like an oracle.
Unlike Chainlink, which aggregates an asset’s prices from multiple different sources, Curve would consider a price based on a single source of liquidity, making it inherently more risky.
Therefore, it is important that these pools have high levels of liquidity to ensure that the pool is not subject to price manipulation.
“If you have a pool that is deep enough, such as the stETH pool with billions of dollars of ETH liquidity staked, it will be difficult to manipulate the price. Even if someone comes in and starts getting into it, they can’t just move billions of dollars of liquidity back and forth,” Smith said.
The community is currently deciding whether or not to implement these solid price oracles in select pools with high liquidity.
“That’s what DeFi should be, which is to get away from being dependent on anything other than your own protocol,” Smith said.
If you would like to learn more about Curve and its various loan pools, please check out the latest report from Blockworks Research.
Receive the top crypto news and insights of the day via email every night. Subscribe to Blockworks’ free newsletter now.
Want Alpha delivered straight to your inbox? Get ideas on Epee trading, governance updates, token performance, must-see tweets and more from Blockworks Research’s daily debrief.
can’t wait Receive our news as soon as possible. Join us on Telegram and follow us on Google News.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.