How does Curve’s economic model sustain itself despite such low trading fees?

I’ve been providing LP on Curve’s stETH/ETH pool for some time now, but I’m finding the trading fee rewards to be somewhat disappointing. This led me to wonder about the long-term sustainability of Curve’s economic model given its low trading fees.

In this post, I calculated the trading fee LP rewards of stETH/ETH


>daily\_pool\_income = volume \* fee = $4.95m \* 0.04% = $1980
>so all $1.231b worth of token in this pool is splitting the $1980.
>every dollar will earn $1980/1.231b = 1.608E-6
>APY = (1+1.608E-6)\^365 – 1 = 0.0587%

With over $1.23 billion worth of tokens in the pool, that income really does seem trivial.

The most puzzling part is that in order to earn this trading fee, liquidity providers have to forgo staking rewards on half of their ETH. So why would anyone opt for a lower APY when they could be holding 100% stETH to enjoy a \~5% staking reward?

A similar situation can be observed in Curve’s largest pool, 3pool, which comprises USDT, USDC, and DAI. Today’s daily variable APY (vAPY) is 0.21% and the total APR (tAPR) ranges from 0.52% to 1.32% for CRV. Even assuming the maximum tAPR, the total APY is approximately 1.53%. This is considerably lower than the \~2.2% that could be earned by supplying these stablecoins on AAVE, and it’s miles behind the 4%-5% that can be expected from a US money market fund, which aligns more closely with the Federal Reserve’s interest rate.

It leaves me scratching my head as to why $381 million worth of liquidity would be supplied to Curve under these circumstances. While it’s true that in the world of DeFi, lending liquidity to earn trading fees is commonplace, and in Uniswap’s case, the substantial trading fees justify the risk of impermanent loss (IL). But when it comes to stablecoins, where IL risk is minimal and trading fees are low, the rewards for liquidity providers seem insufficient to retain them in the pool.

Consequently, I can’t shake off the feeling that Curve’s model might resemble a Ponzi scheme more than I’d like, especially since liquidity providers seem to be earning more from token incentives (CRV, LDO, etc.) than trading fees.

Please don’t misconstrue my thoughts as spreading FUD about Curve. I’m still navigating the DeFi landscape and trying to understand how Curve has managed to sustain its operations over the past couple of years. If anyone can shed light on these matters, I’d really appreciate it. Thank you.

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2 thoughts on “How does Curve’s economic model sustain itself despite such low trading fees?”

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  2. I think it all comes down to the CRV rewards. Back in the day when the CRV token was mooning (late 2021), you could get A LOT of money from these incentives… But you are right, long-term sustainability is in question if you only provide value by giving away made-up money.


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