Automated Market Makers Explained: How DeFi Liquidity Pools Work
Learn what Automated Market Makers are, how they price trades, key protocols like Uniswap and Curve, and how to become a liquidity provider in DeFi.
When working with Curve Finance, a decentralized exchange built for low‑slippage stablecoin swaps on Ethereum. Also known as Curve, it offers deep liquidity and efficient yield opportunities for DeFi users. The platform’s core product is the stablecoin, a digital asset pegged to a fiat currency or commodity pool, where traders can swap assets like USDC, USDT, and DAI with minimal price impact. Under the hood, these pools run on Ethereum, the world’s leading smart‑contract blockchain, which provides the security and composability that make Curve’s smart contracts trustworthy. Because the protocol focuses on a single‑asset class, it can charge lower fees than generic DEXs, a key reason why both retail and institutional players keep coming back.
One of Curve’s biggest draws is its yield farming, the practice of earning extra tokens by locking liquidity into a pool. When you deposit stablecoins, you not only earn swap fees but also receive CRV tokens as incentives. This creates a virtuous cycle: more CRV rewards attract more liquidity, which in turn lowers slippage and boosts fee earnings—a classic Curve Finance semantic triple: Curve Finance encompasses stablecoin swaps; stablecoin swaps require liquidity pools; liquidity pools generate yield farming rewards.
Liquidity pools themselves are engineered with the “amplification coefficient” that lets Curve mimic the behavior of a single‑asset pool while still supporting multiple tokens. The design reduces price deviation, which is why arbitrage bots love the platform. For users, the practical benefit is simple: you can lock your USDC, DAI, or other stablecoins and start earning without constantly monitoring the market. The protocol also supports cross‑chain bridges, allowing assets from other ecosystems (like Polygon or Arbitrum) to tap into Curve’s low‑slippage environment, expanding the reach of DeFi beyond Ethereum’s mainnet.
Below you’ll find a curated list of articles that dig deeper into each of these areas. Whether you’re checking the latest Curve Finance review, exploring how its yield farming compares to other DEXs, or learning about the security considerations of stablecoin swaps, the collection gives you concrete steps, real‑world data, and actionable insights to make the most of Curve’s ecosystem.
Learn what Automated Market Makers are, how they price trades, key protocols like Uniswap and Curve, and how to become a liquidity provider in DeFi.