Decentralized liquidity protocol Curve is considering reducing its reliance on third-party protocols, specifically Chainlink, an external oracle currently utilized by Curve to operate its lending pools. Curve’s lending-liquidating automated market maker algorithm (LLAMMA) now allows collateral to be gradually liquidated over a price range, rather than at a single price. The Curve community is now examining the potential of implementing solid price oracles in select pools with deep liquidity.
Since Curve’s primary focus has been on Chainlink, the recent governance proposal to permit new types of pools with their own internal oracle comes as an important development. This could provide liquidity pools with an exponential moving average of the traded price, taking an average based on trading size and time. This is similar to what an oracle does, but unlike Chainlink which aggregates asset prices from multiple sources, Curve would rely on a single liquidity source, increasing the risk.
To tackle this inherent risk and ensure pools are not subject to price manipulation, deep liquidity in these pools is crucial. According to Dan Smith, Blockworks Research Senior Analyst, pools like the stETH pool, with billions of dollars in staked ETH liquidity, would be difficult to manipulate because moving such a substantial amount of liquidity is tremendously challenging.
Eliminating reliance on external oracles could truly exemplify the decentralized nature of DeFi. However, it is critical for the community to carefully assess the risks and benefits of implementing solid price oracles within the deep liquidity pools. Furthermore, ensuring proper liquidity management will be key to maintain the stability and safety of these pools.
The ongoing developments at Curve and various other lending platforms indicate the rapidly changing landscape of decentralized finance. As the industry continues to evolve and embrace new technologies and methodologies, the potential risks must be weighed against the benefits for users. This will help build more robust and efficient platforms, which facilitates better consumer experiences and furthers the progress of the DeFi landscape.
If you’re interested in learning more about Curve’s lending pools, we recommend checking out the latest report by Blockworks Research.
Source: Blockworks
