Curve v2 vs Orderbooks: Capital Use

Dynamic price bands: Capital is concentrated around the current price, which is algorithmically adjusted. This provides deeper liquidity for stable and correlated assets (e.g., stETH/ETH) with less capital. Ideal for stablecoin pairs, pegged assets, and protocols like Frax Finance or Lido's stETH.

Higher LP returns per dollar: By concentrating liquidity, LPs can achieve higher fee yields on a smaller capital base compared to traditional AMMs. However, this comes with increased impermanent loss risk if the asset pair de-pegs outside the active band.

Maker/Taker model: Market makers (MMs) place limit orders at specific prices, allowing for precise capital deployment and risk management. This enables custom strategies like market making around a futures expiry or providing liquidity for exotic options on dYdX or Hyperliquid.

Capital is locked per order: Funds are tied to specific price points until filled or canceled, which can be inefficient for volatile markets. Requires low-latency infrastructure (often off-chain sequencers) to compete effectively. Best for high-frequency traders and institutional market makers.

Concentrated liquidity within a price band: LPs provide liquidity where most trading occurs, achieving higher fees with less capital. Pools like crvUSD/FraxBP can achieve 1000x+ capital efficiency for stable assets compared to a standard orderbook spread. This matters for LPs seeking maximal yield on stablecoins and pegged assets.

Automated, formula-based pricing: Eliminates the need for active order management. LPs earn fees from all swaps within their band, leading to consistent, predictable returns. This matters for passive capital and protocols (like Convex Finance) that aggregate LP positions for yield optimization.

Full discretion over price and size: Traders and market makers can place limit orders at exact prices, enabling sophisticated strategies like iceberg orders or TWAP execution. This matters for professional market makers (e.g., Wintermute, GSR) and traders arbitraging across venues like dYdX or Vertex.

Access to deep, resting liquidity: Large trades can be filled across multiple price levels, minimizing price impact compared to tapping a single AMM pool. On platforms like Hyperliquid, a $1M+ trade will typically experience lower slippage. This matters for institutional-sized flows and OTC desks.

Liquidity is bonded and subject to divergence loss: Capital is locked in smart contracts and exposed to IL if the peg between assets breaks. veCRV locking for boost multipliers further reduces capital flexibility. This matters for capital that needs to be rapidly redeployed or is sensitive to peg de-risking.

Requires active management and infrastructure: Running a profitable market-making bot requires constant monitoring, sophisticated software, and reliable low-latency connections. This matters for teams without dedicated quant/dev resources and favors large, established players.

Specific advantage: Ultra-low slippage (<5 bps) for stablecoins and pegged assets via its dynamic AMM algorithm. This matters for large, passive liquidity providers (e.g., DAO treasuries, stablecoin yield strategies) who prioritize minimizing impermanent loss and maximizing fee yield on high-volume, low-volatility trades.

Specific advantage: Automated market-making that dynamically concentrates liquidity around the current price, reducing the capital required to achieve deep liquidity. This matters for protocols like Frax Finance or Convex Finance that need to bootstrap deep pools for their stable assets without active management, leveraging over $2B in TVL.

Specific advantage: Enables limit orders, stop-losses, and complex trading strategies (e.g., grid trading) impossible on AMMs. This matters for active traders, market makers, and hedge funds (like Alameda Research's historical strategies) who require precise entry/exit points and want to provide liquidity at specific price ranges for maximum fee capture.

Specific advantage: Zero capital lock-up for resting orders; capital is only committed when a trade executes. This matters for professional market makers (e.g., Wintermute, Jump Crypto) who can deploy capital across multiple venues simultaneously, optimizing for fill rates and rebates on platforms like dYdX or Vertex Protocol.

Specific weakness: Highly inefficient for trading volatile or uncorrelated assets (e.g., ETH/APE), leading to massive slippage and impermanent loss. This matters if your capital strategy involves long-tail altcoins or cross-chain asset pairs; you'll lose to arbitrageurs and dilute your position.

Specific weakness: Requires active management and significant upfront liquidity to create a tight market. Low liquidity leads to wide spreads. This matters for new protocols or exotic assets that cannot attract professional market makers; an AMM like Uniswap v3 is often a better bootstrap mechanism.