Curve Finance Proposes AMM Fee Increase for LLAMMa Liquidity Pool

Curve Finance, a prominent decentralized exchange (DEX) renowned for stablecoin swaps, has put forth a new proposal to elevate the Automated Market Maker (AMM) fee in LLAMMa (crvUSD), one of its liquidity pools.

The proposal suggests raising the AMM fee from 0.6% to 1.9%, a move aimed at benefiting borrowers utilizing the protocol. This adjustment aims to alleviate ‘soft liquidation losses’ incurred during spikes in Ethereum gas fees, ultimately enhancing the overall user experience.

As with other public blockchains, Ethereum relies on a network of validators to validate transactions and ensure network security. These validators charge fees, payable in ETH, which fluctuate based on demand levels. Gas fees typically surge during periods of heightened prices and on-chain activity.

According to YCharts data, the average Ethereum gas fee stood at 63.68 GWei as of March 11, a notable increase from around 22 GWei in early January.

With Ethereum prices nearing $4,000 and the total value locked (TVL) in decentralized finance (DeFi) nearing $100 billion, gas fees are expected to escalate further.

Benefiting Curve Finance Borrowers

This scenario directly impacts user experience and could potentially lead to increased soft liquidations for LLAMMa borrowers.

The proposed fee increase aims to establish a buffer, thereby reducing losses incurred by arbitrage traders who must contend with high gas fees to execute their trades.

The adoption and execution of the proposal remain uncertain. Currently, voting is open and scheduled to conclude on March 16.

As per DeFiLlama data on March 11, Curve Finance stands as one of the largest DeFi platforms, managing over $2.9 billion in assets and ranking as the 13th largest, following platforms like Uniswap and EigenLayer. While most activities occur on Ethereum, a notable portion is managed on Arbitrum, a layer-2 scaling solution.