Curve Finance Plans to Increase AMM Fee, But For Good Reasons

Curve Finance, one of the largest decentralized exchanges (DEX) known for stablecoin swaps, is planning to increase the Automated Market Maker (AMM) fee in its LLAMMa (crvUSD) liquidity pool. The proposal suggests raising the fee from 0.6% to 1.9% to benefit borrowers leveraging the protocol. This increase aims to mitigate “soft liquidation losses” experienced during Ethereum gas fee spikes, consequently enhancing the overall user experience.

Gas fees on Ethereum, which are paid to validators for transaction processing and network security, have been rising due to increased demand. The average gas fee on Ethereum was 63.68 Gwei as of March 11, a significant increase from around 22 Gwei in early January. With Ethereum prices nearing $4,000 and the total value locked (TVL) in decentralized finance (DeFi) reaching nearly $100 billion, gas fees are expected to continue expanding.

The proposed fee increase in Curve Finance’s LLAMMa liquidity pool aims to create a buffer to reduce losses incurred by arbitrage traders who must pay high gas fees to execute their trades. By creating this buffer, the platform aims to enhance the user experience and minimize the impact of gas fee volatility on borrowers.

While it is uncertain whether the proposal will be adopted and implemented, voting is currently open and will close on March 16. According to DeFiLlama data, Curve Finance manages over $2.9 billion in assets, making it one of the largest players in the DeFi space. While most of its assets are on Ethereum, a significant portion is managed on Arbitrum, a layer-2 scaling platform.