Adding Liquidity to Curve

At Ondo, we’re working on strategies that use Curve Pools. This got me thinking - what is the safest way to add liquidity to a Curve Stableswap Pool given very clever sandwich strategies

For background, in Curve, In curve, virtual_price is essentially an accounting mechanism for the price of LP tokens. Virtual_price for an LP token should always increase in stableswap pairs due to accumulation of fees (this is not the case in the tri-crypto pool or in non-correlated asset pools in curveV2). Calc_token_amount returns the amount of LP tokens received given a list of tokens to LP into a pool. Calc_token_amount can be manipulated and is not safe to use as-is when being called from a smart contract.

When adding liquidity to a curve pool, there are two forms of slippage tolerance that we need to watch out for:

1. Slippage caused by being sandwiched
2. Slippage caused by adding an imbalanced ratio of tokens

For 1, generalized frontrunning bots can monitor the mempool for transactions that add liquidity. Protocols must be even more careful when they allow keepers to permissionlessly add pooled liquidity as they can easily be frontrun - see FEI Postmortem. To prevent being frontrun, users can do the following:

• Use flashbots protect
• Add liquidity only if the slippage does not cause an LP returned amount to deviate from a set oracle price - call get_virtual_price to return the expected LP and multiply by the oracle price. See this chainlink article for more info.

Doing the above two together is the most secure.

For the second form of slippage, note that Curve also allows users to add an imbalanced ratio of tokens when adding liquidity. The catch is that a user pays extra fees for any resulting pool imbalance. To prevent too large a price impact, we can set a slippage tolerance based on expected number of tokens to be received. Simply divide balance of pool by virtual_price and then subtract by expected slippage amount. A discussion on adding liquidity can be found in this discord convo.