CRV under Uni V3: In-depth analysis of Curve’s business model, competition status and current valuation

Research report points

  • Core investment logic

Curve can firmly rank second in the battle for liquidity of the Defi protocol. It has a TVL of more than 10 billion U.S. dollars. It is the result of accurate product positioning, sophisticated mechanism design and long-term stable operation. Its core competitive advantage of the project Lies in:

1. Through the early focus on the trading market of stable coins and stable consideration assets, a strong dominance in this segment has been built, and it has become the preferred platform for asset issuers, large-value traders, and market makers seeking stable returns. Obvious network effect;

2. Have a very good pass model, which is specifically reflected in:

  1. The distribution of all scarce resources on the platform is deeply tied to the governance right, and the governance right (veCRV) needs to be exchanged for the token CRV. A large number of long-term lock-ups have reduced the circulating market value of the project
  2. Fully introduce the game of the platform participants (liquidity providers, asset and bill issuers) to form a continuous competition for governance rights (veCRV), further increase the demand for CRV, and undertake continuous unlocking of CRV selling pressure
  3. The final result of the above two is: a. The stable currency price guarantees the APY of the liquidity provider and retains the liquidity; b. The system’s multi-participants are deeply tied to the development of the Curve platform, which improves governance participation Degree and effectiveness; c. It creates extremely high conversion costs for core participants, and it is difficult for them to leave if they have pledged a large number of CRVs for a long time.
  • Valuation

Challenges from DEX such as Uniswap, unsatisfactory development of new business in the transaction of non-stable consideration assets, and the centralization and supervision of the market share of stablecoins.

  • Main risk

Overall, Curve has a clear competitive advantage in the field of stable consideration asset trading. Its excellent token economic model further strengthens its moat and provides strong support for its token price.

However, whether it is a vertical historical valuation comparison or a horizontal comparison with other transaction agreements, the valuation of Curve at this stage is too high.

Basic situation of the project

  • Project business scope

Curve is a trading protocol based on the Automated Market Maker (AMM) model. It mainly focuses on the trading of stable coins, encapsulated assets (such as wbtc\renbtc), and pledged assets (stEth). However, it has recently begun to explore the trading of unstable consideration assets. business. Compared with other trading agreements such as Uniswap and Sushiswap , Curve provides more concentrated trading pairs, focusing on extremely low trading slippage and handling fees, which can meet the huge amount of asset trading needs.

  • Past development and roadmap
  • Business conditions

Service object

Curve as a decentralized trading platform, the main difference between Curve and Uniswap and other comprehensive spot trading platforms lies in the types of transactions. At present, Curve’s trading types are mainly concentrated in stable coins (USD assets) and other BTC and ETH with a target price of 1:1. Derivative assets.

In addition, after the release of Curve V2, Curve also launched the Tricrypto pool, opening up the exchange of non-stable consideration assets such as USDT, WBTC and ETH.

It should be noted that, unlike Uniswap and other mainstream AMM spot trading platforms whose main service objects are market makers and traders, Curve actually has three main service objects.

The first two categories are market makers and traders. The third type of service objects are ignored by most people. They are the issuance and operators of stablecoins and derivatives of BTC and ETH, as well as the issuers of bills. For Curve, the magnitude of the third group determines its stablecoins. And stabilize the ceiling of the consideration asset business.

For stablecoin issuers, the first priority is to ensure that their stablecoin prices do not fall off the anchor, and that they have an excellent low slippage exchange depth at the anchor price point. To ensure these two points, the stablecoin can The major premise for subsequent scenarios and user expansion is also the starting point for users’ confidence in the stablecoin.

However, these two points are not so easy to do, especially the “low slippage under huge transactions”.

Curve is currently the best solution to solve these two pain points of stable currency issuers, so most stable currency issuers will choose to establish stable currency exchange pools on Curve, and provide token subsidies in the initial stage to encourage market making Providers provide liquidity.

At present, the US dollar stable currency UST operated by Terra, GUSD issued by Gemini, and PAX, which are well-known by everyone, has established a stable currency liquidity pool in Curve.

In addition, the emerging currency market protocol Liquity over-collateralized LUSD, the algorithmic stable currency FRAX, etc., have also established an excellent depth on the Curve, and the excellent exchange depth is an important source of confidence for users to accept a stable currency. .

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Curve has up to 26 USD stablecoin pools, https://curve.fi/pools?

And stable currency issuer There are similar BTC in Ethernet Square assets of the issuer, in addition to the largest circulation, outside the consensus strongest WBTC (by the well-known encryption mechanism Bitgo major carriers), as well as Ren issued renbtc, Synthetix of sBTC, HBTC issued by Huobi, BBTC issued by Binance, etc.

The Ethereum version of BTC issued by these institutions wants more users and scenarios to be adopted, and it also has to solve the problem of de-anchor and depth from the real BTC price. Therefore, these institutions have also initiated proposals on Curve through proposals and other methods. The liquidity pool of BTC assets ensures the stable consideration and depth of their BTC assets.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

BTC asset pool on Curve, https://curve.fi/pools?

Under the Eth2.0 POS mechanism, a large number of staking service platforms have emerged, such as Lido, Ankr, and so on. When users deposit ETH on these staking platforms to seek pledge rewards, they will get corresponding deposit certificates. For example, Lido’s ETH pledge certificate is stETH.

In the crypto world where Japan is the evolutionary unit, users are extremely sensitive to the liquidity of all their assets and applicable scenarios. Although stETH is behind relatively secure ETH assets, if it does not provide sufficient liquidity between stETH and ETH , Resulting in serious off-anchor or exchange difficulties between the prices of stETH and ETH, which prevents users from exchanging stETH back to ETH on the one hand, and on the other hand, it will also cause other head Defi projects such as Aave and Compound to adopt stETH. This will eventually cause users to be unwilling to choose Lido as their pledge platform.

Therefore, Staking operating platforms like Lido and Ankr have also launched their own liquidity pools of pledged asset certificates and ETH on Curve.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

ETH asset pool on Curve, https://curve.fi/pools?

In addition to the asset issuing party and the Staking platform, another type of institution that needs to build a liquidity pool in Curve is the issuer of the bill. The most mainstream bills are interest-bearing assets, such as Compound’s cToken, Aave’s aToken, Year’s yToken, etc. If the liquidity of the notes issued by them is sufficient, it will also be good for the development of their own business. This part will be detailed in the section of [Business Classification].

Market makers provide liquidity for Curve, and traders provide transaction fees for Curve. So what have the issuance and operators of various assets contributed to Curve? The answer is: huge demand for Curve tokens.

This point will be analyzed in the [Token Model] section.

  • Business Categories

As mentioned earlier, Curve’s trading business is divided into stable currency, stable consideration assets and other non-stable consideration assets. Next, we will sort out the situation of these several businesses.

Stablecoin trading

At present, there are 26 USD stablecoin pools at the core of Curve. Among them, the 3pool, Lusd+3crv and sUSD ( DAI +USDC+USDT) pools with daily trading volume of more than 10 million USD are 82.2 million USD and 25 million USD respectively. And 17.3 million US dollars. Other large trading volumes include UST (6.8 million U.S. dollars), USDN (5.6 million U.S. dollars), MIM (4.2 million U.S. dollars) and so on.

It is worth mentioning that Curve’s Aave stablecoin pool (aDAI+aUSDC+aUSDT) on Polygon has a daily trading volume of up to 8.2 million US dollars.

PS: The above data are 2021.9.1.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Curve’s transaction data of the Aave stablecoin asset pool on Polygon, https://polygon.curve.fi/aave

In addition to the US dollar stable currency pool, there is also a euro fund pool on Curve, but the transaction volume and capital volume are not large.

It is worth mentioning that many of these stable currency pools actually contain “Defi notes”, such as cDAI\cUSDC in the Compound pool, yDAI\yUSDC\yUSDT\yTUSD in the Y (Yearn) pool, and The MIM in the MIM pool, these assets are not simple stablecoins, but vouchers that can be used to redeem the agreed principal + interest to the issuance platform, that is, the “notes” in traditional finance, but the issuer of these notes Both the payer and the payer are Defi projects. Due to the characteristics of their cash-like assets, we also classify them into the stable currency category.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

The bill transaction liquidity pool on Curve, https://curve.fi/pools?

Stable transaction of consideration assets

Stable consideration assets include BTC mirrored assets on Ethereum issued by various institutions, ETH pledge certificates, and synthetic assets created by Synthetix such as sLink.

The largest trading volume of BTC assets is the RenBtc pool, with a daily trading volume of 29.5 million U.S. dollars, followed by the SBTC pool with 9.3 million U.S. dollars.

The largest transaction volume of ETH assets is the eth synthetic asset sETH pool created by the Synthetix protocol, with a daily transaction volume of 8.4 million, followed by Lido’s ETH pledge certificate stETH pool, with a daily transaction volume of 4.5 million US dollars.

The Link synthetic asset sLink pool created by the Synthetix protocol has a daily trading volume of 1.3 million US dollars.

In general, the trading volume of stable consideration assets is much smaller than that of stable currencies.

Curve’s stable consideration asset trading pool on Polygon only has renbtc and wbtc, and the daily trading volume is only 130,000 US dollars.

PS: The above data are 2021.9.1.

Unstable consideration asset transactions

After the V2 version went live, Curve launched a fund pool for non-stable consideration asset transactions, and began to officially enter the trading market outside of stable assets. At present, the non-stable consideration assets in the main trading pool of Curve are mainly aimed at the two mainstream assets in the crypto world: BTC and ETH.

This fund pool is called the Tricrypto pool and contains assets of BTC, ETH and USDT, which means that market makers can deposit BTC, ETH and USDT, and traders can also use BTC, ETH and USDT to exchange the other two in this pool. assets.

At present, the daily transaction volume of Tricrypto on the Ethereum version of Curve is 24 million U.S. dollars, and the Tricrypto pool on Polygon has a transaction volume of 10.2 million U.S. dollars.

Considering that the Tricrypto pool has been online soon, this is still a good result.

Factory pool

The pool factory is an experimental liquidity pool outside of the core asset pool of Curve, which can be spontaneously established by users, and through a Gauge weight vote (one of the core governance modules of Curve, the daily output of CRV is determined by voting). Incentive distribution) function to win the incentive quota of CRV.

At present, the amount of funds in the factory pool is not large, and the liquidity of the top ranked ibEUR/sEUR fund pool is 19.45 million euros and the daily transaction volume is 1.5 million US dollars.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Factory pool on Curve, https://curve.fi/factory

Multi-chain business situation

Curve currently deploys services on the four chains of ETH, Polygon, Fantom and xDAI. The general situation is as follows:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Although the business volume of Polygon and Fantom has risen relatively rapidly, Ethereum is still the main business position of Curve at present.

Summarize

The author counts and ranks the current liquidity pool with the largest transaction volume of Curve on the Ethereum chain, as follows:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Some of these situations are worth noting:

  1. Stable currency trading is still Curve’s largest business, accounting for more than half of the total. In addition to the two centralized stable currencies, USDT and USDC, decentralized and even algorithmic stable currencies such as LUSD, FRAX, and UST are in the stable currency business of Curve. The proportion has increased significantly.
  2. The proportion of BTC and ETH packaging and derivative assets is also rising, especially stETH, whose liquidity has reached a staggering 4.4 billion US dollars, accounting for nearly 40% of Curve’s total TVL
  3. The liquidity pool of unstable consideration assets represented by BTC and ETH has developed rapidly, and the transaction volume is in the forefront. If the tricrypto pool on Polygon is counted, the daily transaction volume will reach nearly 30 million U.S. dollars

In general, Curve’s stable currency exchange business still accounts for a relatively high proportion as soon as possible, but the trend of its business diversification is very obvious, which is reflected in the rapid start of the transaction volume of unstable consideration assets, the explosive growth of the Staking asset business, and the stable currency The development of more stable currency types in the section and so on.

  • Team situation

Overall situation

Curve is not an anonymous team, but it has not announced the current size of the team. On Linkedin, there are two current employees of Curve, the founder and CEO of Curve: Michael Egorov, and another core team member. Julien Bouteloup. In August 2020, Michael Egorov was interviewed by the encrypted media Crypto Briefing on Telegram. In the conversation, he said that 5 members have joined the team, namely two developers Angel Angelov and Ben Hauser, and three community work Staff Charlie Watkins, Kendrick Lama and Chris (well-known Chinese crypto KOL, Youtube: Mr. Block). And currently in the Discord channel of Curve, there is also a michwill in the identity group of the Curve team.

The team should currently be at least a group of 8 people.

Founder Michael Egorov

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Michael Egorov is the founder and CEO of Curve. He received a bachelor’s degree in applied mathematics and physics from the Moscow Institute of Physics and Technology, a doctorate in physics from Swinburne University of Technology, and a postdoctoral degree in physics from Monash University.

In terms of professional resume, he has been working as a software engineer in many companies from 2007-15. In 13 years, he came into contact with Bitcoin . In 2015, he left LinkedIn to start his own business. He co-founded NuCypher and served as CTO, officially shifting from the traditional industry to the blockchain industry.

NuCypher aims to provide a data privacy layer for blockchains and dapps. In 2016, it received a seed round of investment from the well-known startup incubator Y Combinator, and in 2017 it received investment from well-known crypto organizations such as Compound and Polychain, with a total of 440 million US dollars. Financing, the current code update of this project is still active.

During NuCypher, Michael Egorov began to use the MakerDAO protocol, and began to think about liquidity, dynamic mortgage and other issues. Curve was developed in the second half of 2019. During the development period, yearn founder Andre Cronje also participated in product design discussions.

In June 2020, Michael Egorov left NuCypher and became the full-time CEO of Curve.

Core member Julien Bouteloup

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

According to Julien Bouteloup’s information on Linkedin, he has been engaged in consulting work for blockchain business in his early years, and his clients include judicial and financial institutions. He joined the Curve team in January 2020, and at the same time he established Stake DAO, a platform that helps users obtain multi-chain revenue through staking, revenue farming and other operations. The platform also passed Curve in February 2021. The community voted and joined Curve’s governance whitelist. The whitelist allows users to deposit CRV on the platform, and entrust Stake DAO to manage and obtain revenue. He is currently the CEO of Stake Capital, a Defi quantitative hedge fund.

Financing

Curve has not disclosed its financing and funding, but in the token distribution design, 30% of CRV tokens will be distributed to project shareholders.

Business analysis

  • Industry space and potential

Classification

The track where Curve is located is DEX. In addition to Ethereum, it is also deployed on other main chains with larger traffic such as Polygon and Fantom.

DEX is a concept opposite to CEX (centralized exchange). The main difference between the two is whether users have the private keys of their assets.

In the current DEX design, there are mainly two types: AMM and order book. The order book model is similar to the pending order matching model of centralized exchanges, and the AMM (Automated Market Maker) model is currently more Adopted by the agreement.

At present, the transaction volume and TVL top DEXs on the main chain, including Ethereum’s Curve and Uniswap, BSC’s Pancakeswap, and Polygon’s Quick, all adopt the AMM model.

Market size

According to Debank’s multi-chain data, the daily maximum trading volume of mainstream DEX agreements in 2021 reached 24 billion U.S. dollars (on the day of two plunges on May 19 and May 29), and the daily trading volume in the peak trading season from April to May was 70- 10 billion U.S. dollars, the recent 24-hour trading volume of DEX is about 4.7 billion U.S. dollars, which is nearly 9 times higher than the 500 million U.S. dollars transaction volume in the same period last year.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

DEX daily trading volume in the past year, data: Debank

The number of active addresses of DEX has also experienced a substantial increase. In 2021, the number of active addresses of mainstream DEX set a record of nearly 900,000 daily active addresses on May 12, and it has recently remained at the level of 400,000+ active addresses, a year-on-year increase. About 20 times.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

The number of DEX daily active addresses in the past year, data: Debank

As one of the lowest-level protocols in the crypto world, DEX’s user volume and transaction volume will continue to rise with the development of crypto business.

However, as emphasized many times before, Curve’s strength lies in stabilizing the consideration assets, and the foreign exchange market has always been an area that Curve wants to enter.

In an interview with encrypted media Rekt in July of this year, Michael Egorov, the founder and CEO of Curve, said that Curve has plans to enter the foreign exchange market, but the method is to use stablecoins, which is one of Curve’s future growth sources.

What is the current daily trading volume in the foreign exchange market? About 6 trillion dollars.

In addition, Curve is actually the largest Defi bill trading market at present. As mentioned in the [Business Classification] section, Curve has a large number of active bill liquidity pools, such as cDAI\cUSDC in the Compound pool, yDAI\yUSDC\yUSDT\yTUSD in the Year pool, and aDAI\ in the Aave pool. aUSDC\aUSDT etc. These bill issuers are basically the leading projects in the crypto world, and the higher the liquidity of their bills, it will also directly help their business development. It is foreseeable that the types of bills and market size in the Defi world will continue to expand in the future.

The bill transaction is a market larger than foreign exchange transactions. In 2020 alone, my country’s bill transaction volume will exceed RMB 148 trillion.

  • Token model analysis

Total amount of tokens and distribution

The core token of Curve’s project is CRV. CRV will be issued on August 13, 2020. The total amount is 3.03 billion. The distribution of the total amount is as follows:

  1. 62% distributed to liquidity providers
  2. 30% to shareholders, linearly unlocked within 2-4 years
  3. 3% to team members, linearly unlocked within 2 years
  4. 5% as a community reserve

At present, the total amount of CRV released is about 753 million, and the average daily released CRV is about 1.45 million.

The specific unlocking schedule of CRV is as follows:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Data source: https://dao.curve.fi/inflation

It is worth noting that, compared with most current projects, the planned release period of CRV is quite long. Even by 2026, only more than 60% of the total will be released. This also ensures that CRV is set aside for continuous liquidity incentives. Long-term budget and time.

Token value capture

The first thing to note is that although the Curve token is CRV, in the mechanism designed by Curve, only by virtue of the veCRV obtained after the CRV is locked in the Locker module, can the value of Curve be captured, the function of the token, and the exercise of governance power .

And the longer the user locks up the CRV, the more veCRV he gets. Specifically, 1CRV can be locked for 4 years to get 1veCRV, and locked for one year can only get 0.25veCRV.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

CRV locks the ratio of veCRV, source: https://curve.fi/usecrv

There are two other mechanisms worth noting about veCRV:

  1. veCRV cannot be transferred;
  2. As the locked CRV gradually approaches the expiration time, the number of veCRV will decay linearly.

The value of CRV\veCRV to token holders includes——

  1. Obtain the transaction fee of the platform: After the user locks the CRV token pledge, the amount of pledged veCRV will be used to obtain the fee share of most of the transaction pool of the whole platform. The ratio of the share is 50% of the total fee (the other 50% is given to the liquidity). Sex providers), and the share is issued through 3CRV tokens (3CRV is the LP of the stable currency exchange pool 3POOL, which can be exchanged for other stable currencies 1:1).
  2. Accelerated return of liquidity market-making: After locking the CRV, liquidity providers can use the Boost function to increase their market-making CRV rewards, thereby increasing their overall market-making APR. Where does the CRV required by Boost come from? The amount of funds in the pool and LP is determined.
  3. Protocol governance: The governance of Curve also needs to be implemented through veCRV. In addition to the parameter modification of the agreement, the scope of governance also includes the voting of Curve’s new liquidity pool, and the weight distribution of CRV’s liquidity incentives among various trading pools.

CRV and veCRV capture the value of the overall agreement quite adequately. Not only can they obtain the agreement’s fee sharing and accelerate market-making benefits, but their role in governance is also very huge, which creates huge demand and stable buying for CRV.

In addition to Curve’s system, users lock CRV to obtain veCRV, and can also obtain continuous airdrops of tokens from other projects supported and cooperated by Curve.

For example, the DEX project Ellipsis on BSC will airdrop 25% of its total token EPS to veCRV users. Based on Curve’s liquidity and CRV pledge management platform Convex’s token CVX, it will also airdrop 1% of the total amount to veCRV users. Equilibrium, a currency market agreement established on Polkadot, also has the possibility of airdrops.

The core demand side of CRV tokens

Unlike most project tokens that “emphasize cash flow capture but light functionality”, CRV tokens not only have cash flow capture capabilities, but also have strong functionality in the Curve system, with the focus being the control of governance rights.

In the top Defi of the same echelon, Curve’s governance participation, number and quality of proposals are among the top in the industry, and it is hailed by many as the “model of DAO governance”. The reason for this is that Curve’s governance rights have higher value and scarcity than other Defi, which will attract a large number of institutional-level users to compete.

The first key question: What is the core value of platform governance rights corresponding to CRV tokens?

Jurisdiction for listing: platform pass card

As mentioned in the [Business Situation] section of the previous article, Curve is different from Uniswap, Pancakeswap and other general spot trading platforms. It mainly focuses on the transaction of “stable consideration assets”, whether it is UST or Huobi issued by Terra. The issued stablecoins like HUSD are still ETH pledge vouchers provided by Lido like stETH, and they all have a strong “anchor demand”.

Stable consideration assets are different from the tokens of ordinary project parties. Project tokens can rise and fall, and the demand for transaction depth is moderate. If the stable consideration assets issued by the project party fluctuate sharply and the depth is insufficient, it means the project The foundation of the company is shaken, and the business is bound to decline.

Therefore, the project party must find a way to find a place with the best depth and the best stability effect for the stable consideration assets issued by itself to make the market to meet the trading needs of maintaining low slippage even under huge transactions. Currently, there is almost only this ability. Curve.

Unlike anyone who can provide liquidity in Uniswap, if users want to enter the core liquidity pool of Curve, they must meet the conditions through community voting: more than 30% of veCRV voting participation, and more than 51% of support. As the total circulation of CRV becomes larger and larger, this threshold will also become higher and higher.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

CURVE Snapshot’s sCIP proposal, voting for the establishment of a liquidity pool for the stable currency MIM

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

A proposal initiated by the lending agreement dForce at the Curve Governance Forum, hoping that Curve will add its stable currency liquidity pool

Regardless of whether the project that wants to be listed on Curve is to buy tickets and vote by yourself, or to find the support of large investors in the community, this has increased the direct demand of institutions for CRV. The role of CRV is somewhat similar to the voting rights of BNB and HT in the IEO frenzy of 2019, and it has become a rigid demand for the listing project.

The right to distribute CRV incentives: the baton of liquidity

Even after logging into Curve and opening a liquidity pool, the asset issuer’s work is far from over. If you want to strive for a good depth for your assets, you must allow your liquidity pool to be allocated more CRV liquidity mining rewards, so that market makers can provide sufficient liquidity and stabilize the asset issuer. Only when the tokens of the company can guarantee the transaction depth of the transaction, the follow-up business development has a foundation.

The distribution of CRV used for liquidity mining incentives is determined by Curve’s DAO core module “Gauge Weight Voting”. Users can vote in the “Gauge Weight Voting” through their veCRV to determine the CRV for the next week. In the distribution ratio of each liquidity pool, the higher the distribution ratio, the easier it is to attract sufficient liquidity.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

CURVE’s Gauge Weight Voting voting interface shows the distribution of CRV in the next cycle based on the current voting

Therefore, operators of stable assets still need sufficient veCRV for voting. In a sense, other liquidity pools are competitors of this asset operator. If you want to ensure that your asset liquidity is always sufficient under the incentive of CRV mining, you must continue to purchase CRV and continue to vote and continue to use Curve. In this battle without gunpowder, the “involvement” continues.

Summary: Due to the strong demand for anchoring and liquidity of assets issued by stable asset operators, let their stable assets land on Curve to establish a liquidity pool and obtain CRV liquidity mining incentives to maintain sufficient transaction depth. It is almost an inevitable choice for them. Therefore, these project parties have a large and long-term demand for CRV tokens to buy “Token Listing Pass” and “Liquidity Baton”. Of course, while obtaining project governance rights through CRV, these projects will also receive stable dividends from the Curve platform as a cash flow income.

The second key question: Who is fighting for CRV governance?

In addition to stable issuers of consideration assets, another type of machine gun pool (Yield Farming platform) that has a strong demand for Curve governance rights, such as Year.finance (the project owner of YFI), Harvest.finance, Vesper.finance, etc. Wait. Curve is almost one of the core revenue sources of all Ethereum machine gun pools due to its stable profitability, strong capital capacity and better security. They raise assets from users, deposit the assets into Curve after layers of encapsulation, in order to get the commission + CRV token rewards.

The machine gun pools also face competition, and they need to provide users with higher revenue to increase their TVL.

Therefore, on the one hand, they need to purchase the liquidity provided by CRV to increase market-making income to meet the user’s return. The greater the amount of funds they deposit, the more accelerated CRV is required; on the other hand, they must also The liquidity pool where your own funds are located strives for higher CRV liquidity mining rewards, so you need to continue to vote in Gauge Weight with veCRV. In addition, the machine gun pool can also initiate proposals that are beneficial to its own projects, or counteract proposals initiated by competing platforms.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Yearn bought CRVs several times this year and locked up their positions to accelerate their earnings and attract users

In order to better obtain the governance right of Curve, Year.finance launched the Yearn backscratcher vault in November 2020. Users can permanently deposit their CRV in the backscratcher vault and get a higher APY than the user who locks the CRV in Curve. At the same time, Year has also obtained users’ voting rights, which can influence the decision-making trend of Curve and increase the income of all Year’s Curve-based fund pools, ultimately bringing more users and higher TVL to Year.

The Stake DAO, founded by Curve core member Julien Bouteloup, joined the competition in January 2021, and passed the Curve DAO vote in February, becoming the second CRV depository agreement to obtain the Whitelist of Curve governance after Yearn.

Intensified competition has caused depository platforms to focus on improving user experience. In February 2021, Year launched yveCRV (the credential for users to deposit CRV in Year) and a liquidity pool of ETH for those users who locked CRV in Year. , And let Sushiswap provide mining rewards for the pool.

In order to cope with competition, Stake DAO launched sdveCRV (the credential for users to deposit CRV in Stake DAO) and the liquidity pool of CRV on Balancer in May this year, providing users with a way to withdraw.

The strongest player in this governance competition appeared in May of this year.

Convex is a platform that provides services for Curve’s liquidity providers and CRV pledgers. Compared with Curve’s retro and complex interface, Convex’s user experience is better, and within 4 years, users who deposit CRV on Convex will receive Convex’s token CVX rewards.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Convex homepage, https://www.convexfinance.com/

After Convex was officially launched in mid-May, the veCRV it controlled surpassed Stake DAO and Year in only 2 and 14 days, respectively.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Comparison of the number of veCRV, data source: Dune Analytics

In addition to the incentives of CVX, Convex’s rapid rise also stems from its development support from the official Curve team and investment from the core staff of Curve, similar to the “pro son” of Curve, so it quickly gained the trust of the community. .

Perhaps because of this, despite the competition between Convex and Year on governance rights, in the April vote on whether to add Convex to the Curve governance whitelist, the veCRV controlled by Year also voted “Yes”.

At present, the veCRV owned by Convex has accounted for 30.8% of the total supply, second only to the 60.6% of the official pledge of Curve, and Yearn only accounts for 7.5%.

How long will this battle for governance rights last?

At present, as long as Curve still takes the lead in the exchange of stable assets, this war will not end.

Token model summary

As Curve said in the design goal of CRV: The main purpose of CRV tokens is to incentivize liquidity providers on the Curve Finance platform and allow as many users as possible to participate in the governance of the agreement.

In order to achieve this goal, Curve has made two key global designs:

The first design: All empowerment is given to voting equity tokens instead of CRV.

CRV itself has no rights and interests. Only by pledging CRV in exchange for voting rights token veCRV can it capture profits, perform functions, and participate in the governance game of the platform. Even airdrops for external projects are only sent to veCRV users.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

The role and empowerment of veCRV, source: Curve document

And only to provide liquidity, the veCRV on hand can play its maximum utility: 1. Through the Boost function, accelerate the rate of return of their liquidity; 2. Vote for their liquidity pool and strive for more CRV distribution.

The second design: hand over all the core resource allocation of the platform to DAO, and fully introduce competition in governance.

As mentioned earlier, the competition for CRV by asset issuers, income platforms and other institutions is essentially a struggle for the governance right of Curve. The reason why governance is so precious is that the distribution of Curve’s core resources is determined by DAO:

  1. Approval right for listing
  2. Distribution rights of liquidity
  3. key parameter
  4. Governance whitelist

With the continuous release of CRV, the original governance rights will continue to be diluted; on the other hand, as the CRV lock-in time gradually expires, the number of corresponding veCRVs, that is, the governance weight, will gradually decay, so I want to continue To maintain influence, it is necessary to continue to buy CRV, or continue to extend the lock-up time of CRV.

This also explains why the average lock-up time of CRV has reached a staggering 3.64 years (up to 4 years).

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

CRV’s average lock-up time, https://dao.curve.fi/locker

The game and involution of various institutions on Curve has generated continuous demand for CRV, stabilized the price of CRV under a large number of additional issuances, and supported Curve’s market-making APY, which attracted liquidity, which formed One cycle.

These two designs coincide with the original intention of the two tokens: “as many users as possible participate in the governance of the agreement” and “incentivize liquidity providers on the Curve Finance platform”.

Curve’s economic model ideas also provide nutrients to many projects in the industry. In the new version of the token model recently released by Cream and Mobox, we can all see the shadow of Curve DAO.

However, there is a prerequisite to ensure the continued circulation of the Curve token economy: Curve can continue to maintain its monopoly on stable consideration assets, and continue to collect its “monopoly rent” from the asset issuer and the income farming platform.

Non-administrative monopolies are often fragile most of the time, especially in the ever-changing world of encryption, where Challengers to Curve have emerged.

This will be discussed in the next section “Project Competitive Landscape”.

  • Project competition landscape

Basic market structure & competitors

In the medium term, Curve is based on stable consideration assets while exploring the trading market for unstable consideration. Although the extension of trading varieties is expanding, the product positioning of providing traders with “large amounts, low slippage, and low handling fees” and providing market makers with “simple, safe and stable” revenue sources has not changed. .

Combining TVL, transaction volume, community reputation, and the number of combinations with external agreements, the only opponent that can really scare Curve at the moment is Uniswap.

The author will compare and analyze the current competitive situation of the two.

Uniswap vs Curve: Transaction Volume

On Ethereum, Uniswap’s transaction volume has an absolute advantage, and the launch of V3 has also played a major role in promoting its business growth. From about 52% of the total transaction volume in May this year, it has risen to 68% in the near future. It reached 71% at its peak at the end of June. During the same period, Curve’s transaction volume fluctuated between 10% and 6%.

If the recent transaction volume of Curve on Polygon and Fantom is included, this data can be increased by 1-2%.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

The proportion of Ethereum’s mainstream DEX weekly transaction volume, data: Duna Analytics

Uniswap vs Curve:TVL

From the perspective of locked liquidity, Curve has industry-leading data. Its TVL on September 2 was 12.7 billion U.S. dollars, and the total amount of Uniswap V2 (4.94 billion) + V3 (2.7 billion) version of TVL was 7.64 billion in the same period. On the one hand, this means that Curve has a better overall depth. On the other hand, it also means that for market makers, the overall capital efficiency of Uniswap is higher (but it also means higher market-making risk).

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Defi TVL ranking, data source: Defi Llama

Uniswap vs Curve: Core stablecoin business

In order to facilitate the high-value and low-slippage exchange of stable assets, Curve does not use the traditional AMM constant product formula in the conversion formula of stable consideration assets. Instead, it adopts the two basic price curves of xy=k and x+y=k according to a certain The weight ratio is fitted. The specific formula is as follows:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Source: Curve White Paper

After upgrading the V3 version, Uniswap has introduced flexible custom parameters for market makers, and market makers can arbitrarily determine the distribution range of their liquidity. Under this mechanism, the stablecoin market makers on Uniswap uniformly concentrate the market-making range of stablecoins around the 1:1 consideration, which greatly improves the efficiency of market-making and reduces the slippage of stablecoin exchanges compared to the past. Since then, Uniswap’s stable currency trading volume has risen rapidly.

Trading volume

The largest stablecoin trading pool on Curve is 3POOL, which includes the exchange of three stablecoins: USDT\USDC\DAI, and USDT\USDC, USDC\DAI and USDT\DAI are also the top three stablecoin pairs on Uniswap by trading volume. Let’s make the following comparison:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

We found that although Uniswap’s liquidity in the three main stablecoins is much smaller than Curve’s 3POOL, it has created a higher transaction volume. However, Uniswap’s transactions are mostly based on thousands and tens of thousands of transactions, with more transactions, while Curve has more large transactions and lower transactions.

Although the current total TVL of UniswapV2 is still higher than that of V3, most of its stablecoin liquidity and transaction volume have been migrated to V3, as follows:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

From this point of view, since the launch of Uniswap V3, the promotion of its stable currency trading business is very obvious, and the transaction volume of the three core stable currencies is higher than Curve’s 3POOL.

Of course, in addition to 3POOL, Curve also has a richer stablecoin trading pool (such as sUSD), and all have a large transaction volume, so in terms of the total amount of stablecoin transactions, Curve is still ahead of Uniswap.

Trading slippage

From the perspective of transaction depth and slippage, we use multiple transaction amounts from small to large to test the purchase of USDC with USDT to measure the transaction loss (handling fee + slippage) of the two platforms under the same transaction amount. :

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

We found that at present, whether it is a small amount or a large amount, in most cases, the transaction loss of Curve is more than 60% less than that of Uniswap. As the transaction amount further rises, when it comes to the exchange level of more than 70 million, Curve remains the same. Can maintain its low slippage level, Uniswap will basically be unable to complete the transaction because it is out of the liquidity range set by the market maker.

Generally speaking, the greater the transaction volume, the stronger the motivation of traders to use Curve. For single currency transactions of 100 million units, only Curve can carry it.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

A transaction of up to 160 million US dollars completed at Curve last month, data: etherscan

Uniswap vs Curve: Other stable consideration assets

For example, stable consideration assets such as WBTC and RENBTC, stETH and ETH have basically no liquidity on Uniswap, and Curve has a monopoly in this part of the trading market.

Uniswap vs Curve: Unstable consideration assets

Curve released the V2 version in June this year, and introduced the multi-dimensional constant product formula:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Curve said in its V2 white paper “Automatic market-making with dynamic peg”: “We have designed a method to create liquidity for assets that are not necessarily linked to each other. This method is better than the constant product equation x · y = k (The AMM formula used by Uniswap) is more effective. We concentrate liquidity near the price provided by the current “internal oracle” and move the price only when the loss is less than part of the profit earned by the system. This will Create 5-10 times higher liquidity than Uniswap’s identity algorithm, and bring higher profits to liquidity providers.”

If the new formula is applied to the dual currency asset pool, its state will be the orange curve in the figure, and the blue curve in the figure is the formula curve of the original V1 version:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

The price curve as an example in the Curve V2 white paper, source: Automatic market-making with dynamic peg

Similar to Curve V1 by fitting the two basic price curves xy=k and x+y=k according to a certain weight ratio, the price curve of Curve V2 is also fitted by other basic curves. To put it simply, the curve is closer to the curve shape of Curve V1 (blue) near the transaction price, and closer to xy=k (dashed line at the bottom left) when it is far from the transaction price. This constitutes a price curve (orange) that is smoother near the transaction price, but has a larger arc after moving away from the transaction price range. Compared with the price curve that is closer to a straight line in the V1 version, the V2 curve has a larger arc at the far end to increase the degree of support for non-stable currency trading pairs.

One of the most critical improvements of Curve V2 is that when the coin market price deviates from the original aggregation range, the liquidity can be automatically rebalanced and a curve suitable for the new price can be reconstructed. Regarding how to perceive changes in token market prices, most projects will choose to use external oracles, but there is a risk of manipulation of external prediction opportunities.

In order to completely eliminate the possibility of oracle attacks, Curve V2 chooses to use internal data as a reference price, and calls this mechanism an exponentially moving average oracle, or EMA for short. The quotation provided by the EMA oracle machine is a reference price calculated based on the historical transaction price of Curve and the latest transaction information. This reference price is somewhat similar to the moving average in technical analysis. It will be dynamically adjusted according to the latest transaction price, but it will also maintain a certain lag while adjusting, so as not to trigger the rebalancing mechanism excessively when the price fluctuates sharply.

With the reference price provided by the internal oracle, the system has a trigger basis for rebalancing. When the price quoted by the EMA oracle machine deviates from the original price by more than a certain range, the agreement will automatically adjust the shape of the entire curve so that the liquidity reconverges near the latest transaction price.

At present, this mechanism has been applied to Curve’s non-stable consideration multi-currency fund pool, called Tricrpto pool, which is currently deployed on Ethereum and Polygon.

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

Curve’s Tricrpto pool on Ethereum and Polygon

According to recent data, the daily transaction volume of the Tricrpto pool of Ethereum + polygon has reached more than 30 million U.S. dollars.

Just as Uniswap’s V3 program threatened Curve’s stable currency trading market, the V2 program launched by Curve also represents its beginning to enter the field that Uniswap is good at.

However, although the two sides began to fight hand in hand in their respective areas of strengths, in fact, the two projects have very different ideas in terms of agreement and judgment on the direction of the industry.

Uniswap VS Curve: Two product ideas

Uniswap’s idea is to develop a set of universal solutions that can simulate the price curve of any shape, leaving the decision of various key parameters to the user. Own market-making plan to respond to market demand.

The Curve team believes that users expect a more concise market-making solution. At this stage, users should not be trapped in a complex and diverse selection dilemma. They should directly provide users with automatic solutions so that users only need to consider the amount of market-making funds and market-making time. That’s it, everything else is done automatically by the Curve protocol.

Regarding the two plans of Uniswap V3 and Curve V2, the Encrypted Media Block Rhythm commented:

“Acknowledging that the will of individuals and the team cannot always be correct, and fully opening up the right to choose to the market and the community, and only participating in the construction of the underlying infrastructure is the core concept of the Uniswap team. It is the core concept of the Uniswap team to admit that most users do not have professional analysis capabilities. It is necessary for professional industry elites to provide a package of solutions to try to solve all obstacles that users may encounter, which is the core concept of Curve V2.

Whether to directly make a good product with powerful functions, or to become a general underlying architecture and enable ecological development, this is the most important difference between the development ideas of the two top teams, Curve and Uniswap. Which of the two different methodologies will eventually pass the test of the market may only be given by waiting time. “

It can be seen that Curve is making products with an application mentality, while Uniswap is looking at its long-term development from an ecological perspective.

Perhaps with the further growth of the encrypted trading market and the entry of more and more institutional-level market makers, Uniswap’s model will have greater development potential. As far as the current market is concerned, Curve’s market-making model is more in line with the market. The needs of most market-making users.

Project competitive advantage and moat

Curve can firmly rank second in the battle for liquidity of all Defi protocols. It has a TVL of more than 10 billion U.S. dollars. It is the result of accurate product positioning, sophisticated mechanism design, and long-term stable operation. Its project The core competitive advantage lies in:

1. By focusing on the trading market of stable coins and stable consideration assets in the early stage, we have built a strong dominance in this segment and become the preferred platform for asset issuers, large-value traders, and market makers seeking stable returns. Obvious network effect;

2. Possess a very good token model, which is embodied in:

  1. The distribution of all scarce resources on the platform is deeply tied to the governance right, and the governance right (veCRV) needs to be exchanged for the token CRV. A large number of long-term lock-ups have reduced the circulating market value of the project
  2. Fully introduce the game of the platform participants (liquidity providers, asset and bill issuers) to form a continuous competition for governance rights (veCRV), further increase the demand for CRV, and undertake continuous unlocking of CRV selling pressure
  3. The final result of the above two is: a. The stable currency price guarantees the APY of the liquidity provider and retains the liquidity; b. The system’s multi-participants are deeply tied to the development of the Curve platform, which improves governance participation Degree and effectiveness; c. It creates extremely high conversion costs for core participants, and it is difficult for them to leave if they have pledged a large number of CRVs for a long time.

3. The Vyper language was used to write the code, and the code intellectual property was applied, which created a technical and legal obstacle to the project of Fork Curve.

  • risk

Challenges from DEXs such as Uniswap have led to the erosion of market share in the stable consideration asset trading market

After Uniswap launched V3, the problem of trading slippage on stablecoins has been significantly improved, and the market trading volume of its core stablecoins has gradually surpassed Curve. If this trend expands further, it will lead to Curve’s industry in the field of stable asset exchange. The dominance is reduced, and this is the foundation of Curve. The excellent economic model only magnifies and consolidates this advantage.

The new business development of unstable consideration asset transactions is not smooth

Whether the model adopted by Curve v2 can catch up with Uniswap V3 and expand its market share in the transaction of unstable consideration assets remains to be tested.

Centralization of the market share of stablecoins

When the pattern of the stablecoin market is solidified and several leading stablecoins have established absolute advantages, new stablecoin projects will no longer appear, which will weaken the niche in the stablecoin exchange industry chain of Curve and cannot challenge new stablecoins. Then collect the current “monopoly rent.”

Regulatory risk

The supervision of stablecoins and the supervision of Defi trading platforms by various countries’ regulatory agencies is the common risk faced by Defi at present, but the DAO governance of Curve has replaced the centralized decision-making of the team and has certain resistance to supervision.

Preliminary valuation

  • Five core questions

What business cycle is the project in? Is it the maturity period, or the early and mid-term development?

The PMF (Product Market Fit) of the project has been fully verified, and the core functions of the product are mature, but it is still in the early and mid-term of industry and project development.

Does the project have a solid competitive advantage? Where does this competitive advantage come from?

The project relies on accurate market positioning and excellent economic models to create obvious network effects. The existing core participants have relatively high switching costs and have relatively sufficient competitive advantages.

Is the long-term investment logic of the project clear? Is it in line with the general trend of the industry?

The medium and long-term investment logic of the project is based on the existing stable consideration asset trading market, gradually expanding to a wider trading field, and even opening up a trillion-level trading market such as foreign exchange. As one of the underlying protocols of encrypted business, the trading platform still has a very large space for development, and the development of the project is in line with the general trend of the industry.

What are the main variables in the operation of the project? Is this factor easy to quantify and measure?

The main operating variables of the project are mainly two points: 1. Whether it can keep its footing: stable the trading market of consideration assets; 2. Whether it can smoothly expand into new areas: the trading market of other assets. It can be measured by observing Curve’s transaction amount, product innovation, and business data of competitors.

What is the management and governance of the project? What is the level of DAO?

Curve has fully realized DAO governance, and the participation and governance level of the community can be regarded as the industry benchmark level.

  • Valuation level

This research report will use the relative valuation method to compare the valuation of Curve, including vertical comparison with past valuations and horizontal valuation comparison with similar projects, and draw a preliminary conclusion that the current market value is high\underestimated.

Vertical valuation comparison

Here, I use PE, a common indicator, to observe the comparison between the current market value of Curve and the previous market value. PE=total market value\net income from the agreement. The higher the PE value, the higher the valuation of the project. The PE comparison of Curve is as follows:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

By comparison, we found that Curve’s PE level compared with this year’s past is at a high level and is not underestimated.

Horizontal valuation comparison

Here, I will compare Curve with Uniswap and Sushiswap horizontally. Considering that Uniswap has not started to levy agreement fees, we use PS market-sales ratio (PS=total market value\total agreement revenue) to compare these three projects horizontally. Similarly, the higher the PS value, the higher the estimate of the project:

CRV under Uni V3: In-depth analysis of Curve's business model, competition status and current valuation

We found that from the perspective of PS, Curve is also in an overestimated position compared to Uniswap and Sushiswap.

  • Valuation assessment

Overall, Curve has a clear competitive advantage in the field of stable consideration asset trading. Its excellent token economic model further strengthens its moat and provides strong support for its token price.

However, whether it is a vertical historical valuation comparison or a horizontal comparison with other transaction agreements, the valuation of Curve at this stage is too high.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/crv-under-uni-v3-in-depth-analysis-of-curves-business-model-competition-status-and-current-valuation/
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