With the participation of more mainstream projects and the birth of derivative projects, the concept of Curve War has returned to our vision again.
You know, in fact, since Curve’s native token CRV was released in August 2020, the Curve War has already started, but each stage is played in different ways, from the initial simple increase of market-making income, to the birth of Convex to complete the governance nesting doll , and advanced bribery votes; the protocols for entering the game also range from Yearn & Stake DAO, to Olympus DAO & FRAX, to various stablecoin projects Alchemix & Abracadabra, to the new project [Redacted] Cartel, and even this Curve model has appeared. spillover phenomenon.
In this article, we will review the evolution of Curve War along the way, observe the current spillover phenomenon of this mode and the surrounding play.
Curve, a stablecoin AMM focused on low slippage, issued its native token CRV in August 2020 to incentivize liquidity supply. CRV is both a governance token and a utility token, but to obtain both benefits, CRV holders must stake CRV as veCRV. And the veCRV lock-up period is only one year to four years, and the longer the user locks up the CRV, the more veCRV they get. Specifically, 1 CRV locked for 4 years will earn 1 veCRV, and locked for one year will only earn 0.25 veCRV.
veCRV cannot be transferred, and as the locked CRV gradually approaches the expiration time, the number of veCRV will decay linearly. Therefore, if unlocking is not considered, the CRV lock time needs to be refreshed intermittently to maintain the highest proportional weight.
veCRV has three main uses:
- For voting governance.
- Get 50% of the transaction fee of the agreement: return it to veCRV holders by repurchasing the LP Token 3CRV (ie DAI+USDC+USDT fund pool) in the Curve stable pool.
- Improve the benefits of liquidity market making.
- Potential airdrop opportunities: continuous airdrops of project tokens that have obtained support and cooperation from other Curves. For example, the DEX project Ellipsis on BSC will airdrop 25% of its total token EPS to veCRV users, and Convex’s token CVX will also airdrop the total amount. 1% to veCRV users.
The daily output of CRV for liquidity mining incentives is determined by Curve’s DAO core module “Gauge Weight Voting”. Users can vote on the “Gauge Weight Voting” through their veCRV to decide the next week’s CRV In the distribution ratio of each liquidity pool, the pool with the higher distribution ratio is more likely to attract sufficient liquidity.
The Battle for Yield of the Machine Gun Pool: Yearn Dominates
The first stage of Curve War, which we can define as the “competition for the rate of return of the machine gun pool”, is mainly dominated by Yearn, and other machine gun pools follow.
Curve is one of the core revenue sources of almost all Ethereum pools due to its stable earning ability, strong capital capacity and better security. They raise assets from users, and deposit the assets into Curve after encapsulating them layer by layer to get the reward of handling fee + CRV token.
At this time, in addition to the need to buy a large amount of CRV and lock up positions to improve their market-making income, it is also necessary to work hard at the product design level.
Product Design of Machine Gun Pool Yearn
- Aggregating a large number of stablecoins (yVault) to Curve for market making and mining, and the CRV token reward obtained, Yearn sells 90% of the CRV into stablecoins to continue compound mining.
- Yearn pledged the remaining 10% of the CRV reward into veCRV, and made it a new fund pool, yveCRV Vault, to accept the new CRV pledge. Due to the extra 10% of the CRV reward, the income of staking CRV in the yveCRV Vault It will be more attractive to users than staking directly in Curve. At this time, the newly attracted and accumulated veCRV weight of yveCRV Vault can further accelerate the improvement of the market-making income of the stablecoin pool, and obtain more CRV rewards. At the same time, Yearn also uniformly converts the 3CRV of yveCRV Vault’s handling fee reward into CRV and pledges it into veCRV with compound interest. This part will do a separate yvBoost Vault to continue to accelerate the stablecoin yVault mining, thus forming a flywheel effect. (Note: This is Yearn’s early strategy, which has been changed, mainly relying on Convex)
- In addition, some small partners may also be able to notice that although staking CRV as veCRV can achieve good returns, it lacks an exit mechanism. Therefore, in order to achieve a better user experience, Yearn also launched yveCRV/ETH and yvBoost/CRV liquidity pools.
In the follow-up, other machine gun pools also entered the game one after another, such as Stake DAO, etc., but the gameplay is basically similar.
However, the advent of Convex marks the next phase of Curve War.
Governance Matryoshka: Convex
Convex is a one-stop platform for CRV staking and liquidity mining focused on simplifying the process of using Curve. If you have ever participated in the liquidity market making on Curve, you can understand that its retro interface panel and pledge logic are not user-friendly, while Convex allows liquidity providers to participate in Curve through its own entrance, and users can pledge on Convex CRV, claiming CRV rewards and other operations, and different from the operation restrictions that need to be locked directly on Curve and weighted according to the length of time, users can obtain income rewards without locking CRV.
Convex Product Design
- Let’s talk about the Curve LP pool of Convex first. Users can pledge the LP tokens on Curve in the corresponding pool in Convex. In the design of Yearn above, Yearn is a compound income, so you can see the growth of the principal; but Convex distributes rewards directly to users, but the platform will charge 17% of CRV rewards.
- In Convex, users can also convert CRV to cvxCRV, and then pledge cvxCRV, this pool can get rewards belonging to veCRV (as mentioned above, the agreement fee in the form of 3CRV and airdrop opportunities), plus the first point of the above platform charges 10% of the CRV reward (in the form of cvxCRV), and the reward of the Convex protocol native token CVX. (It is worth noting that at this time, users of the cvxCRV pool will not have the governance rights that CRV has)
- Users who hold the native token CVX have two options, the first is to pledge, and the second is to lock (at least 16 weeks), and the income comes from 5% of the CRV reward collected by the platform in the first point above (in cvxCRV form), in which the income of locking CVX will be higher than the pledge (sometimes additional income will be distributed to the pool that locks CVX), and the locked CVX also has voting governance rights similar to veCRV.
- Similarly, cvxCRV also has a cvxCRV/CRV trading pair on SushiSwap for users to withdraw at the second level.
It is worth mentioning that in the product design of Convex, the governance rights and revenue rights of veCRV are actually split:
- The cvxCRV converted and pledged by CRV represents the revenue right of veCRV.
- And vlCVX obtained by locking CVX represents the voting governance rights of veCRV.
In this way, Convex has successfully accumulated a large amount of CRV with the help of the design of its product economic model and the additional rewards of the native token CVX, and at the same time endowed Curve with the voting governance rights of the native token CVX.
According to Delphi’s recent statistics, 85% of Curve’s TVL is currently mortgaged through Convex, and Convex is already the largest holder of veCRV, accounting for 47% of the total.
With the continuous growth of Curve TVL, various algorithmic stablecoin project parties in the industry have gradually realized that the Curve infrastructure can effectively support the price of their stablecoins without de-anchoring, and maintain a certain depth of liquidity.
The entry of algorithmic stablecoin projects also marks the next stage of Curve War.
Accumulate CVX & Bribery Votes: Counting Stable Project Parties Are Running for Liquidity
Usually, projects such as algorithmic stablecoins want to obtain better liquidity on Curve, which is to increase the market-making yield of their corresponding trading pair fund pools. At present, there are two ways to increase the rate of return. One is to use the project’s native token as an additional incentive; the other is to vote to increase the CRV incentive of the transaction pair capital pool.
The first method is not a big problem, and for the second method, since Convex has firmly dominated the governance voting rights of Curve at this time, the project parties no longer try to purchase CRV pledge votes, but turn to CVX, because CVX also It has the governance voting rights of Curve, so some people call this stage Convex War.
According to recent statistics from Delphi, we can understand the current situation of various protocols holding CVX:
In fact, for the protocol, it is necessary to purchase CVX and then lock it as vlCVX to participate in the governance voting. This process is not only troublesome but also enlarges the risk exposure of the protocol. The purpose of the protocol is only to obtain votes to increase the market-making income of its corresponding capital pool. So as to enhance liquidity.
The market will always go out in the direction of least friction, so here comes a new solution: bribing votes.
- https://bribe.crv.finance/: Buy veCRV ballots. Created by Yearn founder Andre Cronje, this bribe tool allows the protocol to bribe veCRV holders with token rewards in exchange for user votes.
- https://votium.app/: Purchase vlCVX votes. The pattern is similar to the former, but since vlCVX has a delegate function, it is more flexible in form.
And the agreement seems to be more inclined to this way. In November 2021, Frax Finance also passed a vote to increase the Votium bribery budget from $500,000 per two weeks to $1 million per two weeks.
Other peripheral gameplay & liquidity games of Curve War
Along the way, Curve War has mainly gone through the above three stages, but there are actually some interesting projects/plays around this theme and combined with DeFi 2.0 narrative. For example, use the Bond mechanism to accumulate CRV or CVX tokens (LobisDAO, REDACTED, etc.), or use the veToken + Gauge model (Yearn’s new token economic model, Frax, etc.).
What is worth mentioning here is the [REDACTED] Cartel project, which is a DAO that uses the OlympusDAO Bond mechanism to accumulate CRV, CVX and Curve LP and gain more voting rights in the Curve Gauge. If Curve is used as the L1 of liquid assets, then Convex is the L2 to expand the influence and liquidity of Curve, and [REDACTED] Cartel wants to be the L3, the income aggregator of the income aggregator, and at the L3 layer, then Less exposure to liquid assets, mainly to guide and promote the distribution of voting assets, which is why it accumulated a large amount of CRV & CVX in the early stage. Although the Roadmap has not yet been fully finalized, the current first goal is to work on the voting rights processing of veCRV-Gauage.
The liquidity demand for Curve by various DeFi protocols (mainly stablecoin projects) is the main factor driving the Curve War to its climax, and we can foresee that this demand will continue for some time, so the Curve War is bound to continue. Will there be a spoiler competitor, though?
Tokemak is a sustainable liquidity protocol, and each DeFi protocol can also obtain trading pair liquidity in Tokemak and deploy it on the exchange (if it can get enough TOKE token votes) to improve the liquidity of its own tokens . However, Tokemak is more oriented towards mass protocols, while Curve is more suitable for algorithmic stablecoin protocols.
In essence, Tokemak can also help protocols that need liquidity to conduct continuous liquidity guidance, instead of a short-term and extremely expensive guidance method like traditional early liquidity mining. The key point in Tokemak is to get votes for TOKE tokens. Of course, Tokemak is currently facing many difficulties, such as the TVL is not large enough, the business logic process is complicated and cumbersome, and the protocol project party needs to apply for a token reactor to obtain liquidity. As an AMM focusing on low-slippage stable currency exchange, Curve naturally does not have these obstacles.
Liquidity is one of the important components in the DeFi field. The emergence of Curve provides a way out for the liquidity problems of projects such as algorithmic stablecoins. In the future, the liquidity game in the DeFi field will continue to be played. Looking forward to the emergence of various innovative and interesting ways to play, Curve War or Liquid Games advances another new phase.
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