Curve Wars
✍️ Author: MangoPeaches
Liquidity Solutions
In the world of DeFi, liquidity is everything. But how do dApps and protocols attract liquidity and incentivize specific assets? Most decentralized exchanges or DEXes utilize either an automated market maker (AMM) system or an order book system (which can have either on-chain or off-chain order books). Many DEXes have slowly gravitated towards an AMM model where assets are priced via a pricing algorithm. AMMs rely on liquidity pools where liquidity providers add funds and assets to pools and create trading pairs. The price of the assets in the pool is adjusted based on a mathematical formula and the pool rebalances with each trade/swap. When a user executes a trade, they are taking funds out of one side of the pool and will create an imbalance which is denoted as a slippage. The more liquidity there is within a pool, the less slippage a transaction will incur and thus incentivizing a greater volume of trades to happen within a pool.
Curve
Curve is a non-custodial DEX with a linear price curve to allow users and decentralized protocols to exchange stablecoins with relatively low fees and slippage.
Curve Finance has become a very significant protocol as evidenced by its number 1 ranking measured by TVL (Total Value Locked). It has the biggest stablecoin pool by far with the 3curve pool having upwards of $6B in daily trading volume. Curve Finance contains many stablecoin pools and each pool incentivizes TVL through the distribution of CRV tokens. Some pools get more tokens, and the amount is determined by the gauge. This means the rewards for the pool are weighted based on the number of Curve votes. However, only vault locked CRV tokens are able to vote for gauge.
CRV and veCRV
CRV represents the Curve Dao token. The three primary uses of the token are voting, staking and boosting. However, the function of the token is only unlocked when users vote-lock their CRV and receive veCRV. veCRV stands for vote-escrowed CRV which represents locked. The veCRV you receive from vote locking your CRV is proportional to the duration (in yrs) for which it is locked.
Gauge and Weights
The gauge is a quantifiable metric of the liquidity provided within a pool. Each gauge also contains a weight and a type. The weight represents the amount of daily CRV inflation that is allocated to a liquidity gauge. The gauge weights are important because it directs the flow of CRV inflation and allows the DAO to control and balance liquidity via votes.
Convex
Convex Finance is a protocol that enables a more liquid form of CRV staking. Staking CRV tokens in Convex will allow users to redeem cvxCRV tokens. CRV holders can stake their CRV tokens via the Convex platform which is an irreversible process and subsequently stake their cvxCRV to earn a portion of Curve trading fees, CVX rewards, and a share of 10% of Convex Finance’s total CRV earnings.
Convex can be seen abstractly as a level above Curve vesting. The protocol encourages users to lock CRV, the protocol accumulates Curve tokens and mints Convex tokens. The locked CVX tokens can be used to vote on gauges. So functionally, it becomes a layer on top of Curve. When you have more Convex tokens, you essentially control more Curve tokens and thus have more control over rewards of the liquidity pools.
Votium and Bribes
Votium is an app that allows Convex users to accept bribes for votes. This allows protocols to amass liquidity on a cheaper cost basis because they can simply incentivize $CVX and $CRV holders with their native tokens rather than to all the liquidity providers.
Protocols at War
Protocols have realized how important it is to have control over the votes. This is because all protocols have a common goal of having the most volume and liquidity on Curve. This is because the greater the yield, the higher the TVL will be on the pools themselves and this will translate to value accrual of the native token for the stablecoins. The image below is a snapshot of the current pools available on Curve along with the daily trading volume and rewards. There are many different protocols, such as OHM, Abracadabra, Badger and Terra. Each of them has a pool on Curve and wants to have more Curve and Convex rewards. Thus the protocols are buying up liquidity, including Convex and Curve tokens to vote for more liquidity in order to increase protocol-owned liquidity.
[Redacted] Cartel
Redacted Cartel is a protocol that is approved by OHM and utilizes its rebasing tokenomics model to accumulate CRV, CVX and OHM to gain influence on Curve wars. Their goal is beyond having control for assets related to Curve wars but also become a black hole of Defi governance tokens. Thus, holding BTRFLY (native token of Redacted Cartel) can be viewed as a bet on the protocol to become a major player in the Curve wars and potentially decentralized finance governance.
Bribe
Bribe is a very innovative protocol that aims to capture apathetic voters via their flagship product VEV.
Bribe VEV utilizes a cross-chain, cross-layer protocol governance model made possible by the interoperable blockchain Picasso. Bribe works by separating users into either the bidder or delegators pool. Bidders actively bid on proposals while delegators delegate their voting power to a bribe pool. This is very interesting because it enables both the maximization of voter power and optimization of capital efficiency via cross-chain and cross-layer capabilities. For more detailed information, please refer to the article on Bribe VEV: Bringing Governance to the People.
