[Company Watch] Curve and its Investment Value

The Serenity Research


Curve is the leading AMM for stablecoins, with a total TVL of 1.3 billion USD (stablecoins and BTC deposits) as of 12 Dec 2020, according to Defipulse. This makes Curve the largest BTC depository and the 3rd largest stablecoins depository.

​Curve’s value proposition is simple. For a very low commission of 0.04%, one can exchange one stablecoin to another (e.g. DAI to USDC), or one type of BTC synthetic to another (wBTC to renBTC). Curve only provides exchange services to pairs with the same underlying. 0.04% is a low enough fee that beats even CEX like Binance, which is 0.075% for normal traders (only lower if you have volume).

There are probably 20 to 40 meaningful stablecoins in the market and about 10 variations of BTC synthetic. Given that Defi is an open space, it’s easier to build up other’s work — and there will be more variety of stablecoins, BTCs and even ETHs or LTCs, etc. They all need to be traded, and thus giving rise to a strong and sustainable demand for a low-cost, good-depth AMM like Curve, serving this dedicated need. Curve has the first mover advantage and accumulated not only a large amount of capital, but also good credibility in the industry.

Curve’s positioning as The AMM for stablecoins, currently huge TVL size and the low-fee make it unchallengable. Swerve forked a version of Curve a few months back but was not successful.

In addition, Curve is deeply intertwined with Yearn and played a critical part as the cornerstone of Yearn’s ecosystem. On one hand, almost all of Yearn’s vaults are deposited Curve to earn CRV and that forms bulk of YFI’s earnings. On the other hand, Curve’s stablecoins are deposited back to Yearn, for the choosing the best lending platform to earn the highest interest rates.

​How can one benefit from Curve?

A simple way to benefit from Curve is to provide liquidity on Curve. Curve is now generously giving out CRV, it’s platform tokens. Every day, about 600,000 CRV is given out and depending on its price, the APY for providing just stablecoins to Curve has an every yield of 10% to 20%. We have listed providing stablecoin as liquidity to curve as one of our basic strategies.

Whilst the large pools like 3pool or y or Compound can give a 10% yield, one can further enhance the yield by investing into new stablecoins like mUSD pool or stake CRV to boost yield. Please follow our Twitter or Medium for further analysis on the risks and returns.

​Buying CRV is also a viable option.

Whilst this is not a strategy for our fund, we do see the long-term investment merits of Curve, summarised in paragraphs earlier. In addition, CRV is not only a governance token; staking CRV allows one to receive 50% of trading fees (0.04%) from the entire platform. Currently, locking 1 CRV for 4 years gives 1 veCRV, which is the token entitled to receive trading fees and carrying the voting function. Locking a shorter duration will give one more flexibility but less veCRV (and thus less trading commission entitlement), e.g. Locking for 1 year will give 0.25 veCRV.

Currently, out of a circulation supply of 240.8m CRV, (equivalent of a market cap of US$139.3m), about 26% is locked to veCRV, with an average duration of 3.6 years. By end of 2021, the total circulation supply will be 928m and please refer to Curve’s release schedule for details.

​On the earning side, the daily volume is US$86.8m, and 50% of 0.04% generates an earning for the veCRV holders US$17,283 in fee today. For the past week, the earning is US$88,042, or annualised to be US$4.59m.

​Based on this, we can quickly calculate the PE ratios: 1) If you are in for long-term and locking your CRV for 4 years, then assuming veCRV=CRV price, then the PE is only 7.9x (US$139.3m x 26% / US$4.59m); 2) if you are not locking and we assume the price of CRV also correlates with the transaction volume of the platform, the PE ratio is 30.3x (US$139.3m / US$4.59m).

This is an interesting case, as we find no equivalent in the traditional finance side. A company with a mechanism that forces investors to make a choice between liquidity and dividends. Investors have to sacrifice one for another. But that gives the range of PE ratios of the Curve project, as a rational investor can choose locking a percentage of CRV to veCRV for dividends and the remaining for liquidity. And depending on the percentage he locks, the PE ratio of Curve is within the range of 7.9x to 30.3x.

This is not bad for a new project in the new industry. We are confident that given Curve’s positioning and business model, it will flourish; but its issuance of new tokens as the schedule is also very dilutive to investors. It’s a matter of which is faster — the business growth, or the dilution. Putting it into perspective, Curve’s volume has to grow approximately 4x times, or the equivalent of a daily trading volume of US$344m by end of 2021, in order to maintain the above PE ratios.

Probably not a too hard thing.

(Serenity Team, 12 Dec 2020)

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