Moat or Trojan Horse? Curve War Escalates to Battle of CVX
Original author: 0x137
Curve War, which broke out as early as August 2020, has not received enough attention for a long time in the past, but with the emergence of Convex, the situation has changed dramatically, and major agreements have also begun to compete for the right to speak of CVX. The smell of gunpowder in the war is getting stronger, and CRV, CVX, and YFI have also shown strong performance in the past month. Why is there Curve War? Who are its main players? Who is the biggest winner?
Why is there Curve War?
Curve, as an AMM that focuses on low slippage, issues governance Token CRV as an incentive to provide liquidity, thereby increasing the liquidity depth of the various pools on the Curve platform and maintaining the peg ability of Suan. From this level alone, Curve seems to be no different from other DeFi 1.0 protocols that rely on liquidity mining.
However, Curve has a very key mechanism that makes it very different from traditional liquidity mining: by locking CRV, liquidity providers (LP) can obtain veCRV correspondingly, which has a significant impact on the liquidity incentives of the Curve platform The actual meaning of governance has the power to change the "Gauge Weights".
That is to say, the liquidity incentive of each mining pool on the Curve platform will be determined by its veCRV voting rights. The more veCRV holders vote for it, the higher its liquidity incentive will be. In this way, CRV has become an important part of the benefits provided by other protocols for their stakeholders. In order to improve their APY/APR, these protocols have to accumulate veCRV in various ways to compete for Curve’s liquidity incentives On the top of the mountain, the protracted Curve War followed.
Strictly speaking, Curve War is a mercenary war. It is impossible for veCRV holders to vote for a specific mining pool out of thin air. To do this, the protocol must offer them a sufficiently attractive "bribe". For example, if you vote for the MIM (Abracadabra platform stable currency) mining pool, you can get the corresponding SPELL Token (abracadabra native Token). In the latest round of Votium voting, the “total bribe” of the abracadabra platform even reached $969,000. However, under the anxious battle, the warring parties are still developing and accumulating new strategies of veCRV, and Curve War has also entered a white-hot stage. The early history of Curve War is described in detail in the article "A Power Struggle Around Curve". In fact, this war did not attract enough attention at the beginning. After receiving CRV incentives, major players such as Yearn Finance and Stake DAO sold them in the market, which drove down the price of CRV, which to a large extent Reduced attractiveness of incentives. But after Convex came out, everything changed.
Convex: My Hire, My Hire
Convex is a DeFi protocol specially designed to optimize the Curve interest rate, aiming to lock as many CRV Token as possible. CRV holders can permanently pledge their tokens on Convex and exchange for an equivalent amount of cvxCRV as liquidity. Not only can they enjoy the same CRV incentives as veCRV holders, but they can also receive additional CVX as rewards. The benefit that Convex has gained from this is that it has obtained completely autonomous CRV governance rights from veCRV holders.
In just a few months, Convex has successfully accumulated enough CRV, and can effectively determine the incentive distribution of mining pools on Curve, which can be said to have won the first battle of Curve War. But for Convex, things are far from being as simple as simply controlling CRV, and it is obviously important to solve the problem of the value source of its own governance Token.
So Convex made Curve in the same way and made a nesting doll mechanism: CVX is the governance token of the Convex platform. By locking CVX, LPs can vote on Convex's veCRV governance decision. That is to say, controlling Convex is equivalent to controlling Curve.
Even more subtly, according to the current ratio, the weight of CRV purchased by the agreement through one dollar of CVX is even more than the direct purchase of CRV. In the last round of Votium voting, for every USD 1 paid to vlCVX holders, the mining pool on the Curve platform can get USD 4.15 in CRV. As a result, the demand for CVX has increased significantly. Currently, 142 million cvxCRV and 23 million CVX are locked, and the value of CVX is also steadily rising.
In addition, Convex's Token unlocking schedule is also determined by the amount of CRV locked. When the CRV lockup reaches 500 million, the circulation cycle of 100 million CVX will be fully unlocked, and every marginal CRV obtained by the platform after the end of CVX emission will increase the ratio of CVX to CRV, which means that every CVX to Curve platform The measurement weight of liquidity incentives will increase.
Convex War
Now, in order to more efficiently compete for control of Curve incentives, the protocols have launched a new round of mini-wars on Convex. For stablecoin protocols such as Alchemix, FRAX, Tribe, and Luna, they can obtain higher CRV incentive quotas in two ways. One is to "bribe" CVX holders, and the other is to accumulate and lock CVX by yourself. Since one CVX actually controls multiple veCRVs, buying CVX directly has become the best choice for the protocol. The problem is that less than 4% of all CVX is currently available for purchase by exchanges (less than 4 million CVX), and the amount these agreements need to accumulate far exceeds the amount circulating in the market. For this reason, the agreement is also to show their talents, and accumulate CVX in their own treasury as much as possible.
Yearn Finance
The Yearn treasury also relies on providing liquidity for the Curve mining pool to obtain CRV rewards, but only 10% of the CRV rewards will be locked in the background by Yearn to buy more CRV, and the remaining 90% will be used to reward LPs that provide support . Obviously, this made Yearn lose to Convex in the Curve War. Yearn has now entrusted all of their veCRVs to Convex in an effort to increase production from their own factory pool. Of course, it should be noted that this delegation will not delegate Yearn's own voting rights to Convex.
Olympus
The Olympus team also realized the important strategic significance of Curve very early. The team also hopes to use Curve voting rights to increase the rate of return on OHM treasury assets and achieve important governance of the Curve ecosystem. In its governance proposal OIP-43, the team proposes to increase the holdings of CVX in Olympus vaults by issuing CVX bonds. From the Olympus team's point of view, being an early mover with CVX is a huge advantage: CVX emission rates will decrease over time, making it more difficult and expensive to acquire future CVX equivalent to current control. Now, Olympus DAO has more than 317,000 CVX, worth 6.9 million US dollars.
Other stable agreements
Stability agreements like Abracadabra, Frax, and Alchemix are more about providing "bribes" to CVX holders. These projects have all come out on top in the past round of Votium voting: Abracadabra and Frax paid $2.23 million and $0.97 million to holders, respectively, while Alchemix split $1.3 million between the alETH and alUSD stable pools "bribery". In addition, nearly 705,000 CVX have been locked in the contract address related to the Frax development team; and Abracadabra has also decided to spend 5% of the weekly agreement fee on purchasing and locking CVX.
Poaching Mochi Inu
It must be admitted that war is intrigue, and there will inevitably be participants who do not abide by the rules and take advantage of the fire. Just in November last year, Curve Emergency DAO discovered that a protocol called Mochi Inu was conducting a "governance attack" on Curve, and quickly attacked, cutting off the relevant mining pools and their CRV incentives.
After promoting USDM as an "endorsed" stablecoin and joining the Curve mining pool, Mochi Inu used its unlimited Mochi Token to mint USD 46 million out of thin air, and used these USDM to drain the USDM-3 pool of DAI, A large amount of CVX is purchased through the resulting profits. Its intention is actually very obvious, it is to control a large number of CVX, and expand the USDM-3 pool by increasing CRV incentives, thereby producing a flywheel effect (Flywheel Effect). But in the end, due to the serious shortage of USDM collateral, the USDM peg failed, causing heavy losses to investors.
Mochi still controls about 1 million CVX tokens. Although Convex DAO canceled Mochi's voting rights, Mochi will still be able to earn considerable income in the form of cvxCRV rewards in the future. There is no doubt that this behavior violates the original intention of Curve's decentralization and also exposes Curve's current problems. In the eyes of many people, Curve has always been a new and stable umbrella. Without Curve, many agreements would be difficult to open up for themselves, but it is precisely because of Curve's role that he has become the target of some agreements. If the Curve ecosystem wants to become stronger and more stable in the future, it must solve this problem.
Moat or Trojan Horse?
Unlike battlefields in the real world, blockchains have unlimited space, so why do other protocols choose to lay siege to Curve's walls when they can build their own castles? The answer is simple - they cannot build a solid moat, which is in the rhythm of "Variant Fund Co-Founder: How do Web3 applications build defensibility?" "There is also a more in-depth explanation in the article. In contrast, Curve, relying on its unique AMM structure and huge liquidity, can build a sufficiently solid application barrier. In addition, in order to obtain greater voting rights, giant whales will also choose a longer CRV lock-up time. Currently, the CRV vote lock-up period is 3.65 years. These advantages of Curve are difficult for other protocols to replicate. The best evidence is that no Curve fork can compete with it.
Curve has become a key infrastructure in the current DeFi field, and the protocol wars surrounding it have also received more attention. It is undeniable that by controlling a large number of veCRVs, Convex has made a great contribution to the development of the Curve ecosystem in this process. But because of this, the original Curve War seems to have become Convex War, and CVX has become the most important and popular character in Curve War. Large protocols like BadgerDAO, Abracadabra, OlympusDAO, etc. are constantly accumulating CVX in a quest to control CRV incentives. From this fundamental point of view, CVX has a higher value proposition than CRV itself: as CVX emissions gradually slow down, the intrinsic value of CVX as a "voting controller" also continues to rise, which also prompts the protocol profile to compete through CVX The control right of Curve incentives, CRV itself is to some extent emptied. This makes us think, is Convex Curve's moat or Trojan horse? Who is the real winner of this war?
