The “Curve war” can be described a battle for supremacy between various Decentralized Finance (Defi) protocols that are continuously trying to ensure that their preferred liquidity pools are offering the highest $CRV rewards. This is leading to increased buying pressure for $CRV.
What is Curve (CRV)?
Curve is the largest Defi protocol out there in terms of TVL. Total Value Locked (TVL), in the context of cryptocurrency, represents the sum of all assets deposited in DeFi protocols earning rewards, interest, new coins and tokens, fixed income, etc. Because blockchain services are developed on peer-to-peer networks, there is no central authority to govern, build, or improve the ecosystem. Therefore, cryptocurrency investors themselves receive consideration for building these networks from the bottom up with their coins and tokens.
The metric is an important gauge of the overall DeFi market. Currently, TVL has reached over $200 billion globally. Curve Finance has over $23.4bn in Total Locked Value (TLV). They offer liquidity pools, borrowing and are the biggest place to lend/borrow stablecoins.
$CRV’s growth can be attributed to growth of yield optimization protocols focusing on Curve Finance.
Yield Aggregators
Yield aggregators are Defi protocols that automate the process of staking and collecting generated rewards on the users’ behalf. Yield aggregators optimize gas fee spending through various strategies, which may involve moving the tokens around various platforms thus maximizing yields via auto compounding.
Most yield aggregators have governance tokens that incentivize activity on the protocol. Holders of the governance tokens can vote or propose changes within the protocol. The more usage of the governance token on the protocol, the higher the fees generated which automatically translates to higher yields on the staked token.
The top current competitors in the Curve wars was include: $CVX, $YFI, $SPELL & $SDT.
Currently, Convex Finance (CVX) controls over 50% of all veCRV tokens currently circulation. Because Convex has so much voting power, other protocols are now attempting to bribe its token holders to vote for the pools they want to see receive boosted yields.
DeFi projects are scrambling to get their hands on more Curve tokens (CRV) by first getting their hands on vote-locked Curve tokens (veCRV).
Understanding the power and scale of Curve, you will understand that most of the other projects want to be highly featured in the APY ranking on Curve to attract more liquidity and this is where the “wars’ start. Thus, there’s big competition between yield aggregator protocols to get everyone to deposit CRV and veCRV with them.
Although it looks these protocols are giving money away, it’s very profitable for them to do so. Currently, for every $1 paid to Convex token holders, the liquidity providers for the underlying pool receive about $4.15 in CRV emissions— a pretty good deal if you ask me. The picture below by StablinoFarma weirdly explains the concept - from left to right: Curve, Convex, Tokemak, and six other protocols that are competing to bribe Convex token holders.
History shows that urgency of Wars have sparked many big technological leaps. In the case of the Curve Wars, the battle for CRV emissions is leading to developers and builders pulling out all the stops to increase yields and attract more liquidity and users. Andre Cronje, the creator of YF and other DeFi projects, built a platform to execute this exact kind of bribe. The competition is forcing innovation in DeFi, creating new value that is ultimately passed on to token holders.
Because the supply of CRV, projects can only acquire so many, which leads to interesting market dynamics. The limited supply turns this game into an accumulation race where the winning play is to acquire as much CRV as you can, vote-lock it on the exchange for veCRV, then vote to distribute CRV tokens to a specific pool, earn more CRV—rinse and repeat.
There will be a deeper dive into the Curve Wars for Kaicho Insights Pro Subscribers.
ICYMI
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