THE RELATIONSHIP BETWEEN CURVE, CONVEX AND THE CURVE WARS!!!

CURVE FINANCE

Curve is an automated market maker or simply a decentralized exchange that aims to facilitate deep liquidity, reduced slippage and low fees for stables or pegged asset with similar value, especially for large traders. However, to attract more liquidity into her platform, Curve incentivizes liquidity providers.

With Curve V2 was the introduction of Crypto Pools which we refer to as Curve pools that allowed for the trading of non-pegged assets as a result of a new type of AMM with a variable fee ranging from 0.04% to 0.40%. a good example is Tricrypto pool, depositing a token here, however, exposes you to the other coins in the pool, which is why you may want to deposit a token you’re comfortable holding.

UNDERSTANDING CRV AND VETOKENOMICS MODEL

The Curve protocol was launched In January of 2020, but in August of same year, Curve transitioned into a DAO with the creation of the CRV token and the purpose of the DAO is majorly for governance and voting.

The CRV token however has three main use case

• Staking
• Boosting
• Voting

These use cases requires you to lock your CRV to get VEcrv and with this, you can earn 50% of the trading fee generated from curve as a very holder. liquidity providers on the platform, can also boost their CRV Inflation by up to 2.5X and can vote on DAO proposal and on pool parameters. however, to create a proposal you need to hold at least 2500 VEcrv and to get this you have to lock 2500 CRV for 4 years. if you lock 2500 for 1 year, you get only 625 VEcrv as 1 crv locked for 1 year =0.25VEcrv.

GAUGE WEIGHTS

Gauge weights reflect where and how CRV emission will be received by the liquidity pool and everyone who has VEcrv can vote for the gauge weights. The gauge weight is updated once a week on Thursday and your vote can only be changed once every 10 days

for example on the pool below, the Y pool is receiving 72% of the CRV inflation, this means that everyone who supplied liquidity on this pool will share 72% of the CRV emissions.

You can find each liquidity gauge relative weight on this page:

https://dao.curve.fi/minter/gauges

SUPPLY

Total supply: 3.03b

62% of LPers

30% to shareholders with 2–4years vesting

3% Employees 2 years vesting

5% community reserve

Initial Supply

1.3b (~43%) distributed

5% to pre-CRV liquidity providers with a 1-year vesting

30% to shareholders (team and investors) with 2–4 years vesting

3% to employees with 2 years vesting

5% to the community reserve

You can find the release schedule here

https://dao.curve.fi/inflation

Although there have been allegations of CRV being pre-mined, but according to the official documents CRV was not pre-mined and the circulating supply at launch was 0 with the initial release rate was around 2 million CRV per day

• The Tokenomics of CRV is designed in a way that it has both Inflationary and deflationary measures in place. The emissions are used to incentivize more liquidity to the protocol and participation in Governance, and the deflationary is used to encourage long-term participation in the protocol.

TEAM

The founder of Curve DAO is Micheal Egorov, he has worked on LinkedIn as a senior software engineer, he’s a physicist, a scientist and cofounder of NuCypher. There isn’t much information about the other team members on the internet.

ROADMAP

Curve protocol is a DAO and any change or action taken in a DAO are usually initiated through community proposals and these proposals can be viewed from the Curve finance website.

SAFETY

safety, as with every cryptocurrency should not be considered as a hundred percent safe and audits do not eliminate smart contract risk however curve smart contract has been audited by Trails of bits and Quantstamp.

KEY METRICS

• TVL across 10 chains is 6.85b, With Eth taking over 6.28b (DefilLama)
• Price: $1.42
• Market cap: $740m
• 24hour Volume: $43.26m

(Messari.io)

• Circulating supply: 640,973,031.99 CRV
• Total CRV Locked: 568,617,620.68 (47.01% of all circulating CRV)
• CRV token holders: 76,152
• Total fee earned: $85, 565,708.71 USD
• Average lock time: 3.60 years
• Total active users on Ethereum: 74,673

Some of the investors of Curve Finance include Codex Venture and Two way Capital

CONVEX FINANCE

Convex is a platform that was built for Curve liquidity providers and CRV holders to maximize their reward from participating on Curve protocol. The main reason for its existence is to create more opportunities and act as a better rewards platform.

With Convex, Curve liquidity providers can stake their LP tokens on the Convex platform, and in exchange, they get to earn

• Boosted CRV without the need to hold VEcrv
• Trading fees from Curve
• CVX and
• Extra incentives.

For CRV stakers

In exchange for CRV, they offer them a liquid tokenized version of VEcrv which is cvxCRV and this action is irreversible. However, asides from losing their voting rights, which they transfer to Convex, these stakers also get to benefit other rewards

• CRV from the Convex performance fee
• Trading Fees from curve (3crv)
• CVX
• Airdrops and other incentives.

1CRV=1cvxCRV and users can swap their cvxCRV back to CRV on the secondary market

• Convex has a zero fee on deposits and Withdrawals and the only fee charged is a 16% performance fee from CRV revenue by curve Liquidity Providers on Convex and this is distributed back in the form of CRV to cvxCRV stakers as 10% and 5% to CVX stakers as cvxCRV and 1% to harvest callers in CRV.

CONVEX FOR FRAX FINANCE

Frax finance has a similar governance model to Curve, Hence Convex is to Frax what it is to Curve. However Frax finance can host LP tokens from other Dapps and to optimize your reward with convex, users will need to unstake from Frax and stake on the Convex platform. There is however no incentives market for voting on gauges with Frax unlike with Curve where there’s an active incentive market.

On Convex, users stake FXS and in exchange get cvxFXS in a 1:1 one-way conversion ratio.

cvxFXS/FXS LP staking

• Stake your cvxFXS into a liquidity pool on a curve, then stake the LP tokens on convex to receive fees for VEfxs on Frax, earn FXS from Convex performance fee and CVX for CRV earned by the pool until emissions end.

Frax LPs

• When you stake accepted lp tokens on convex, you earn boosted FXS

7% of the total earned FXS is paid to CVX lockers as CVXFXS

10% of the total FXS earned is paid to CVXFXS LP stakers as FXS

TOKENOMICS

Max Supply: 100 million

50% Curve LP rewards

Rewarded pro-rata for CRV received on Convex

25% Liquidity mining

Distributed over 4 years. (Incentive programs, currently CVX/ETH and cvxCRV/CRV)

9.7% Treasury

Vested over 1 year. Used for future incentives or other community-driven activities

1% ver V holders

Instantly claimable airdrop

1% of ver V holders who vote to whitelist Convex

Instantly claimable airdrop

3.3% Investors

Vested over 1 year. 100% of investment funds used to pre-seed boost and locked forever(no cvxCRV minted).

10% Convex Team

Vested over 1 year

UNDERSTANDING CONVEX NATIVE TOKEN $CVX

CVX is the convex finance native token and it’s used in different ways within the ecosystem

• Incentivize LP stakers on Convex

by staking liquidity tokens on Convex, users earn additional CVX as rewards

• Incentivize CRV and FXS stakers

Stakers who provide these voting rights to the protocol also receive additional CVX rewards.

• Vote-locked CVX for a minimum of 16 weeks is used to participate in the voting of gauge weights on curve.fi proposals, and governance of Convex. Votes can also be delegated to other individuals or the convex core team.

CVX is minted pro-rata for each CRV token claimed, this means that every time a user claims CRV, CVX is minted and if you are in a pool with a high CRV emissions, you’ll also receive more CVX but the mint ratio reduces every 100k CVX minted.

• CVX is used to incentivize the cvxCRV/CRV and CVX/ETH Liquidity providers that stake their LP tokens on Convex

CURVE WARS

With the creation the Curve DAO and the introduction of the liquidity mining program to further incentivize liquidity providers, VEcrv holders could vote for their preferred pool through Curve’s gauge weight and direct rewards to their preferred pool.

Curve wars however as controversial as it sounds, is a mere competition by protocols who want to attract liquidity to their native pool by offering their native token as an incentives to VEcrv holders in exchange for their votes to increase CRV inflation on their pools

With the explosive growth the protocol witnessed due to its governance model, protocols starting realising the potentials that VEcrv holders had and how they could use this governance model to direct more emissions to their pool and attract more liquidity. However, the Convex team saw this potential early and started accumulating the CRV token by creating a better rewards structure in exchange for this voting right and CVX was created as an additional rewards and to enable those who vote locked their CVX in exchange for VLcvx to control how Convex controlled its Curve’s votes.

Convex currently owns about 53% of VEcrv locked and that is more than 50% of voting power, so for protocols who offered bribes to VEcrv holders with their native tokens, this led to an induced selling pressure, hence the race is now to accumulate both CRV and CVX.

CONCLUSION

Liquidity is the soul of DeFi and for protocols to have access to this liquidity, they have to understand the game of incentives in decentralized finance. This is because yield farmers always want to make the most out of their assets by moving funds to protocols that will offer them the highest sustainable yields.

Curve Finance has been able to strategically attract liquidity to its protocol through its liquidity mining program and VE governance model thereby bringing about sustainability and long-term focus and have aligned this focus with people who want to have a say in how the protocol runs and locking up their token either with Curve or Convex as the case may be, means they will have skin in the game and this greatly reduces the tendency to hurt the protocol.

In my opinion, Curve finance has developed a place of sustainability for the protocol first through its unique AMM Model to facilitate stable swap for people and whales especially who want to move their funds around without suffering from high slippage by incentivizing this liquidity through the liquidity mining program, and lastly by creating a DAO where people who are concerned about the protocol will be the ones to make decisions concerning it.

Currently, the average lock time for CRV is (3.60 years) and as more and more people lock up CRV in other to have a say in the protocol, Curve will stay relevant and hopefully continue to innovate and move with the meta as long as liquidity providers stay in the protocol.

CRV is set to be distributed at a diminishing rate of 2¼ each year, and the total supply will last for over 300 years and yield farmers are in for a long ride.