2022-02-06 22:33:40
The Curve Wars Vol.1
In this two-part series we want to outline the whole Curve universe and help you gain an understanding what is happening and why it is important.
What is Curve?
Curve is an Automated Market Maker (AMM) exchange that is based on an improved model of the bonding curve and focused on trading similarly priced assets like stablecoins or different forms of wrapped BTC (for example renBTC and wBTC). This design minimizes impermanent loss, slippage and fees. Because pools with similar assets are trending towards the same price it is unlikely that any token inside the pool will slide too far of peg. With much smaller fluctuations as opposed to a pool with heterogenic assets the trading fees are much smaller as on other AMMs (fees are used to compensate Liquidity Providers for impermanent loss, so when we have reduced risk of impermant loss we can offer lower fees). And these smaller fees attract Liquidity, and the deeper the Liquidity the lesser the slippage. A perfect circle:
reduced IL -> reduced fees -> increasing liquidity -> smaller fees
On top of that comes an underlying functionality of Curve that allows the assets into the pools to automatically get lent out to interest-paying platforms like Compound, Aave and Synthetix. This way Curve can reward LPs not only with trading fees, and instead offer interest rates on top of that.
The Backbone of DeFi
The above described mechanisms make Curve to the most capital efficient AMM for swaps between homogenic assets and the yield for LPs, from the underlying lending mechanism to interest bearing protocols, make Curve a cornerstone for other yield-generating protocols like Yearn and Convex.
This extremely efficient composability is paired with a very high degree of security. Curve's smart contracts are audited and non-upgradeable, this means they cannot changed no matter what. This leaves users in full control of their funds and eliminates the possibility of a rug pull while also makes the protocol extremely difficult to hack.
The combination of these features and mechanics make Curve the protocol with the highest TVL (total value locked) overall. With a TVL of 19.2 billion USD and daily volumes between 400 and 500 million $ it has the deepest liquidity in stablecoin pools and it is the undisputed Nr. 1 in DeFi. These unique properties are the reason that a huge chunk of DeFi yield (across different protocols and yield aggregators) is produced by Curve, which makes it essentially the foundation of DeFi.
...The native token of Curve is CRV and it is an ERC20 governance token with voting power (remember this, as it will be important later).
Total supply:
62% to community liquidity providers
30% to shareholders (team, investors) with 2-4 years vesting
3% to employees with 2 years vesting
5% to the community reserve
Holders of CRV can lock their tokens to gain voting power. If a user locks CRV tokens he receives veCRV tokens (ve stands for vote escrowed ), these tokens grant you voting power and a share of the trading fees. veCRV is non transferable and cannot be traded.
Now pay attention. The longer you lock your CVR the more veCRV you receive, the maximum is 4 years. When you lock CRV for 4 years you receive veCRV in a 1:1 ratio, if you look it for 1 year your receive 0.25 veCRV per CRV and so an. The longer you lock your tokens the more voting power and revenue share you get, and your veCRV balance is decreasing over time unless you choose to lock more CRV or extend the lock period. Locking CRV to get veCRV is irreversible. Doing so has several benefits:
veCRV grants the user a share of the trading views, voting rights in the CurveDAO and boosted CRV rewards.
Lets talk about each point.
Trading Fees
Every veCRV holder earns a portion of the protocols revenue (generated through swap fees). 50% of all trading fees are collected and used to buy 3CRV (the LP token for the TriPool which consists of DAI, USDC and USDT) which is then distributed to all holders. These LP tokens can be redeemed for the underlying collateral.
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