The Curve ($CRV) Wars and the Curve Ecosystem

Curve wars can be described as the race between various protocols to offer the highest $CRV rewards “bribes” in their liquidity pools. This has created an ongoing war that has increased buying pressure for $CRV. Some of the biggest competitors trying to woo Curve token holders to lock their $CRV with them include ConvexFinance, StakeDAOHQ, Abracadabra, and YearnFinance.

As a protocol user, you get to lock $CRV into veCRV, thus gaining access to substantial farming incentives in the form of $CVX, $SUSHI, and $SDT. Additionally, you can also receive trading fees from the automated market maker, governance rights, and boosted rewards. So far, the main battle is between Yearn and Convex, and the former did not have much competition when it came to staking veCRV before the latter came into the picture.

However, it is important to note that these two are not pure competitors, since Yearn utilizes some of the products by Convex to generate yield for its vault. To have a better understanding of this war, there are a few terms you need to know, such as:

What is Curve?

Curve is a decentralized exchange designed to provide the best possible rates for users who are trading stablecoins. The protocol focuses on stablecoins, which means that liquidity providers have less risks due to the lower volatility. Curve makes use of various liquidity pools to make trading on its protocol efficient. As is the case with many decentralized finance protocols, Curve also has a native token known as $CRV. $CRV’s growth can be attributed to two main reasons: tokenomics and growth of yield optimization protocols focusing on Curve Finance.

The protocol’s total supply is about 3 billion, with about 62% distributed to liquidity providers, 30% shared among shareholders, 5% held as a community reserve, and 3% for employees. Curve is the second-largest DeFi protocol on Ethereum in terms of total value locked behind only Maker with a TVL of over $14 billion.

What are the Curve Wars?

As protocols are trying to grab liquidity for their projects, they either have to buy up $CRV to vote, or “bribe” their users to vote for them.

A large proportion of current $CRV rewards are weighted towards $MIM, the stablecoin for the Abracadabra protocol. To achieve aggressive growth for $MIM usage as well as to keep stablecoin peg, Abracadabra has been “bribing” liquidity providers with $SPELL, which they earn on top of their rewards in the $CRV pool.

However, bribing forever could lead to their native token facing massive selling pressure, and eventually no one would want to be bribed. Acknowledging this, many protocols are accumulating $CRV.

While platforms such as Yearn Finance, Stake DAO and [REDACTED] Cartel are accumulating large amounts of $CRV to control voting power, the biggest player in the space is still Convex.

What Are Yield Aggregators?

Yield aggregators are systems that automate staking on behalf of users. They optimize gas fee spending through various strategies, which may involve moving the tokens around various platforms, and maximizing yields through auto compounding. On most yield aggregators, you will find governance tokens used to incentivize activity on the protocols. The more usage a governance token has on the parent protocol, the higher the fees generated, which automatically translates to higher yields on the staked token.

Who Are the Main Players in The Curve War?

Convex Finance $CVX

Convex Finance is the third biggest protocol on Ethereum, with a TVL of over $11.9 billion. The protocol allows Curve.fi liquidity providers to earn trading fees and claim boosted CRV without locking CRV. Liquidity providers can receive boosted CRV and liquidity mining rewards with minimal effort.

The protocol aims to serve CRV holders that can stake them for cvxCRV, and Curve liquidity providers who hold Curve LP tokens that can be staked and boosted. Convex offers additional ways to grow your tokens other than time locking them into veCRV to earn a share of Curve’s trading fees. The Convex option comes in the shape of cvxCRV. All you need to do is stake your CRV tokens on Convex and receive cvxCRV in return, giving you a claim to veCRV rewards from Curve exchange, a slice of earnings from the Convex platform, CVX tokens, and airdrop to veCRV holders.

Yearn.Finance (YFI)

Yearn is the eighth largest protocol on Ethereum, with a TVL of over $3.8 billion. It is a decentralized ecosystem of aggregators that utilize lending services such as Aave, Compound, Dydx, and Fulcrum to optimize users’ token lending. When users deposit tokens on the protocol, they are converted to yTokens, which are periodically rebalanced to choose the most profitable lending services. One such service is Curve.fi, a prominent integrator of yTokens – creating an AMM (Automated Market Maker) between yDAI, yUSDC, yUSDT, yTUSD that not only earn lending fees, but also trading fees on Curve.fi.

Abracadabra.money (SPELL)

SPELL is a reward token associated with abracadabra.money. This lending platform uses interest-bearing tokens (ibTKNs) as collateral to borrow a USD-pegged stablecoin known as Magic Internet Money (MIM). Users can deposit collateral and borrow MIM against it. Abracadabra uses the Kashi Lending technology to provide isolated lending markets that allow users to adjust their risk tolerance according to the collateral they decide to use. The protocol also offers yield farming opportunities where users can stake their liquidity provider (LP) tokens to farm SPELL.

Another notable competitor is Stake DAO (SDT), with a market cap of about $72 million.

Interestingly, as these protocols compete, the overall winner is CRV, whose price keeps growing over time. Based on what has been observed so far, the Curve war is not ending anytime soon, and it will become fiercer if more competitors come into play, and protocols are forced to increase user incentives.

Final Thoughts:

As the Curve Wars play out, more and more protocols will be accumulating $CRV and $CVX to direct voting power and incentivise liquidity.

As Convex locks $CRV up indefinitely, and Convex token emissions eventually reduce, both tokens are expected to increase heavily in value over time.

Also, while these projects can be forked, the liquidity present on their platforms cannot simply be copy-pasted over, which presents a challenge for anyone who wants to compete.

Currently, the only major competitor we can forsee is Uniswap V3, which has deep liquidity pools as well.