CryptoWallCity vs MEXC Exchange

What is Curve Wars? Main informations and protocols

Curve Wars is a $15 billion battle for liquidity in DeFi. This means that projects want to control high-volume markets between many buyers and sellers.

The world of DeFi is balanced by the need for two things: Liquidity & incentives.

Protocols want liquidity and we want incentives. Protocols understand this, so they fight for liquidity, incentivizing us with innovative rewards. And Curve Wars is a prime example.

What is Curve Finance?

Curve Finance is a decentralized exchange (DEX) made possible through automated market creation (AMM).

If you are familiar with Uniswap or SushiSwap, then Curve Finance is similar. The difference is that it initially only accepts liquidity pools of similar properties (mostly stablecoins).

Curve Finance has the advantage of being able to offer extremely low trading fees and slippage on these similar asset pairs.

How does Curve Finance work?

The answer is that it comes from favoritism.

The liquidity providers of a trading pool earn a portion of the transaction fees on that pool, as well as the Curve governance token (CRV) reward. They are differentiated between APY “Base” and “Rewards”.

Curve Pools
Curve Pools
  • You will notice that “token rewards APY” has a scope. That’s where the veCRV model comes in.
  • Voting Margin CRV (veCRV) is earned by locking CRV tokens for 1 – 4 years.
  • The longer the lock, the more veCRVs there are.
  • veCRV earns 50% exchange fee (another 50% for LP) from Curve Finance Protocol. The current VeCRV APY is 7.16%.
In addition to 7.16% holder APY, veCRV holders also receive higher rewards in Curve pool.
In addition to 7.16% holder APY, veCRV holders also receive higher rewards in Curve pool.

Recall that each pool has a range of rewards. When you lock more CRV for veCRV, you will get higher reward.

  • Example: Accumulate veCRV to increase from 3.21% to 8.02% APR on pool ‘tricrypto2’.

Curve regularly issues CRV tokens, but participants lock in their rewards for several years to receive increased returns over time. The offers are not over yet. Curve Wars begins with “votes” in veCRV… veCRV holders vote on which pool to allocate CRV rewards to. With more votes, more CRV rewards, leading to more subscribers and more liquidity.

With an ecosystem as large as Curve, it affects the liquidity of the largest stablecoins.

The Curve Wars

The Curve Wars
The Curve Wars

Protocols such as Convex, Votium, and Llama Airforce Union provide incentives and add-ons for veCRV control. They jumped in to benefit from the game.

Among them, Convex Finance is the largest. They control more than 50% of the total CRV supply. Some people now call it “The convex Wars”. Convex emerged as a yield aggregator. The project has allowed cheaper Curve LP vendors to get maximum APY.

On Curve, the staking pool reward will increase as you lock more CRV. Usually, you need more CRV tokens than the value of your LP deposit to get the maximum reward.

Convex solved this problem by aggregating everyone’s veCRV and unlocking max yield itself without needing all veCRV. On top of that, you’re rewarded with Convex’s native token, CVX.

Convex also launched their locked version of CRV token, called cvxCRV. You send the CRV into Convex, they lock it to veCRV and you get the cvxCRV.

You can staking cvxCRV for rewards and exchange freely on sub pools without any keys. Right now, your staking cvxCRV will yield a total reward of 43.82%. You can compare that to approximately 7% for your veCRV with a lock-in period of 1 – 4 years!

Similar to Curve, owning and locking CVX allows you to direct how Convex uses its veCRV vote.

Distinguishing Curve Wars and Convex Wars
Distinguishing Curve Wars and Convex Wars

With all the offers coming from Convex, buying CVX is now more attractive than CRV.

For example you have a new Stablecoin protocol. You need liquidity and therefore need to control as much veCRV as possible. You can:

  • Buy and lock CVX tokens and vote for your pool or “bribe” others with vlCVX to vote for your pool.

It is cheaper to “bribe” vlCVX holders than to accumulate CVX tokens. In the last round (March 3rd), the protocols paid 0.36 USD per CVX vote. You can compare that to the cost of buying a CVX token, currently around 17 USD.

The protocols are paying vlCVX holders to transfer CRV rewards to their liquidity pools
The protocols are paying vlCVX holders to transfer CRV rewards to their liquidity pools

As a holder of vlCVX, you have the option to manually vote for the LP to collect “bribes” (not too passive…). Or you can delegate your vote to a protocol that will do it automatically. Example: Votium Protocol, they choose the best bribes to maximize your reward for a round of voting.

Top earning strategies

  1. Set cvxCRV for 43.8% APY and no lockup period.
  2. CVX key for vlCVX. Manually vote on the best bribes for 57% APY.
  3. Delegating vlCVX to a protocol to earn maximum bribe reward.

In short, DeFi is always risky and volatile. So do your own research and never invest more than you can afford to lose. Hope this article has brought you a lot of useful information.