DeFi 2.0 restarts, and the first to "fight" is the area around Curve liquidity

Original Title: DeFi 2.0 Just Started, the First to "Fight" is the Field Around Curve Liquidity

Original Author: Master of Five Fireballs

According to the latest data today, the total on-chain NFT sales have surpassed $19 billion, with music artists and NBA stars from both domestic and international circles entering the scene. Besides the raging fires in the NFT market, the blaze is also spreading in other areas of the crypto space.

Recently, the liquidity war surrounding Curve has been ongoing for months without many people knowing. Today, we will give you a glimpse into the curtain of this war. The following projects will appear as participants: Curve, Convex, Frax, Mochi (a flash in the pan), DOPEX, BTRFLY.

Today, we will mainly look at the first two: Curve and Convex.

1. What is Curve?

Curve originally emerged as a stablecoin swap platform, with a simple interface and double-digit daily active users. However, compared to Uniswap's simple XYK pricing curve, Curve's algorithm allows stablecoin swaps to have much lower slippage than Uniswap, leading to the perception that Curve is a complement to Uniswap, serving as a trading venue for large stablecoin swaps.

Later, as Curve began to generate liquidity rewards, projects like Yearn's liquidity pools emerged, making Curve the most fertile ground for various liquidity pools. Many projects flocked to Curve, frantically mining, withdrawing, and selling, which caused Curve's price to plummet.

Eventually, Curve worked hard to expand its offerings, introducing various liquidity pools for homogeneous tokens (such as staking ETH through Lido to get ETH2.0's stETH, or collaborating with Synthetix to leverage Synthetix's no-slippage advantage for ultra-low slippage large exchanges of BTC and ETH, even developing a three-pool for BTC/ETH/USDT to compete for Uniswap's market share).

However, none of these efforts significantly improved Curve's daily active users or price; Curve remained merely a trading venue for large players and a nurturing pool for various liquidity pools. This continued until the emergence of various crypto-native stablecoins.

The exploration of native projects within the community has been ongoing and never abandoned. DAI was just the beginning, but it is by no means the end. ESD failed, BAS failed, and AMPL's future is uncertain, but we still have Frax (FXS), MIM (Spell), UST (Luna), alUSD (Alchemix), LUSD (Liquity)……

The competition for Curve rewards among these projects directly led to the outbreak of the Curve War.

To understand all of this, you must grasp Curve's emission mechanism:

1. What is veCRV?

veCRV is obtained by locking CRV. Locking one CRV for a year yields 0.25 veCRV, and locking for a maximum of four years yields a whole veCRV.

2. What is veCRV used for?

• Curve's fee sharing

• Airdrops from various Curve forks (like EPS)

• Increased liquidity reward earnings for Curve LPs (up to 2.5 times)

However, these incentives are not particularly attractive. The most overlooked yet crucial aspect of veCRV is the governance issue of Curve. While governance and DAO concepts may seem hot, many people are not particularly interested in this aspect. Just ask, how many people have truly participated in the governance of DeFi projects?

However, when governance becomes very important, affecting your earnings and even the survival of your project, that is where its significance lies.

The lifeblood of stablecoins, or all newly issued stablecoins, relies on two main points:

First, more use cases, primarily depending on the company's marketing and expansion capabilities. Luna's UST is undoubtedly the best example.

Second, maintaining a stable exchange rate, which relies mainly on pool depth. Only when users can smoothly exchange their Frax or MIM for USDT/USDC will confidence in that stablecoin gradually build.

So, what drives pool depth? Higher APY attracts more liquidity. How do we achieve better APY? Through veCRV voting! Yes, every week Curve votes to determine the weight of CRV rewards distributed to each pool.

Pools with higher APY will naturally attract more LP funds seeking returns, and more LP funds mean better depth, lower slippage exchanges, and stronger user confidence……

In summary, veCRV is the object of competition among all new stablecoin issuers and the most core resource in this Curve War. Later, with the emergence of Convex, let's discuss Convex next.

2. Convex

What is DeFi's greatest strength? The principle can be likened to nesting dolls:

Just as you can view YFI as a nesting doll of Curve, AAVE, Compound, etc., Convex is a vertically integrated protocol for Curve.

How does it achieve this? CVX says, why bother with the hassle of locking CRV, voting, and collecting rewards? Come to me for a one-stop solution; you won't lose any earnings, and I'll even give you CVX rewards.

CRV players see that they save effort and earn money, so why not?

All CRV entering through CVX will be locked for four years. What you hold is no longer veCRV, but CVXCRV, which offers higher returns than veCRV and allows you to unlock the liquidity of your locked CRV through a CVXCRV/CRV pool. However, as a trade-off, you lose governance rights over your CRV.

So, who controls all these veCRV in CVX? Of course, it’s the CVX holders behind it. CVX holders can lock CVX for 16 weeks to obtain vlCVX, which allows them to participate in governance and direct the allocation of rewards for various Curve pools.

Thus, everyone realizes that controlling CVX also means indirectly controlling veCRV, as a significant amount of CRV is locked through CVX to become veCRV.

Smart players or companies calculate that the cost of directly buying CRV to obtain veCRV is much higher than buying CVX and staking it for 16 weeks to indirectly control veCRV. This is why we have seen CVX's price continuously rise over the past few months.

So now CVX also has its own nesting doll, Votium. CVX is a vertical management protocol for CRV or veCRV, while Votium is a vertical management protocol for vlCVX.

Here, you can legitimately accept bribes from various stablecoin projects with your vlCVX and cast your valuable vote in exchange for rewards.

Having understood all of this, we can introduce other players in this war in the next article:

Currently, the strongest stablecoin is Frax, the fleeting yet reasonable exit Mochi, the future derivatives battlefield of the Curve War, DOPEX, and the OHM fork "voting governance aggregator, voting efficiency as a service," BTRFLY.