Bobos & Wojaks

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Curve DAO Quixplained

  • Introduction to Curve DAO

Until recently, Curve had been extremely under-discussed, considering the major role it holds in DeFi across blockchains. Recent shifts in tokenomics led its native token, CRV, to become net deflationary; subsequently, the price is up 122% since the token became deflationary.

Curve is a decentralized exchange, known for its pegged-asset swaps like fiat-pegged stablecoins or assets that trade at a 1-1 ratio. With over $3 billion in deposits, Curve’s largest pool is known as 3pool and contains DAI, USDC and USDT.

The stablecoin pools have gained traction offering high liquidity and low fees (0.004%) because Curve uses its native token to reward liquidity providers instead of higher swap fees. Below you can see the results of swapping $75 million from USDC to USDT on Curve, Sushi and Uniswap, with Curve optimizing the swap with significantly less slippage than its competitors.

  • CRV Tokenomics

CRV holders may “stake” their tokens in the platform and lock them in fixed periods of between one week and four years to decide their voting weight. Depending on the amount of Curve locked and the length of time locked, stakers are given an adjusted amount of vote-escrowed Curve (veCRV). veCRV holders are then able to vote on how CRV rewards are distributed across Curve’s pools by assigning weight to the “pool gauge” aligning with their financial interests.

Subsequently, a system for bribing veCRV holders to vote in favour of specific gauge weightings has arisen. Projects like Abracadabra has paid the equivalent of $1.9 million to veCRV holders willing to vote for their stablecoin pool in the last two weeks alone, now giving their pool 32.5% of the relative gauge weight.

The dynamic capabilities of veCRV have kept the demand for CRV strong, even with inflation, to match the demand for maximized yield and low-fee swaps. However, as seen below, the emission schedule has slowed because of the end of early user rewards. The demand for locking CRV has also increased, turning the asset net “deflationary.”

 

  • Summary

Over the past six months, Curve has made just $34.1 million in swap fees, even though it has $16.5 billion in TVL on Ethereum’s main network and has kept its trading volume consistently high. Oftentimes, liquidity would migrate to exchanges with higher fee brackets for higher returns, and yet Curve has the lowest fees and more liquidity locked than any other exchange. The project’s real secret is subsidizing liquidity with the CRV token, keeping yields high enough for liquidity providers to stay in its pools.

Curve now has almost $20.2 billion in TVL across seven different ecosystems, making it the largest decentralized application, or dapp.