The CRV, decentralized exchange (DEX) governance token Curve.Fi, is managing to maintain its positive streak over the past five months.
Coinmarketcap data shows the CRV has risen 23% this month, with prices rising 12% to $6.56 in the past 24 hours. The token rose 127% in the last quarter of 2021, even with BTC rising just 5%.
As of Tuesday (4), about 86% of the $3 billion supply of tokens is blocked in various DeFi protocols, or decentralized finance, according to CoinMarketCap. The decline in liquidity can be attributed to DeFi protocols competing to accumulate CRV to influence decision making at DEX in a way that benefits them the most.
“An increasing amount of CRV is being blocked as veCRV, which has the effect of offsetting some of the emissions,” said Jason Choi, general partner and head of research at Spartan Capital.
“Protocols like Convex are blocking almost 50% of all veCRV, while other protocols are accumulating CVX, the Convex token. In other words, more and more protocols are being built around Curve, and an entire ecosystem is emerging, involved in so-called Curve Wars.”
Conquest of land in Curve Wars
Curve Finance is a DEX that facilitates the exchange of stablecoins. Decisions are made online by CRV holders who gain the right to vote by blocking their tokens for nearly four years to convert them to veCRV. veCRVs are used to vote on governance, increase governance rewards, earn trading fees and receive airdrops. The longer the CRV is blocked, the more voting power holders will have.
“One of the key powers given to veCRV holders is the ability to change the weights of the meters, which determine the amount of CRV rewards allocated to each pool in Curve,” DeFi Education said in a blog post published in November.
An entity seeking to establish control over Curve Finance needs to consistently accumulate CRV and convert it to veCRV.
Thus, the yield-boosting application of Convex Finance and other DeFi protocols such as Yearn Finance and StakeDAO are attracting CRV holders, offering attractive returns on staking. The protocols then deposit the received CRV in Curve Finance and collect the veCRV, gaining voting power to allocate more CRV rewards to the pools to which they provided liquidity. This is similar to a “land lease”.
“Recently, the ‘Curve Wars’ has been a hot topic,” Delphi Digital analysts said in a research note on Monday (3). “Simply put, Curve’s stablecoin AMM (automated market maker) rewards its liquidity providers with CRV, which can either be 1) sold to realize the yield or 2) put on stake in veCRV (Vote Guaranteed CRV), where a vote Weekly decides how rewards are allocated among Curve pools,” they wrote.
“Major stablecoin projects have realized that this weekly vote allocation is critical to maintaining Curve’s high liquidity. (Losing that vote means that LPs’ earnings fall and capital can move elsewhere.) Now, a so-called ‘war’ has started, with several protocols openly bribing votes and rewarding veCRV holders with their native tokens,” they added. Delphi analysts.
Convex Finance is currently the largest owner of veCRV, holding 47% of the total supply. The protocol was offering an APY (Annual Percentage Yield) of 48% in CRV stake at the time of publication – which is nearly 10 times higher than the APYs offered by multiple pools across the multi-billion dollar DeFi industry.
“This gives them (Convex) the greatest governance power to decide where CRV incentives should be distributed,” noted Delphi Digital. CRV holders with stake at Convex Finance receive cvxCRV tokens as deposit receipt. These currencies are freely tradable, unlike the veCRV, which is non-transferable. cvxCRV holders receive a share of Curve’s trading fees and enhanced CRV rewards and earn the Convex CVX governance token.
Convex Finance is built on Curve and allows Curve liquidity providers and CRV stakers to earn additional income without having to lock CRV tokens for long periods. The protocol surpassed $20 billion in total blocked value (TVL) over the weekend, becoming the second largest decentralized financial protocol in TVL. The biggest is Curve itself, with $24.3 billion in the block.
“Here is an interesting dynamic with Convex Finance, where a lot of CRVs are being blocked,” Henrik Andersson, co-founder and chief investment officer at Australian crypto-investment firm Apollo Capital, told CoinDesk in a LinkedIn chat. “We’ve been optimistic and we’ve been big CRV holders since the beginning. We were one of the largest initial liquidity providers at Curve.”
With Convex dominating the race to accumulate CRV, some protocols have resorted to purchasing CLC, Convex’s governance token. “Instead of buying CRV tokens and putting them on stake for the veCRV to vote, the protocols resorted to bribing vlCVX holders directly. (For reference, vlCVX is the Convex token that is locked for 16 weeks that can leverage Convex’s underlying veCRV governance powers),” noted Delphi Digital.
The CVX token was showing a 5% appreciation, approaching $50 at the time of writing.