The Curve Wars Rage On
A much needed part two covering Crypto Twitter's most interesting soap opera
*After a long wait, it’s here. Follow me on Twitter @knowerofmarkets to stay updated on future articles. Be sure to share this article with everyone you know. If you’re feeling generous and want to help a college student fund his trading habits, my ETH address is: 0x7Db280BA0fd96619D55Cd18270435A41e25948a4. If you haven’t already, go read my first article covering the Curve Wars - it’ll all make a lot more sense. *
Here’s a quick story
Before we take a treacherous dive into the recent events swirling amongst the Curve ecosystem, here’s a little story time - use metaphor and hyperbole to interpret the following in the best ways possible.
If you’re uninterested in this and only want the technical-ish stuff, skip ahead to the next bold heading you see.
In 1936, a geologist by the name of Jean Jacques Dozy was on an expedition in New Guinea when he discovered an anomaly. Dozy spotted a strange black rock jutting out of the ground, with specks of green. Astonished by what he’d found, Dozy sketched the formation and did some research on it, determined to find any possible goodies (precious minerals) lurking beneath his feet. Dozy filed a report and titled his finding Ertzberg - a Dutch phrase for ‘Ore Mountain.’
Imagine how different things could have played out if he hadn’t seen this odd rock formation. Wonder if there’s a phrase to describe this phenomenon…
Many years went by, and it wasn’t until 1960 that Dozy’s report found its way into the hands of an executive at Freeport Minerals Company. Forbes Wilson - vice president at the time - became enamored with the ore mountain - eventually leading an expedition to reach the top of the treacherous mountain. Evidently, they liked what they saw.
Within these absurd mountains were vast deposits of copper and gold - tens of billions of tons, to be (almost) exact. Obviously, this was a huge find, and one of the biggest achievements in the history of geology.
Mountains made of gold don’t come around everyday, after all.
Thirteen years later, the mine finally opened.
After the construction of a 116 kilometer road, a new town, a port and a power plant, Freeport was ready to begin excavating the world’s largest reserve of gold. For years, the Ertzberg and Grasberg mines were profitable and remained feats of engineering achievement.
Humanity had won. We had conquered a literal mountain of gold.
All it took was determination and the will to find something out of the ordinary - a real diamond in the rough, except no diamonds in this case. Oh well, gold’s cool too.
Often the best and most rewarding opportunities can come to us after we repeatedly try and fail at a task, when we refuse to give up and settle for less than we’re worth.
Sometimes, an opportunity so appealing reveals itself to you, you’d have to be a fool not to jump on it with all you have.
The war has only just begun
“He who controls the Spice controls the universe.”
- Frank Herbert, Dune
If you’ve read my previous article, you’d know that last time I covered this topic, events like the Mochi Finance debacle and the rumors of an imminent CVX pump (which did come, fortunately) were some of the biggest stories on our timelines. It feels like a million years have passed since then, but it’s only been three weeks.
This week, the market has been great. Pretty much every DeFi 2.0 coin has pumped an absurd amount, and the CRV/CVX pair trade has played out elegantly. Hell, even YFI pumped, and that’s a miracle entirely on its own.
Euphoria seems to be out of the picture, however, as most CT participants don’t concern themselves with these happenings, ultimately leading to this brutal war receving little attention. Aside from influencers like Tetranode, most of this flies under the radar, for better or worse.
So, what’s changed, and how has the market reacted to the developments in the Curve ecosystem this past few weeks?
Let’s find out.
For the uninformed, those that possess the most CRV win the game. It’s as simple as this. While we don’t exactly know what this game will develop into - or even why we play it - we have a rough idea of it.
Buy coins at low prices, sell coins at higher prices, repeat.
Decentralized Finance (which we all refer to as DeFi) is a wild west that’s still in its infancy, something quickly apparent to anyone who looks just a little bit behind the curtain. Things can get messy.
I didn’t expect for the war to heat up this fast, if I’m being honest. In just three short (but seemingly eternal) weeks, so much has changed.
CRV and CVX have been two of the strongest performing coins this past week, and most other DeFi 1.0 & 2.0 coins have also outperformed. I’ll talk about these later in the article, as the price movements are mostly relevant to the achievements being made everyday by a number of these protocols.
There’s been an odd merge between new and old, with DeFi 1.0 and 2.0 coming together to form DeFi 1.5. That’s what I’d like to call it, at least.
But why are so many protocols losing their mind over Curve, and what’s in it for them?
Want control over the infamous money printing Curve gauge? Simple, hold as much CRV as possible and ensure your competitors don’t have the chance to buy it before you do. Easy, right?
“But Convex already acquired an insane amount of CRV, why even bother?”
Sure, this might be the case, but this hasn’t deterred protocols from throwing their hat in the ring - remember our friend vlCVX? There’s still incentive to own vlCVX to possess control over voting decisions over the Convex protocol - because if you haven’t figured it out yet, they’re pretty significant and hold a lot of influence in the DeFi space.
As of writing this, Convex owns over 51% of the circulating supply of CRV. Majority rules, right? Protocols determined there was no way to accumulate enough CRV to beat out the behemoth known as Convex, so they resorted to the next best thing -owning CVX. If you can’t beat em, join em.
Like a world war, but with coins
Since my first article, I’ve learned more about this cursed topic than I’d like to admit. You’d think something called the Curve Wars would mostly involve reading on Curve and its wonderful native token (I think it’s called CRV?) but unfortunately it’s required me to read documentation and articles of way too many protocols.
Let’s take a look at some of the most important ones.
As mentioned in the previous article, Yearn Finance is an OG protocol which happens to possess a ton of money. With over $5 billion in TVL, Yearn has recently made waves in the DeFi community thanks to a document detailing the protocol’s revamped tokenomics. Yearn aims to become a black hole of token buybacks, which has led to a pretty decent month for YFI holders.
Some of these revisions are fairly similar to CRV tokenomics, which is a development that I hadn’t expected. After all, Yearn was hardly in the Curve Wars conversation earlier this month. Sure, they had aligned themselves with Convex, but this wasn’t really news - everyone has been buying CVX, they clearly hold the most influence.
Anyways, Yearn plans to use the protocol fees they have accrued to buyback YFI off the market, which will then make its way back into the pockets of stakers. In addition to this, those who lock their YFI will be given more rewards, along with voting capabilities. This opens up the opportunity for holder of this veYFI to receive bribes and even more rewards, just as we’ve seen occur with vlCVX and Votium.
All of this is super exciting, as this is yet another novel idea in the DeFi 1.5 space. We’ve seen the collective oohs and ahhs that have come with the concept of Protocol Owned Liquidity (POL) but very few have been able to unlock the opportunities of voting wars (not sure what to call this).
To summarize Yearn’s plans, it’s basically an exercise in Curve token(ponzi)nomics mixed with a beach ball that’s been held underwater for a long, long time (the YFI token). Aka number go up, everybody happy, DeFi summer in the winter.
We continue on.
Introducing the next player in this silly little game, I present to you Frax Finance. The incredibly intelligent and big brained team at Frax have created a “fractional-algorithmic” stablecoin (FRAX) - yet another product that the SEC will absolutely adore, I’m sure of it.
Frax has a goal of replacing the abundance of fixed-supply assets, and has created a product that manages to provide the best of both worlds - collateralization without OVERcollateralization and an algorithmic stable that can easily scale and grow.
Sounds too good to be true, right? How do they achieve such lofty goals?
Frax’s governance token is FXS, the Frax Share token, and is designed to accrue value for the protocol in order to provide more backing for FRAX. As stated in the docs, the more FXS goes up, the less backed FRAX has to be: “The market capitalisation of shares at any point in time fixes the upper limit on how much the coin supply can be reduced.”
In addition to governance and staking, Frax aims to create the first decentralized and permissionless version of the CPI (consumer price index) governed by FXS holders, known as the FPI. This lofty goal might jump out at those with a TradFi background (or anyone who’s still rational), but it’s just another of the ambitious propositions you hear everyday on CT - except Frax can pull this off.
Before we go too deep, let’s circle back to another of the warlords - Olympus DAO.
Everybody loves OHM. Four and five digit APYs, huge 20% price swings and juicy bonds, who wouldn’t like the protocol?
If you’re uninformed, Olympus DAO was the first to come up with the rebasing token and the concept of POL. Sitting on a treasury of over $800 million, Olympus DAO has managed to solidify itself as one of the first movers in the DeFi 2.0 movement. Many tout OHM to be the future reserve currency of DeFi, along with eventually becoming a decentralized federal reserve of sorts.
How does Olympus accomplish this? Let’s take a look
With the release of Olympus Pro came a new concept for the DeFi world - bonding. To put it simply, users can exchange LP tokens or other assets for discounted OHM - therefore allowing the protocol to gain liquidity in a more managable way. These bonds have a vesting term, meaning protocols no longer have to worry about mercenary farmers hopping ship and tanking TVL. The name that’s been given to this novel concept is “Protocol owned liquidity as a service” or POLaaS for short.
One of the first bonds Olympus offered was the OHM-FXS bond, signaling the beginning of a “mutually beneficial relationship” in their words. The protocols have been two of the biggest names in the DeFi 2.0 space, as their unique goals position them as a possible behemoth in the future of DeFi.
By forming an alliance with each other, Frax and Olympus further the ambitions first proposed by the founding fathers of DeFi - the abolishment of the traditional financial systems that have trapped billions in lives devoid of financial freedom. The combination of a decentralized federal reserve and consumer price index would be revoltionary, as we currently see a lot of discrepancies between the CPI and the Fed’s activities. Brrrrrrr.
Even more protocols, this war is huge
Alright, new section, same ideas as the last.
Another protocol that’s been mingling with OHM and FXS is Dopex, a decentralized options exchange that is looking to bring derivatives to DeFi. One of their recent features allows for Ohmies to earn passive income in a new way: by selling covered calls using the gOHM Single-Staking Option Vaults.
If you don’t know what a covered call is, it’s basically an agreement between a buyer and a seller, where the holder of a stock (or in this case, gOHM) agrees to sell at a predetermined date and price. In return, the seller of the call receives an option premium proportional to the risk and likelihood of the event occurring, and caps their upside at that price.
In our example, holders of gOHM can wager their stake and seek additional ROI, all while normalizing crypto derivatives and still rebasing their OHM. It’s a win-win.
One of the more outspoken supporters of Dopex is @tztokchad. While I’m still unsure on how Dopex fits into this, I can say that I enjoy the quality images of DPX propaganda TZ posts almost everyday. I also find the partnerships between all of these DeFi protocols very interesting, and look forward to seeing less liquidity fragmentation as partnerships continue popping up.
Speaking of liquidity fragmentation, another protocol has an answer for this. Say hello to Tokemak, a team that sets out to generate vast and sustainable liquidity for all of DeFi. Through utilizing their reactors - kind of like mini Curve gauges - protocols and those who govern Tokemak can direct liquidity where they want it, with less of the hassle that comes with the whole Curve / Convex debacle.
Liquidity providers deposit single-sided assets into reactors and earn TOKE, Tokemak’s native token, which they can then use to vote where liquidity goes. Tokemak currently has over $1 billion in TVL, and I don’t see how more won’t flow in as the market catches on.
The butterfly effect
“Invisible and inevitable, like a butterfly that beats its wings in one corner of the globe and with that single action changes the weather halfway across the world.”
- Alice Hoffman, The Ice Queen
After reading a little about [Redacted] Cartel (which I will refer to hereafter as [Redacted]), I knew I had to go down the rabbit hole. I’ve saved the best for last, as [Redacted] is one of the more interesting protocols I’ve read about, which is impressive considering it’s an OHM fork.
Let’s start from the top.
[Redacted] may be an OHM fork, but it’s different. Backed by its native rebasing token BTRFLY (brrrrr), [Redacted] is a new player in the game who isn’t messing around.
Already, they’ve raised over $70 million and are sitting at a market cap of around $250 million. Believe it or not, a solid team with a fat treasury can make a lot happen, and it seems like [Redacted] will be putting their money to work, as they’ve already purchased boatloads of CRV, CVX and OHM. Aiming to be an L4 (yes, you’re reading that correctly) in the developing Curve Wars, [Redacted] hopes to leverage the demand for CRV, CVX and OHM, while building up a monsterous treasury that can serve as a synthetic long on the entire Curve ecosystem.
By taking more of an altruistic role in the Curve Wars, [Redacted] wants its treasury to be a black hole, similar to the situation over at Yearn. By accumulating a vast amount of these tokens, they can work to fulfill their goals of providing “vote escrow as a service” or ve-aaS for short. These acronyms are so easy to keep track of.
In a way, [Redacted] can become a sort of Convex 2.0, while still being backed by it. Just as everyone currently wants CVX, there may come a future where protocols and DAOs will fight for BTRFLY, effectively making BTRFLY a proxy for the price of a vote towards the Curve gauge. Kind of strange how this all plays out, ponzinomics just keep getting weirder.
[Redacted] presents an interesting opportunity for the market, as OHM forks have been cast in a negative light pretty much since their inception. Now, gOHM holders and Olympus can accrue value and expand into different branches of DeFi. 100% of gOHM acquired by [Redacted] will be put into treasury reserves - tokens locked, price go up.
OHM forks have threatened the image of Olympus, and now [Redacted] can help expand the protocol to a multi-chain future - one that Olympus Pro has begun to enable.
I believe that [Redacted] is one of the best ideas to come out of crypto in a while, almost just as good as Olympus, to who they give credit to considering they share code. By taking a look at the DeFi space and seeing the obvious demand for these coins, [Redacted] has taken a position that many protocols would kill to be in. People are literally giving them money that the protocol can then use to buy the most sought after coins on the market (yes, I know this is what a bond is).
I find it very hard to deny the influence [Redacted] will one day have, and I think the war will only get crazier from here. The butterfly effect has begun.
The convex effect
Oh, did I forget to mention Frax’s recent partnership with Convex? I’m such an idiot, how could I forget one of the most important announcements in the past, uhhhh, year…
Just as Convex saw an opportunity in the Curve ecosystem, they recently announced they’ll be accepting deposits of FXS, due to the continued support from Frax Finance. For users that deposit FXS into Convex, they’ll receive cvxFXS and eligibility in Frax’s FPI airdrop. Currently, staking isn’t available, but at a later date users will begin to receive rewards from veFXS - similar to how staking your CRV on Convex already works.
This huge development says a lot, and is probably one of the most bullish things Convex has ever done. Not only do they possess an absurd amount of control over Curve, but they’re leveraging their reputation and warchest to do the same with Frax.
I hope you feel as bullish as I do, because I need someone to share this excitement with. Seeing all this play out makes me seriously wonder if Convex can be stopped, and if we’re witnessing a monopoly form right before our eyes.
I’m not even going to look up the TVL on Convex, because I know it’s a lot. I am positive it will only continue to grow, and will absolutely outpace any gains CVX makes on its way up.
Maybe Convex is the Amazon or Standard Oil of Web3, but it’d be difficult to compare it to anything we’ve seen before. $1000 CVX imminent.
The end game
After making it this far, you’re probably wondering how this all fits together. We’re looking at a table covered in puzzle pieces, except we’re wearing a blindfold and our hands are tied behind our backs as we’re forced to say the alphabet backwards.
How can any reasonable person make sense of this? So much information, so little time to act. What’s an anonymous degenerate to do with so little capital and so many places to put it?
My best advice is to go with your gut. Seriously, look at all of the protocols and coins I’ve mentioned and determine which one feels like the best place to keep your money. Want a solid return with less of the downside? Go with CRV. Want to shoot for the moon and buy a BMW? Buy some DPX.
You don’t need to own every variation of vlCRVgOHMveDPXvlsSPELLcvx.
In my opinion, you can’t really go wrong with any of these coins. Sure, sizing your bets is important, but almost any of these will give you gains - maybe even generational wealth.
DeFi has been trapped in a bear market for far too long, and it’s finally exiting its hibernation. I’m almost 100% sure these coins will continue to go up as more catch on to the intrinsic value and huge TVLs the protocols possess.
Hell, we might even be early on some of these coins. So much of CT doesn’t take part in the Curve/Convex wars, there are probably a lot of smart people who haven’t bought in yet. Or this could be the top and we’re all going to die.
Don’t get too crazy, and try to think rationally. A lot of these coins are up crazy multiples this past few months, and more likely than not you could end up buying the top. My best advice is to buy in chunks, as things will probably get more volatile from here.
I’m still the most bullish on CVX, but FXS has certainly caught my eye. And you can’t go wrong with Curve, they have the coolest logo.
I’m also sure that in two weeks there will be an entirely new narrative floating around, so don’t get stuck holding any old bags, as that can happen very quickly. It’s okay to take profits, so make sure you do it every now and then. You can always reinvest em.
It’s hard to believe this much noise can come from protocols fighting over an AMM who specializes in stable swaps. Yuck! However, this is still the most interesting thing that’s been happening amongst CT, and I have zero idea how this will all end. Super crazy stuff.
For as much as I’ve been following this, I’m still not an expert, so let me know if I botched anything or left out any super important info. I apologize for the lack of graphs and tables, but I found they weren’t really necessary as I kept writing. I’m sure you can find enough of that on Twitter, and I wanted to provide something a little different and less serious.
I hope this article helped clear up some of the confusion, as things have been pretty hectic in the DeFi space recently. Let me know if you’d want more articles on this topic, and share this with a friend. Thanks for reading.
So the thing you didn’t comment on at all was Danielle Sestagalli’s play on CURVE itself. Popsicle, Abracadabra, Wonderland, and (imminently) Sushi, just go to show how aggressive the moves really have been in this WW3. If he’s able to close the loop, then he has his OWN Ore Mountain to black hole liquidity and bribes away from CRV.
Hey guys, as someone who's been invested in olympus since the beginning, I must say- excellent article! If I could suggest a part 3 - it would be about Dani's ongoing attempt to bring all these different aspects of defi under one roof, per say. (Wonderland, abra, popsicle, and final piece being sushi)...game changer if available multi chain....ps...not a fan boy, I hold heavy positions in everything mentioned in the article.