Introduction
Curve Finance plays a monumental role in the DeFi ecosphere, hosting the most liquid stablecoin pools of many top-ranking protocols. It has pioneered countless noteworthy innovations like the veToken, governance-controlled gauge weights, bribes, and more.
Now, Curve’s innovations live on as DeFi infrastructure. The rise of “Curvenomics” is evident even beyond DeFi, and what once was created uniquely for the protocol itself has now become a model framework for decentralized protocols around the space.
The veToken
The veToken (vote-escrowed) design was born with veCRV. veCRV has one of a kind tokenomics, and it standardized the concept of locking up tokens for rewards. Users can lock $CRV for up to four years in order to participate in governance.
While governance in general is a lackluster use case, veCRV grants other special rewards like 50% of Curve’s trading fees, a boost on LP, and most importantly the ability to control emissions through gauge weights. The ve-mechanism ensures that only “loyal” users aligned with the protocol’s longevity are rewarded, and that there is an incentive not to dump $CRV earned from providing liquidity.
The veToken was unique to $CRV at first, but like most things in DeFi, others adopted this model after potentially seeing its efficiency for their own protocol and token.
Convex and the vlCVX token changed everything. With vlCVX, Convex became the bribe hub of the Curve Wars as it strategically accumulated $CRV deposits, locked as veCRV, and distributed the controlled voting power to $CVX lockers. vlCVX was one of the first iterations of a new veToken (instead, “vote-locked”) and its success made other protocols ponder if they could replicate this success themselves.
Gauge Weights
Governance-directed emissions (gauge weights) are the heart of the Curve Wars, and the concept of voted gauge weights for liquidity pools never existed before Curve. With governance-controlled gauges, $CRV lockers vote to direct incentives to the pools of their choosing. This simple governance feature makes $CRV such a similarly attractive investment for protocols and users alike.
veCRV launched in the midst of DeFi summer, and from then on it set the standard for governance to dynamically control incentives. It directly aligned governance and the users of the protocol in a way many protocols struggled to do with their own userbase, and it gave a new utility for governance tokens as a whole.
The veFunder Gauge
The veFunder fundraising gauge is an example of how Curve gauges can be used for more than just rewarding liquidity providers. Any project can be approved by vote and qualify to receive $CRV emissions from the veFunder gauge, effectively acting as a crowdsourcing tool without depleting the treasury! The precedent this sets for DeFi fundraising in general is pretty massive.
Currently, the veFunder gauge is used to support the heavily underfunded Vyper core team. Vyper provides an optimal smart contract development language for those well-versed in Python, whereas raw Solidity is more like Java. The Vyper team wallet can claim $CRV rewards (similar to a liquidity provider) given their gauge has a weight.
Ultimately this fundraising initiative aligns the closest projects to Curve, and the funding of something like Vyper is extremely beneficial to the Curve DAO as it only improves the underlying framework of the protocol. Other protocols like Yearn use Vyper as well, meaning fundraising benefits the broader DeFi ecosystem as well.
Bribes and Votium
The facets of Curve really began to harmonize with one another with bribes. Bribes made it ideal for regular users to profit from their voting power and simultaneously for protocols to get cheap incentivized liquidity.
The entire business model of Convex now essentially relies on bribes. Protocols have come to find that this bribe architecture can be applied to anything if there is demand. The bribe.crv.finance frontend and the growth of Votium sparked a movement for protocols to adopt bribe platforms for their token holders, and what was once created as a simple way to connect voters and protocols is now a revenue powerhouse for protocols everywhere.
Products are even built around offering this infrastructure as a service! [REDACTED]’s Hidden Hand marketplace is a perfect example of this, serving as an easy-to-use platform for protocols to launch their own bribe market within a single standardized marketplace. [REDACTED] earns revenue from offering this infrastructure to protocols (taking a small % of all bribes), and it all started with the Curve Wars and Votium.
Solidly
Solidly was a fusion of two novel DeFi concepts into one, the (3,3) Olympus game theory model, and the veToken model from Curve. Now, its codebase is also used as a structural model for protocols today.
The Solidly design created a new wave of innovations. Although the fall of Solidly was dramatic, some arguably successful iterations like Velodrome Finance on Optimism have shined through. On top of that, highly anticipated new protocols like Arbitrum’s 3xcalibur plans to inherit the ve(3,3) design for their token. This new niche of DeFi protocols is growing all thanks to the concept of the veToken.
Ecosystem of Protocols
With the rapid development of the Curve Wars, Curve Finance became the first protocol ever to grow its own ecosystem of protocols on a single chain. While these protocols weren’t built by the Curve team, they all work in conjunction with Curve whether it be the Convex layer, yield optimizers like Clever or Concentrator, the Union auto-compounders, or the Votium bribe platform.
The Everything Wars
The multi-layered Curve Wars proved wildly successful as a mutually beneficial framework for protocols and Curve’s users alike, so as one could expect this sparked the interest of others to replicate this framework.
Since then, the “Everything Wars” continues to spread around the cryptosphere. Many protocols have their own Curve-modeled “wars” cooking now, and the Curve-Convex synergy is a basis for explaining similarly connected duos. There is an impressive amount of protocols that, in some way shape or form, implement Curvenomics.
Frax Finance
Frax Finance is a top-tier DeFi protocol offering the partially-algorithmic and partially-collateralized $FRAX stablecoin as its main product. Frax was the first protocol ever to replicate the veToken model with its veFXS token.
$FXS holders can lock for up to four years for the veFXS token, modeled slightly different to veCRV. veFXS holders can lock for up to four times their deposit (incurring a linear decay), meaning if 100 $FXS is locked for four years, 400 veFXS is received, and over time this veFXS balance returns to a 1:1 ratio. veFXS holders direct emissions on Frax pools, can boost their LP, and earn a portion of the protocol-generated revenue.
Spiritswap
Spiritswap is a Fantom-native DEX/AMM that competed as a liquidity hub for the ecosystem in the most recent market frenzy. Spiritswap uniquely adopted Curvenomics in August 2021 with its inSPIRIT token and governance-directed emissions.
inSPIRIT holders could lock their $SPIRIT for upwards of four years, and in return they would be able to direct emissions, earn boosts, and collect protocol fees.
GMX
GMX launched in September of 2021, and with it came its esGMX (escrowed) token. This was a unique spin-off of the veToken, paying escrowed rewards to users to prevent instant dumping of the token when farmed. Users can begin vesting their esGMX at any time, or they can stake it for fees/rewards identical to staking $GMX.
In this way, only the reward collectors most loyal to the protocol receive the most rewards as entering a vesting period disqualifies you from rewards. GMX was able to modernize the veToken model for its rewards system rather than its governance.
Tokemak
Tokemak is a liquidity protocol primarily focused on offering “liquidity-as-a-service”. In this, Tokemak incentivizes single-sided deposits on several assets into what it calls “reactors”. $TOKE holders direct where this reactor liquidity is deployed.
Votemak is a bribing platform launched in November 2021 for protocols to bribe $TOKE stakers to direct Tokemak’s liquidity in their favor. This was one of the first instances of another protocol creating their own bribe platform. It is now acquired by [REDACTED].
Balancer Wars
The first kind of Curve-Convex synergy appeared with Balancer and its sister Aura Finance, Aura being the “Convex” of Balancer. Balancer launched its veBAL token back in late March 2022. It slightly tweaked the veCRV design by only accepting 80/20 BAL/ETH LP token deposits to receive veBAL, deepening $BAL and $ETH liquidity as veBAL becomes more popular.
Aura functions similar to Convex in that it strategically incentivizes users to deposit either $BAL or 80/20 LP tokens. This is one of the first examples of a Curve-Convex type relationship, fully incorporating the veToken, bribes, and gauges. The Balancer Wars serve as a cheap avenue for volatile asset protocols to incentivize liquidity on their pools, especially by bribing vlAURA lockers.
Stake DAO
Stake DAO is a Yearn-like yield aggregator that accepts user deposits and strategically deploys them to earn yield. It also offers liquid lockers for tokens like $CRV, options trading, a DEX powered by Paraswap, and more. It is the fifth largest veCRV holder.
The veSDT token allows lockers to direct $SDT emissions to certain strategies/liquid lockers, boosted yield, and revenue earned from yield strategies. On top of this, locked SDT multiplies the lockers voting power, given they have anything locked in the liquid lockers.
Vector, Trade Joe, and Platypus
Trader Joe is the native Avalanche DEX/AMM for volatile assets, and it introduced veJOE back in March of this year. Users can stake $JOE and earn veJOE rewards, boost their LP, and participate in governance. It can be unstaked, but any accrued veJOE rewards are reset to zero. Similarly, the native Platypus Finance stableswap protocol (similar to Curve) has its vePTP token that works like veJOE.
Vector Finance is another Avalanche protocol that immediately joined the “Joe Wars” after the launch of veJOE. It is considered the “Convex” of Platypus and Trader Joe, serving as a yield optimizer for the two platforms and aggressively accumulating both protocols’ veTokens.
Dopex
Dopex (Decentralized Options Exchange) is native to Arbitrum and plays a unique role in the Curve Wars. Dopex’s Interest Rate Options Vaults (IROVs) give protocols a way to hedge against fluctuating Curve gauge weights, or simply a way to write instantly profitable options on inevitable round outcomes for each voting period. veDPX holders vote on the playable strikes for each IROV, setting the stage for a bribe market from protocols looking for strikes optimal for their strategy.
PlutusDAO was launched in May 2022 and is known as the “Convex” of Dopex, strategically accumulating not just $DPX but other treasury assets as well to earn yield. Plutus will be launched on Hidden Hand very soon. This is just another amazing example of protocols building products around the Curve Wars, and even their own “wars” built on top of the Curve Wars.
Velodrome and 3xcalibur
Velodrome Finance is a re-construction of the Solidly DEX/AMM built on the Optimism layer 2. In an attempt to fix Solidly’s flaws, it too follows the ve(3,3) model but optimizes its emissions to be more sustainable as a whole. Like any other DEX with governance-controlled emissions, $VELO lockers can be bribed by protocols to vote in favor of their pool gauges on Velodrome. These bribes are natively integrated at the protocol’s frontend too, so there is no separate platform for it.
Similarly, 3xcalibur is an up and coming Arbitrum-native protocol that also uses an improved version of the Solidly codebase and optimizes some of the features of Velodrome as well. veXCAL holders collect protocol fees from the tri-AMM and direct $XCAL pool emissions. Lockers will also earn some $XCAL rewards themselves.
Sperax
Sperax is a brand new stablecoin protocol also built on Arbitrum. Aside from its auto-yield $USDs token, it is building a product called “Demeter” which allows protocols on Arbitrum to launch an incentivized Uniswap v3 pool in just a few clicks. In this, the liquidity remains in the Uniswap pool but the incentives are paid out through the Sperax frontend.
It is leveraging the veToken model to allow $SPA lockers to receive some of the protocol’s revenue and $SPA rewards. veSPA holders can vote on Demeter gauge weights which yet again sets up the potential for a bribe market, this time for Sperax.
Ocean Protocol
Ocean Protocol is a unique case of the veToken being used, as Ocean is not a DeFi protocol. Ocean is rather a “DataFi” protocol, allowing anyone to buy and sell data on a permissionless, decentralized marketplace. $OCEAN holders could previously “provide liquidity” to certain data, and then earn the fees from all the trades on that dataset.
This design was exploited, and because of the way it interlinked its token with the data marketplace, the Ocean team was pushed to modify its tokenomics. Now it has decided to move to a veToken model. In this, veOCEAN holders earn $OCEAN rewards and revenue, and can optionally stake on datasets to earn more rewards. This also acts as a sort of “security layer” for Ocean’s marketplace, proposing an interesting example of how Curve’s infrastructure is being used even outside of DeFi.
Berachain
Berachain is a developing layer 1 blockchain built within the Cosmos ecosystem. It is leveraging its unique concept of “Proof-of-Liquidity” consensus allowing users to stake various layer 1, stablecoin, and bluechip DeFi assets with Berachain validators. Staked assets are then deployed onto the native AMM, creating deep liquidity for those assets. Stakers earn $BERA staking rewards, and each stakeable asset has a different “consensus weight”.
This consensus weighting directly mimics a rewards gauge. So, if a protocol’s token is stakeable on Berachain, they are then motivated to control these gauges whether it be directly buying and staking for the voting power or bribing $BERA stakers. Berachain is a unique example of bribes reaching all the way up to the consensus level.
Yearn Finance
Yearn Finance is currently in the process of shipping its veYFI token and V3 protocol. Yearn Finance is a yield aggregator offering automated yield farming strategies to depositors of its hard-coded Yearn vaults. Currently, depositors only earn the underlying yield generated by the vault’s strategy (minus fees).
With Yearn V3 and the veYFI token, Yearn vaults will begin earning extra $YFI rewards on top of the underlying strategy yield. However, only $YFI lockers (veYFI holders) will qualify for these extra rewards, and they decide how much of these $YFI rewards go to which vaults. veYFI holders will earn protocol fees and vote on governance decisions.
Quoll and Wombat
Quoll is a developing multi-chain veToken yield aggregator, mostly recognized on BNB Chain as the “Convex” of Wombat. Wombat is a stableswap protocol native to BNB Chain and it effectively models Curve Finance within the BNB ecosystem.
While it is focused on strategically accumulating the $WOM token by incentivizing deposits, Quoll plans to integrate with other veToken protocols in order to offer the best yield across different chains for veToken holders.
Conclusion
Curve is generally referred to as “the backbone of DeFi”, and that is definitely an appropriate title. Today however, Curve lives up to an even bolder role as DeFi infrastructure.
It is one thing to build a product and have it widely used by other protocols and users alike. It is another thing to have your mechanics replicated and directly integrated by other protocols in every corner of the space.
Curvenomics will have a lasting legacy in the cryptosphere as they are reiterated upon by others as time goes on. This feat is not one many can say they’ve accomplished, and like all novel creations, Curve has lit the torch for endless creative opportunities to be built with its mechanics.
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DISCLOSURE: I hold the $CRV token and it is a larger part of my portfolio. I am not affiliated with Curve or any of the protocols mentioned in this article. I was not asked to write this article and have not been compensated in any way. The information provided in this article is solely for educational purposes and should not be considered financial advice. The views expressed in this article are my own and do not necessarily reflect the official policy or position of any company or organization. Readers should always conduct their own research before making any financial decisions.