Introduction

Curve Finance revolutionized the way protocols attract liquidity. As a hub of deep stablecoin liquidity and low slippage, Curve hosts high-volume pools for several top-tier protocols.

Igniting back in 2020, The Curve Wars is an arms race between protocols to obtain as much veCRV voting power as possible. Protocols looked to reward liquidity providers without straining their own token, and Curve was just the right solution.

The Problem

If protocols want liquidity for their token, people need to provide it! From the very beginning, projects have wrestled with finding the right sustainable incentives to bootstrap liquidity. Liquidity mining, a concept born from Compound’s 2020 incentive program, ironically proved its inherent fragility shortly after launch.

Others have since tested the waters with their own liquidity mining strategies, most experiencing the same mercenary capital problem resulting in a downward spiral on their token. Even if one token is “farm-and-dumped” less than another, unhealthy emissions undoubtedly drag down protocol revenue in the long run.

Narratives like DeFi 2.0 radically challenged traditional liquidity mining, only to have a much more dramatic collapse. Figuring out incentives was not easy. Attracting “loyal” depositors had to involve a comprehensive strategy for protocols moving forward if they wanted to avoid the same fate as some of their constituents.

The Goal

The Curve Wars narrative was born from this very idea. Protocols could come to Curve and deploy liquidity pools. If Curve governance votes for the protocol’s pool to receive a $CRV rewards gauge, then those in the pool get a % of daily $CRV emissions.

Now protocols has an incentive to collect as much $CRV as possible, lock it for veCRV, then use this voting power to increase their pool gauge weights.

How Did We Get Here? An Era Before Convex

veCRV was once seen as a way for individuals to simply vote for their own pools, but quickly inspired an all-out gamification of governance-directed emissions. The Curve Wars began between Yearn Finance and Stake DAO.

Yearn is a yield aggregator that automates farming for DeFi users. Yearn Vaults take user deposits and deploys them across DeFi using different strategies to earn yield. $CRV rewards from deploying into Curve liquidity pools is a major source of vault yield.

The flame was lit with the release of Yearn’s Backscratcher Vault.

• User deposits $CRV tokens into the vault

• Yearn gives user back $yveCRV tokens

• Yearn locks $CRV for veCRV forever (relocking every four years)

• Yearn votes with veCRV to get higher yield on the pools they are in

The power that could be harnessed with veCRV was obvious to Yearn, so it offered much higher yield on $CRV than one could get by locking with Curve. Yearn set the stage for protocols to try and attract $CRV deposits in order to grow their power in the Curve DAO.

Curve core member Julien Bouteloup built Stake DAO soon after. Stake DAO similarly rewarded high APY on $CRV, giving back $sdveCRV tokens to the depositor. The race was on. Yearn and Stake DAO rushed to acquire the most $CRV possible to lock as veCRV, vote for higher pool rewards, and collect more $CRV rewards.

The First Bribes

Andre Cronje’s release of bribe.crv.finance was the first tool ever built for the Curve Wars that we know today. It added a new way for protocols to obtain veCRV voting power. What if, instead of purchasing $CRV directly or trying to attract $CRV deposits, protocols could “bribe” veCRV holders to vote for them?

bribe.crv.finance lets protocols do exactly this. Before every round, protocols can deposit a bribe for a certain pool. At the end of every round, the bribe is distributed amongst the voters of the pool. Now, a new win-win situation is proposed.

Already-locked users or those that just wanted to lock on Curve had a new way to earn yield with bribes. On the other hand, protocols could get more voting power with bribes, often working out to be much cheaper than prior strategies. Yearn and Stake DAO proved that with the right strategy, Curve was great for increasing TVL, passing more yield to users, and generating more revenue. This could all be done without any subsidization using their own protocol token.

The Launch of Convex and Votium

Convex’s launch was a pivotal moment for the Curve Wars. Convex Finance is a “yield optimizer” for Curve, offering higher yield for $CRV and Curve LP depositors. On Convex, users can deposit $CRV and earn higher yield similar to Yearn or Stake DAO.

Convex locks $CRV for veCRV, and depositors receive the fancy $cvxCRV token in return. $cvxCRV is soft-pegged 1:1 to $CRV, and staked $cvxCRV pays yield in $CRV, $CVX (Convex token), and $3crv (Curve trading fees). The peg relies on the market purchasing $cvxCRV when it is below peg, since $cvxCRV offers $veCRV’s benefits but is liquid and generates more yield. The acquired veCRV is controlled by $CVX lockers.

Those who lock $CVX for $vlCVX control all the veCRV that Convex has accumulated. For example, let’s say Convex just launched, and it only has 10 veCRV from locked $CRV deposits so far. Let’s also assume two people come to Convex and lock 1 $CVX each (2 total). With a ratio of 10:2 of veCRV:vlCVX, each vlCVX locker controls 5 veCRV.

Another way to think about it: locked $CVX is now leveraged veCRV. In this situation, 1 $CVX retains 5x the amount of voting power in the Curve DAO than 1 veCRV.

Votium is a bribe market for vlCVX holders like bribe.crv.finance is a market for veCRV holders. As protocols realized the power of Convex and the $CVX token, Votium became an extremely popular go-to for protocols looking to purchase votes.

Convex was game-changing for the Curve Wars. Convex yield was juicier than Yearn and Stake DAO, attracting waves of $CRV deposits resulting in huge demand for the $CVX token. $cvxCRV was a way for $CRV holders to earn single-sided yield paid in part with $CVX, the token that controls their underlying $CRV deposit! $CVX brought a new layer to the Wars, pushing Votium to replace bribe.crv.finance as the dominant bribe market and turning Convex into a veCRV mammoth.

Convex controls around 54% of veCRV today, solidifying its role at the center of the Curve Wars.

Terra and Frax Discover the Curve Wars

Terra was a popular layer 1 network powering its own non-collateralized, fully algorithmic stablecoin. $FRAX is a partially algorithmic and partially-collateralized stablecoin which is still standing strong with a consistent peg today. As the decentralized stablecoin narrative sped up, Terra and Frax sought deep liquidity. They looked to none other than the Curve Wars.

Terra and Frax knew underlying $CVX voting power could help them achieve deep liquidity needed for their pools. As their $CVX stacks and bribe amounts grew, so did the popularity of their pools.

They both pushed record-breaking bribes, grew massive $CVX warchests, and turned the public eye to what was happening on Curve. They ultimately act as proof of concept of the Curve Wars’ efficiency. It worked too, as their pools were some of the most liquid amongst the rest on Curve.

Terra’s 4pool on Curve ($FRAX/$UST/$USDT/$USDC) meant to create one of the deepest pools in DeFi. Terra would work with Frax (the other largest briber in the Curve Wars still to this day) to combine voting power and vote in favor of the 4pool gauge. This strategy of projects working together to concentrate emissions to a pool they share was now something anyone could recreate. Unfortunately, Terra’s ambitions were short lived with its implosion, and the 4pool never truly came to fruition.

The Curve Wars Today

Today, the Curve Wars largely revolve around accumulating $CVX, but there are protocols that stick to only bribing on Votium too. 18 DAOs are currently accumulating $CVX at different speeds, the most notable being Frax, Convex, [REDACTED], JPEG’d, and Badger DAO.

There are participants like Lido that do not buy $CVX directly but still bribe on Votium. There range of strategies today is endless. Maybe it is only bribing, like how Lido does it. Maybe it is direct accumulation of $CRV and/or $CVX, like Frax’s strategy. Whatever the strategy, it all comes back to Curve in the end, resulting in a net positive for voters, $CRV holders, and protocols alike.

The Curve Wars now act as a multi-layered stadium for protocols to try out new revenue-generating strategies and incentivize liquidity. Frax made this evident with its bribe strategy to earn rewards on its own FRAX + 3CRV liquidity. Frax paid less in bribes to earn more in $CRV emissions comparatively, meaning they not only generated deep liquidity but also revenue for the protocol! They have formed a stronger partnership with Convex too.

More complex layers of the Curve Wars are worth mentioning too. Protocols like [REDACTED] Cartel or Dopex are creating robust products for participants. [REDACTED]’s Pirex allows users to tokenize and trade their future Votium yield. Dopex’s Interest Rate Options (IRO) Vaults let users speculate on changing Curve gauge weights via options. These protocols generate revenue off of the demand from Curve Wars participants to use their innovative products.

With how far developments have come until now, there is an ecosystem of components that power the Curve Wars today:

• veCRV is like ammo of the Curve Wars, providing holders (individuals/DAOs) the right to direct pool emissions

• CVX is like the “arms” of the arms race, retaining leveraged voting power thanks to Convex’s massive veCRV warchest

• Bribes are like electricity, powering up the battle and keeping it flowing with its sustainable incentive model

• Protocols fight in the Wars by collecting ammo or arms to use, bribing veCRV/CVX voters, and building other products to improve efficiency

• Products for efficiency (ex: Pirex) are like weapons dealers, generating revenue from Curve Wars participants (individuals/DAOs) paying fees to use the product

Conclusion

The Curve Wars completely transformed the way many DeFi protocols maintained deep liquidity. The concept as a whole is re-used across the cryptosphere to capitalize on its efficiency, igniting the market agnostic “Everything Wars”. The mechanics behind the Curve Wars act as a broader economic framework or “infrastructure” for other protocols throughout the cryptosphere. Curve Finance is without a doubt going places, and the Curve Wars will just keep rapidly evolving like they have for so long.

Part 2 of a part 4 series

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