Understanding Curve Wars: CRV vs CVX Governance

[00:00:18]welcome back to the channel guys in this video we're taking a look at the curve walls one of the main narratives of 2022 and it's already taking shape if you enjoy the content make sure you subscribe to the channel check out the pin comment down below and also drop me a comment let's jump straight on in here so the curve token or curve dow token crv is one you're probably familiar with current market cap 2.5 billion dollars but why is there a war for this cryptocurrency and where does convex also fit in with this so let's have a look at curvier so this is the curve application so it's an amm an exchange that was set up for stable coin swaps so with near zero slippage you could come here and convert say some usdt into usdc maybe some mim into ust that kind of thing they've recently branched out into v2 where they actually offer cryptocurrencies now so they dominated the stablecoin game and now they're moving into cryptocurrencies and by all measures they're doing very well with this as well so it could be that they dominate a lot of these markets so overall this is a very important protocol for decentralized finance it is one of the biggest protocols out there and many believe the most important now with any amm you need individuals to come an lp so provide liquidity to make these pools work make sure there's big depth there make sure there's no slippage that kind of thing and this means people can easily trade in and out of cryptocurrencies so what you see here is a base reward so this is the apy you'll get for being an lp provider but to the right hand side we have the rewards tab here and this shows the rewards in crv the curve token so each and every week there is a vote through the curve governance to dictate how much crv is given to these various pools therefore if you own a load of curve governance tokens ve curve you therefore can dictate exactly where the curve rewards go so this is what the curve wars are all about because you're not going to come and trade in a pool down here or provide liquidity to a pool down here if there's no rewards because if you're a farmer you're not going to come and allocate any of your cryptocurrency to a pool that doesn't have any rewards it just doesn't make economic sense for you to do so so why would you come down here and provide liquidity to a pool that's not paying you anything rather than come up here and then be an lp provider for one of these ones for example mim to the three curve pool here paying out around six percent in crv if you use curve up here you can see the locked curve gives you this voting weight so the voting power comes from unlocking your curve the more that you lock the more voting power that you accrue so you want to have this voting power so you can direct the curve rewards to these various pools curve is a highly inflationary currency there's a lot of rewards to go around and so you can incentivize these pools very well now why would you as a protocol want to do this first and foremost this means that you can get a lot of liquidity in your pool if i'm say mr dokwan here or danielle sester i can ensure that there's a lot of liquidity in this mim to ust pool by controlling the curved governance votes this means people are going to use our stable coins very good for us it also makes us more profitable if we own our own liquidity second to this we don't have to give our own tokens away as incentive rewards we're utilizing curve so this means that your cryptocurrency for example spell which was giving out as a reward mechanic no longer needs to be used if you can use curve instead so this literally saves your protocol a lot of money so how does convex actually fix into this well convex came in with a novel idea previously the likes of yeon finance and stakedown were actually the ones controlling curve and thus directing the crv rewards however they were doing more of a farm and dump approach of curve and if you look back at the curved chart over a long period of time when we first started out it was just dumping and dumping and dumping until recently that we can see there's a bit of an uptick here and there are people just buying locking it for that four year duration to get the maximum governance votes so this was something that convex implemented so yielding stake down farming and dumping comics comes in here flips the game on its head and says this what we're going to do here is we're going to just accumulate as much crv as possible and we're gonna keep locking up all the reward tokens we get as well so in this way they just started amassing crv and so over time they became the protocol in charge of the curve rewards so this is what it says here convex came up with a novel idea the first goal is to create a liquid staking solution for curve so lps wouldn't need to lock their crv rewards so convex created cvx crv down here and what they did was just give a massive booster and cvx rewards on top to incentivize you not to utilize curve directly but come and stake them over here so that was the first key to the kingdom as why would i want to lock my tokens up for four years when i could whack them over on convex get a better boosted apy and also have my tokens liquid just makes perfect sense so these guys were playing 4d chess but secondly the most important goal of convex was to accumulate as many gauge weights so that is the governance tokens as possible so by having more of these governance tokens you can then direct the curve rewards convex has been massively successful in accumulating curve gauge weights and currently controls over half the voting power of curve and because curve is continually emitting new tokens convex needs to keep ensuring that it controls over 50 and thus buying them up and locking them away so this is the black hole for curve not only do protocols want to own curve directly you've also got convex working in the same fashion and ensuring that they are doing exactly the same thing but this now means the other protocols want to come in and now own convex you own convex and you can dictate how convex votes over on curve so this is how the wars are playing out right now and there are many protocols all vying for a driving seat in the mixie the likes of alchemics frax and luna all being named here now there's two things you can do you can offer bribes to cvx holders i.e give out some of your tokens so vote in our direction and for example we'll give you some luna as a bit of a sweetener but the second option is just to accumulate the cvx for themselves lock up cvx and vote on their own protocols to receive the higher reward distribution and since each cvx token effectively controls six of ve curve governance tokens purchasing cvx is the most optimal capital expenditure for each protocol and protocols are now figuring this out the problem is there's less than four percent of cvx available on exchanges less than four million cvx tokens and these protocols are looking to accumulate much more than what is available hence the price action on convex that we've seen as of late it's just been going up and up and up it just seems like there's infinite bid for this pretty much because there is the fat curve votes are worth money to you and you can control them via convex now it makes sense to own both curve and convex so this wall that is just playing out here looks like it's creating a bit of an up only environment for both of these tokens so jack newald put a full thread together on this this reiterates a lot of what we just talked about but i'll go into a few examples that he actually puts together here so he first of all talks about stable coins curve was originally built for stablecoin swaps so what does a stablecoin protocol need well they need their stablecoin to remain at one dollar makes a lot of sense if your stablecoin is going down to 85 cents every other day it's no longer useful so spell its main product is mim if mim doesn't hold its peg or it trades below a dollar the system therefore breaks if you've got a loan that could become worthless interest rates no longer valid you can't trade large amounts with too little liquidity the stable point loses that one dollar peg so how do you get liquidity while you pay the yield farmers to come here and in return you give them rewards in the form of spell tokens this comes at a cost as of course you can get the farmers taking the rewards and dumping them not good for hodlers and for the long-term trajectory so this is where curve and convex comes into play here curves the number one stablecoin decks in the industry tons of volumes and deep liquidity and as we know curve distributes crv tokens to each of the pool which is voted on every single week so if your pool gets enough votes you don't have to incentivize liquidity using your own token i.e spell and this is what they found recently you can incentivize with curve instead and as he says this is worth money and to convex the king maker so convex figured out that curve was worth money not just as a governance and farm token for curve but as a token that could actually help out other protocols and for them to save money so they began to accumulate curve so convex was the first protocol to do this and they've put themselves in an extremely strong position we're now seeing a load more protocols come into the mix and start accumulating convex due to the fact they realize the severity of this situation if you're a d5 protocol this is like the arms race that you need to be involved with so within this crypto condom uh tweetstorm here back in november he looked at a load of different protocols that were jockeying for position in cvx so this goes on to look at alchemics they were the first ones to buy eight hundred thousand dollars worth of cvx then badger dao stepped into the race here they locked over 1.1 million convex tokens we've got andre cronier here we've got abracadabra as well as well as stasis down here and even keeper dao so what you can see here is that a load of these protocols cottoned onto this and they decided they needed to get involved olympus dow has one of the biggest treasuries in crypto and these guys also saw the need to get involved here and at this point in time they own roughly 10 of all convex tokens we now have five protocols here ohm rook time fate and frax each with over 1 million convex you can see back here wonderland money time accumulated 1.1 million cvx an average price of 25 back in mid december then the start of this year we can see here the rate at which curve is being locked up 31st of december 185 percent of daily emissions locked from curve into cvx crv so they got into the convex black hole there and again on the 1st of january 147 worth of the daily emissions again this was curve locked into cvx crv so the convex black hole in full effect net deflation extraordinary synergy so this means that both curve and convex at this moment in time look to be deflationary due to the insane by pressure on both of these assets in another tweet here from mr crypto condom he put together all the amounts of cvx taken by these various protocols and as you can see these are all battling for dominance in the curve wars here but to add to this luna has stepped up the pace here so teralabs actually bought otc some cvx from sifu i believe this is one of the abra-cadabra money team and this was a cool 205th 000 convex tokens putting them well and truly in the race here and i think luna will continue to add so this is just crazy stuff and then in december here we have redacted cartel from tetranode coming online and raising a ton of money again another black hole for both curve and convex they raised 73 million dollars they put 22 million dollars into ohm 22 million dollars into curve and 28 million dollars in to the convex token and what this means is we have more black holes coming online on a monthly basis right now more dows that are hell bent on getting control over the curve wars and as you can see from this overall treasury these guys don't sell they are just in accumulation mode so over time their numbers and their holdings of these various tokens are just going to go up so the curve walls narrative taking shape very early on here in 2022 you can see the price of convex potentially going a lot higher and likewise with curve i would not be surprised to see these just continue growing and growing and growing as these are not typical retail people buying these tokens these are both dows and protocols that need to acquire as much of curve voting power as possible for their own strategic objectives so in my opinion this black hole will just continue and this will spark off a major rally in d5 and we're starting to see the very early signs of this right now so that was my explainer of the curve wars now drop me a comment down below which one do you think should be more valuable is it curve or is it convex i'd like to hear your opinions subscribe if you're new and i'll see you in the next one goodbye you