Curve Finance is on a roll.
Both Yearn Finance and Convex Finance are making Curve Finance’s CRV token a key part of the foundation in their revenue models.
Users who lock in CRV receive governance rights, trading fees from the automated market maker, and boosted rewards.
The development is no small thing for Curve. The two DeFi projects are easily the largest holders of veCRV, stimulating major demand for the token and spurring talk of “The Great CRV War.”
“Prior to Convex, Yearn had no real competition with any protocols for staking veCRV,” DeFi influencer Blue Kirby, who is an ardent fan of the protocol’s incentives, told The Defiant.
CRV has surged 29% in the last seven days at the time of writing, which isn’t bad in this period of choppy market moves in crypto. The percentage of staked CRV, veCRV, to circulating CRV, is peaking at 61%, a clear indicator of the increasing demand for the rewards which come from locking the token.
As the contest heats up, Convex has passed Yearn in terms of total veCRV with 20.3 million tokens according to Curve Market Cap, despite launching just two weeks ago. Yearn is No. 2 with 17.4 million veCRV. It’s worth noting that this is not an all-out war — Yearn uses Convex’s products to generate yield for its vaults.
Yearn locks CRV in its Backscratcher vault, which serves to boost the yields of vaults with Curve strategies. The protocol called the Backscatcher a competitive advantage in their report presumably because, while strategies can be forked, the boosts from veCRV can’t.
Vaulted in Value
Convex allows users to lock up Curve LP tokens to garner boosts due to the massive amount of boosted rewards stemming from locked CRV. Additionally, users Curve LP token holders who deposit into Convex will earn the protocol’s CVX token as a bonus.
Convex’s veCRV which provides the boosts, comes from a second module with its own set of incentives, which include the normal locked Curve incentives as well the CVX token.
Convex has vaulted into the top 14 projects in total value locked terms at $2.3 billion according to DeFi Llama despite launching only 17 days ago.
Blue Kirby believes that Convex has created a flywheel with their incentives which will lead to the protocol locking away more and more CRV, leading to higher boosts, leading to more assets locked in the protocol. The overall rewards from veCRV are a mixed bag, however, with Yearn winning out in some places, and Convex in others. Presumably the differences stem from the relative difference in the amount of tokens distributed in the Curve pools by each protocol.
Still, the upshot of the Great CRV War is bound to be more mojo for the player. “Is there any reason why more projects don’t incorporate a locking mechanism a la CRV?” asks Michael Dempsey, general partner at venture capital firm Compound.
It may be that the mechanism is under-used as an incentive tool. Sushiswap may be catching on though. The project has a proposal, written by Yearn founder Andre Cronje and Yearn developer Banteg, for a token-locking function on deck.
For now, Convex’s success has surely captured the spotlight in the DeFi space. Yearn purchased 1.4 million of the token last week. You can bet investors are watching closely and wondering whether it’s time to profit from the Great CRV War as well.