Curve/Convex and DeFi Infrastructure

Audio Version

What is Curve?

Curve is an AMM that specializes in stablecoin liquidity pools. It holds more value locked than any other decentralized exchange (DEX), currently around $24B. Curve has created a business model of liquidity as a service which it does more efficiently than anybody else. In order to trade stablecoins without incurring high amounts of slippage you need to have liquidity. Curve incentivizes liquidity by offering yield to stablecoin holders in exchange for staking their coins on the exchange.

What are the Curve tokens?

Curve offers yield for stablecoin staking (as high as 20%) in the form of its native token CRV, which can then be staked for compounded yield of up to 50%, or locked for a period of time to earn reCRV (Curve's governance token). The longer you lock your CRV the more reCRV you earn, so those that have their CRV tokens locked the longest have the most voting power. Governance votes in Curve are used to decide which stablecoin pools receive the highest APY yield. A higher yield incentivizes more people to stake their assets in that pool and increase its liquidity. Protocols fight to hold as much reCRV as possible to vote to increase the yield on their farms. They can even buy votes from other DAOs with bribes. This is known as the Curve Wars (which will be explained more later).

What is Convex?

Convex is a DeFi protocol that seeks to maximize its sway over Curve APY allocation and CRV token staking. Convex allows CRV holders to stake their CRV in exchange for cvxCRV. By doing this they give up their Curve governance rights to Convex but gain other benefits like earning CVX (Convex's native token). Another advantage is that cvxCRV and CVX are liquid and do not need to be locked, so a protocol using Convex can move their assets around as they see fit.

Curve is the biggest liquidity provider for stablecoins in DeFi, but why is this so important?

If your protocol uses a particular stablecoin (think Temple using FRAX), you want the liquidity of that stablecoin to be high so that it can be easily traded to avoid slippage. Slippage can be reduced if there is more liquidity in the protocol. DeFi simply would not function as we know it today without DEXs like Curve.

Tell me more about DeFi Infrastructure

You can think of DeFi like a kingdom, with roads leading to different castles and towns. You want the road to your castle to be well paved and maintained to attract traffic and increase your treasury. If your road is in disrepair, full of potholes and difficult to travel on, it discourages people from visiting your castle and giving you their hard-earned gold. Curve will build and help maintain your roads, for a price (you have to fight for their services but more on that later). If Temple is our castle then FRAX is the road people must use to enter (anyone who wants to buy Temple must first buy FRAX). By contributing to the liquidity of FRAX, more people would be encouraged to come to the Temple!

What are the Curve Wars?

The nature of the Curve voting system leads to fierce competition. A lot of money changes hands and the potential rewards are high. DAOs that can gain a sizable amount of influence in the Curve voting system can boost their revenue not only by earning yield on the exchange but also by making their DAOs more attractive to investors by improving their stablecoin infrastructure. Also by increasing the liquidity of their stablecoin they make it easier for users to invest in their product.

Many heavy-hitters in DeFi recognize the importance of Curve and invest heavily in winning this fight. Temple has a massive treasury and this will enable us to compete with the very biggest players in the DeFi space. Watch out frens, Temple is coming!

DeFi 2.0: The Curve War by DgenFren