📺 The Curve Wars | CurveMarketCap

hey bankless nation welcome to another state of the nation episode the episode where we go over a topic that's kind of been in the headlines uh this is an exciting evening episode for us david usually we we record these during the day time and we're going to be talking about curve the curve wars more specifically curves curve like there's a lot of subjects to unpack here this has been something that's you know probably emerged over the last six months i think it's important that we cover it because

we want to understand it more fully i feel like there hasn't been a podcast uh that has synthesized everything that's going on and i think this mechanism will repeat in all sorts of different d5 protocols so we're not only going to see these wars play out on curve we're going to see them all over d5 as well so it's about time we take the time to understand them who do we got on today we have a community a favorite um i actually did not ask if he goes by his name or not but he goes under the

newsletter of curve market cap which i believe is a playoff of coin market cap and apparently curve is deep enough to justify an entire newsletter and so uh curved market cap has gone with uh just producing enough content out of uh out of about curve uh just unpacking what's going on in the world of curve wars and no other d5 protocol has had this whole war thing going on and so we kind of want to figure out why does why does curve go so deep what is going on what

is the game that is being played because apparently there's a lot of things to unpack and things to discuss and so uh curved market cap is going to uh unpack that for us oh yeah what's everyone fighting over why what are we fighting over what's more over we're talking about all that and of course guys you know prices are down a little bit on the year so got to tell you about crypto ira getting a crypto ira that is from our friends also they wanted us to let you know now is a fantastic time

to open your ira account okay not only they want to let you know i want to let you know i love these things david i i think crypto iras are the best way for retail to avoid paying taxes on crypto games this is the truth and that could be a lot okay and um i did this a few years ago when the market was down probably the best most like the most tax optimizer thing i've ever done was to open an ira and also convert some of my old 401ks to the ira

structure and buy crypto this used to be hard to do but now there are companies like alto ira that are providing the easy button for this so they're just like integrated with coinbase that means you can purchase 125 assets a few clicks you're up and going you got all your your paperwork filed and you've got your own crypto ira so go check them out it's time to open a crypto ira best time to do it is when you buy low in a bearish market in a dip whatever this thing is right now and you can do that at ultoira.com

bankless check that out hey david i gotta ask you the question though before we get in what is the state of the nation today sir the state of the nation ryan is cornering because apparently that is what's going on in the curve wars apparently the curveboards is all about the game of cornering the market uh and it might have already been cornered by confidence someone won the war the thing is i i think this is what we need we need to check on but i think the game just repeats because once somebody corners the market then it's about cornering

that market and that's actually what i found out is actually quite interesting about this whole curve wars thing um so ryan on this state of the nation we are cornering all right we're gonna find out how the curve market here the curve markets get cornered and we've got the expert to do it to do that coming up we're going to introduce him right after we say hello to the fantastic sponsors that made this episode possible polygon is ethereum's largest and most vibrant scaling solution to date with millions of monthly users and all of the biggest defy apps the polygon ecosystem

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unique grant at uniswapgrants.org and help steer uniswap in the direction that you think it should go thank you uniswap for sponsoring bankless hey guys we are back talking about the curve wars we're here with garrett hall he runs a newsletter called curve market cap fantastic newsletter that uh covers the curve ecosystem and when we tweet it out who is a person who can come on bank lists and explain the curve wars the resounding answer was curved market cap garrett hall the person that we have as

a guest today uh garrett it's great to have you on bank list how you doing thank you thank you it's going good i have to ask is it still bankless or after the market crash are you down to a homeless yeah yeah we're getting there yeah we're getting there we aspire to be homeless one day we tweeted out that meme before someone could use it against us right that's the thing you have to do is uh you know scratching out bankless front front running attacks uh you know how twitter can be speaking of twitter you were recommended to us on twit twitter from

uh cryptocondom i believe who apparently is a brilliant voice uh on curve and on d5 and i am just blown away by how interesting this community is uh and i wonder if you could start garrett by telling us a little bit about yourself like how did you get into curve and kind of your background to give us some context because crypto condom didn't fill us in they just said you need to speak to garrett oh these late night streams are weird we're already entering the after dark territory right so it can be explicit no

i got my start in crypto actually back in 2014 and um uh for various reasons was out of the space until about 2019 when i popped back in and at the time i'd had like some bitcoin lying around and i was just looking for places to earn yield on it and at the time i was actually looking at finance of all places i'm an american citizen so i can't use binance but i was saying what on earth is going on how come like they're actually able to get these incredible yields on things so i asked a colleague of mine and i was saying hey what do you know about this

and he was like stop don't look at binance look at curve and this was at the time that curve was having its curve swerve drama uh i don't know if you were around to remember that it's like very old swerve was a freak of curve is what i remember what i recall exactly exactly um so i started to poke around and take a look at it and the more that i read the more that i learned about curve just the more mind like uh more the more my mind was blown so i just decided to just dive all in

that's awesome yeah and uh what about it blew your mind i'm curious garrett like what's cool about it so there's a number of things um if you look at where it is today it's phenomenal it's got nearly 20 billion dollars in value locked according to defy lama by far the largest source of liquidity in all of d5 this is now across eight chains the mathematics behind the curve pools are bespoke so when you read through the curve white papers they get into incredible detail and very high higher

level math and i'm a huge math geek so that really definitely appealed to me um in a nutshell it allows for incredibly high volume transactions with extremely low slippage which makes a huge difference for whales and you two are probably whales but for peasants like me the curve tokenomics is also incredibly generous at splashing these fees to curve holders that's super cool and just uh maybe for people who aren't as familiar with with curve at a high level could you even go back and and sort of explain that so

this is a decentralized exchange i believe uh of the automated market maker variety so sort of like a uniswap where you are you know trading with a with a protocol and a pool on the other side but it specializes in similar uh tokens right so like you know stable coins would be one uh you know where the tokens are like kind of a similar value and curve tries to sort of equalize them you could probably explain this better what is curve in a in a nutshell at the highest

level i think that's a good explanation what you provided so it definitely got its start as a stablecoin amm and there was also something that i found really interesting about the protocol is that they had kind of looked at the existing capabilities of trading between like type like price tokens and they figured out more efficient ways to adjust the formula so unit swap which you mentioned is the constant product x times y equals a constant and that works

fairly well but then it kind of runs into some issues in that it can produce more slippage um the michael egerov white paper on this essentially figured out a way to combine a linear constant invariant with a the product constant variant that allowed it to have the low slippage that you would like to see at that would you would see from a linear invariant and the capability of kind of shooting rapidly towards uh imbalance and as a result the pools can stay

maybe 70 percent imbalanced and not see too much in the way of issues which was very useful for the curve v1 which focused extraordinarily on stable coins for the visual learners out there x times y equals k is the classic unit swap curve and that is just a normal parabola that is very uniform and curves innovation and what garrett just explained using math i'm going to try and explain using visuals where the center of the curve the center of the parabola is flattened and what that

means is that when you have uh two of these two of these things as in two trading pairs because the where the curves meet is flatter these pools can be more and more imbalanced from each other as in we could have like 70 000 usdc on one side and only 30 000 usdt on the other side and these things are still trading at basically one dollar and so while the pools are out of whack in how much supply there is the trading prices on

these things still trade really really close to one to one and that's a feature that unisa that uniswap does not have you know what v2 does not have because a 70 000 supply of usdt on one side versus 30 000 on the on the other side for uscc would represent something like 70 cents versus a dollar 30 something completely out of whack and so curve really came into the market via this flattened curve of the of the unit swap of the of an amm that really optimized for trading like kind assets so curve

made this assumption that you can trade uh you can that you can bend the curve a little bit and allow for much more optimized trading of uh like kind assets and this has done i think just a phenomenal job on just literally curve v1 is focused only on like kind so stablecoin to stablecoin and of course unit swap is very good at uh transacting between different coins and i think twilight towards a bit later we might get into curve v2 pools which is this whole kind of elevation on top of it but just

even in terms of where we've come from uh this is like a loud curve to attract a ton of liquidity to the tune of about 20 billion dollars yeah that's exactly right and we definitely want to unpack curve v2 versus uniswap v3 because there's been some rumblings about does uniswap v3 eat into curve and some people think yes but then curve fans really think no but that conversation is coming at the end of the curve wars conversation well we want to talk about the curve war situation first i know uh ryan i know

you have a question what's up uh i was just going to ask like because when people are hearing uh about curve and if they go to the curve website uh in like the app itself this is what it looks like and garrett i have to ask this is gonna throw a lot of people off like it looks pretty basic it looks pretty janky looks pretty mindy this is like like 90s and um but but can you tell us i mean we talked about the liquidity in this thing how much volume is this user is this user interface is this is

this protocol throwing off right now are we talking some large numbers yeah so you can scroll down to the bottom and the volume is published right there we're seeing uh we're seeing about uh um on curve itself about a daily volume often north of a billion and in fact during bear markets it even tends to spike a little bit because so many people need money fast maybe they've printed too much like of liquidity usd which is a lending stable coin and they

need to cover their position quickly so they jump to curve because curve is one of the few things that does pretty well during uh bear market gas fees might be spiking but they'll take out as much as they can to try and cover their positions so in fact during the market crash of the past few days we actually saw a curve routinely exceeding a billion dollars in trading volume per day in some cases two billion are people using this interface or is it all happening kind of money robots behind the scenes aggregators that sort of thing like i so personally i do think that

this super retro interface is gorgeous um but i'm like older than the average person i also happen to know that they're working on a new ui which is a bit more of like a windows 98 type feel oh cool getting an upgrade going from like uh windows 31 to 98 that's great but i myself like i'm a super geek so i just tend to do most of my stuff in brownie which is a pythonic smart contract testing suite awesome very cool so let's go ahead and dive into the curved wars so now that we

understand what curve is we kind of want to figure out why there is a war happening and who's fighting that war uh and i think this conversation starts with the crv token garrett can you kind of take us through the unique properties of the crv token and why it's instigated a war yeah and unfortunately the victims of the curve war seemed to be everybody's portfolio this past week so i'd say in a nutshell the uh the big

value behind the curve token is two things uh there's the revenue share component and then there's the government's aspect of it so diving into each of these with the revenue share all the trading fees that occur when people are trading on curve usually it's about four basis points and that's split evenly and vecrv stakers earn 50 percent of that so if you stake the curve token the crv token it turns into ve which i think stands for vested curve token and uh

those people get 50 of those four basis points for whoever's taking right that's correct it's a vote escrow crv excuse me and and the vecrv is very interesting in that it is um non-transferable you can't do anything with it other than that it's an erc20 token um the curve itself is transferable you can do whatever you want with it but curve by itself does nothing so you have to lock it to get the benefits um and then curve implemented the system where if you lock it uh you have to do the maximum lock of

four years to be able to get the boosted rewards that were on the screen shown earlier so that's uh the curved dow voted into existence the property of allowing users to vote with their vecrv on the emissions of curve that these different pools would would receive so you get some fees from the basic trading activity but then you also can get um a you can get a minimum of the number on the shown on the left and if you have

enough vecrv locked you can earn the maximum boost which is the 2.5 times that number on the right so by locking your curve as vecrv you can achieve this maximum boost in some cases double digit um and some and i've seen as high as triple digit apys in terms of the in terms of the value you can get from from staking in these pools so when you say boost um that is yield farming correct and when you stake your your curve for the maximum amount of time which is four years it means you're not

getting your curve back for four years and that's a one-way decision it's not like you can go command-z on that like once you stake it it's in there but then you are also getting the maximum amount of emissions because that is because you've locked it up for the maximum amount of amount of time you're getting the maximum amount of emissions as a result of that um of that staking and those emissions are in crv token they are although it's not as good as that because the vec rev that you have also linearly decreases over time so if

you lock for four years today the ecrv will drop to zero by four years unless you extend your luck it drops to zero as in it is deleted no you still have your curve but the vecrv you have drops to zero okay wait but i thought ve crv is is curve just vested or voting no you you you lock the curve you receive this vecrv token it starts at the amount of curve that you have but it depre it decreases

linearly over time until you have nothing left unless you extend your lock okay uh and extend the lock of the crv token uh yes okay okay so you take your bag of curve you lock it and then you have to keep locking it if you want to keep getting this maximum boost so it really does incentivize tying up the curve keeping a massive amount of the curve off the market was that the intent of the design here is to just like um increase the value and price of curve or

is the intent to i guess uh incent governance of the protocol why the why the lockup in the design of curve and here's where twitter did you wrong because you really should have invited on michael edgarov or someone actually designed it um because i can just speculate i would assume that it is for these reasons to massively extend the amount of curve that is locked and therefore off the market uh as you know four years is a massive amount of time in d5 um like four years in d5 time is

what like 80 years in real time oh at least we meant we invented d5 like three years ago yeah so but still until convex came around people were doing this people were taking their curve and they were locking it for four years which is a amazing signal so i think it's something like 80 of the curve is just completely off the market um which is pretty wild if you think about it and one of the re perhaps the reason why this dynamic exists at all is specifically because of the emission

schedule of curve and also the boost and also the boost dynamics but curve has this very aggressive emission schedule where it's inflating at an insane amount but the reason why that doesn't result in just like a complete dump of the value of the token is because everyone's locking it up for four years and then also re-locking it up for four years and then they're locking up their emissions that they get for four more years so that they can get more emissions so that they can lock those up for four more years so what's really mind-blowing about the emissions schedule is it's actually a

300-year emission schedule the final curve will be emitted and sometime in 2000 real years or something not deep in years okay wow um so the curve wars is going on for 300 more years it's a 300 year war after that who knows the war is done dig yourself in it could get wild um no the 300 years is like it's it's crazy um every august though the emissions rate decreases and in fact uh half the curve

has already been emitted so we're already 50 of the way through the emission schedule it's been decreasing and every august when it decreases it's a fairly substantial amount so just to be clear if i own curve i lock it as v curve for some length of time for being the maximum and then i'm eligible for this boost that means i get more crv rewards and am i also getting a share of um like that 50 of the um the fee on all transactions on

all trades on kerf am i also getting that and if so what is that paid in so that is paid in three curve um the curve three pool contains die tether and usdc and when you stake your cur when you stake any of those coins into the three pool you receive a three pool lp token and that lp token can then be redeemed for dye tether or usdc so that's cool that's like a nice little dividend and plus on top of the dividend the cash that i'm getting my also getting more if

we translate this into the equities world i'm getting more stock right i'm getting stock as a boost for you know locking it up and then i'm also getting this this dividend which is basically a percentage of revenue generated by curve that's correct but if you really want to get the value the maximum value out of curve you can never actually get the value of the crv token back because if the game is to corner the curved market by having as large of a crv share as possible you always need to

be locking up crv as long as possible and the only value that you get is your share of the stablecoin volume fees that get swapped so the two basis points that go to the crv holders right so if you keep up on locking up curve forever and ever and ever and ever that's how you maximize your dividends that are being paid in stable coin fees but you can never get the crv back because if you start to offload your crv you're also offloading your rights to the point uh to the two basis points is that right

yeah i'd say that's a fair characterization so uh you do have a dilemma like the price of curve was before the crash six dollars it's three dollars now most people don't even seem to care about the price though because if they've been locking their curve can't sell it until until the next presidential election okay so that's i think phase one of the curve wars and things get even more complicated and even more crazy after this because i think what why there's so much excitement

about convex finance is it seems to be that convex finance has started to really uh get into cornering the curve market would you say that that's a fair classification of context have we have we actually talked about before we get there have we actually talked about uh david and garrett like what else you can do because there's some voting aspect of this right it's like maybe we should talk about that because you're not only locking up um curve to transform the v curve to get the boost and the staking there's also

like a governance right as i understand it so that you actually get to decide which of the pools receive a share of uh future curve rewards is that an aspect we should talk about first before we get to your question david and set that up yeah that's worth getting into so uh a lot of protocols have governance rights and sometimes it's not clear what those governance rights do with curve it has a very strong degree of decentralization and nearly every

aspect of curve is managed by the uh by vecrv holders so most commonly this is to periodically vote on which pools get the most rewards um and we'll get into a bit more of the mechanics especially how convex disrupted all of that um but basically if you like if you see those boosts and the um emissions on the front page that you looked at earlier that's all voted on by the community the community decides which pools it's going

to reward and there we go if you click on home actually the dow is also a good place to do it too all those rewards t aprs are what the community decided we vote that this pool will get ten percent max boost the next one three pool gets one percent max boost uh that's just uh straight up vote of vecrv holders and so what this is doing is this is uh directing what stable coin pools get more rewards in emissions and

so what that's doing is that's incentivizing liquidity to come into put into curve for specific stable coins uh and so for stakeholders for somebody like um susd if somebody was uh incentivized to really bootstrap susd liquidity they might want to vote with their curve tokens to uh incentivize susd to come in and so they would vote in the using in the dow using their crv tokens to put more rewards in the susd pool uh and so

how has this played out what uh what stable coin pools has the dow elected to incentivize the most and how often does that change or is it relatively stable over time uh changes roughly weekly and you can actually have full transparency into how the dow is voting on it and you can therefore try and move your coins around to the pools that are going to be uh going to next week be like getting more rewards or if your pool's losing rewards you can move out

of it some protocols also choose to uh like the susp that you're pointing out also choose to issue directly rewards in their own token yes next token so you can see so you can see some examples of that um and so yeah go ahead and yeah so um is it fairly balanced or are like from the from the perspective of stable coin operators like how badly does like circle for

example really want uh usdc liquidity or are those are these types of who's really playing and why are they playing in this game like what are their interests in bootstrapping certain liquidity pools over others it's a good question so i think one really good example would be steph and f are you familiar with lido finance and their staked like uh staked aetherium totally so if you have 32 ethereum you can run a validator node yourself if you have maybe one ethereum and you want to get the five percent interest rates um

you can't do that directly but what you can do is you can go to steph uh lido finance you can stake your ethereum there and they will give you a step token which is uh relies very heavily on people believing that the steph ethereum pig is always one-to-one so it's very useful for them to have a lot of liquidity in this pool because they want to be able to move between eath and steph fluidly if there's not a lot of liquidity in the

pool then you might end up seeing a run on the ethereum and it'll just be over balanced with steph that's cool so what's interesting here is it it it feels like there's uh some value some additional value to a v curve right so like i guess there's there's value because v curve pays out a dividend and the boost rewards of crv but there's also value in the governance vote itself because that governance vote um you know as

allocated as a percentage of a v curve actually uh dishes out a lot of capital it seems like a lot of liquidity rewards here and how much are we talking garrett like how much money are we you know talking um that that goes through this reward system we're talking about like millions of dollars um you know more than this yeah when we get into the um further down the flywheel towards vodium you'll see that uh to be able to

influence this protocols are putting in roughly uh on the order of like a million dollars cash equivalent per week wow okay so if i'm if i'm lido then and i want to create liquidity for um steak teeth and uh the eat pear uh or maybe i'm rocket pool and our eath and you know the eat pear or something then um how much am i willing to pay for is this where bribing comes in like how much am i willing to pay