Article by @Kryptonite0x
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Many players in the DeFi ecosystem are trying to attract liquidity on their own protocol by offering attractive yields. A part of the yields they offer comes from Curve Finance, which gives inflation rewards to those who provide liquidity on Curve pools, this measure is called “liquidity gauge”. Curve has a specific weight system based on their CRV tokens, the ones that lock their CRV tokens received vote-escrow tokens (veCRV), which offer, depending on the weight and time locked, the capacity to vote on which liquidity gauge should receive CRV inflation rewards.
That said, it goes without saying that this system encourages many DeFi protocols such as Yearn Finance, Convex or [REDACTED] to accumulate veCRV and make governance decisions in their favor. This is commonly known as the Curve war.
Let’s now present those three protocols to see what their mechanisms are and how they are differentiating from each other.
Yearn Finance is a famous DeFi protocol that uses Vaults, which are pools of collected funds on which active strategies are applied to move liquidity between different lending protocols and maximize returns. The strategies applied to a Yearn Vault are very diverse: funds can be deposited on lending protocol to collect trading fees, can be used as a collateral to borrow other assets, farm them and resell them for profit.
By providing liquidity into a Yearn Vault, you get Yearn’s yield-bearing vault tokens (yvTokens), those yvTokens can be considered as a deposit receipt representing the liquidity provided, which increases in value thanks to interest payments (for example, by providing USDC into the USDC Vault, you get yvUSDC).
That way, Yearn Finance has many advantages : first, it’s not created on top of just one DeFi protocol, it uses Curve but also Convex, Compound or AAVE. Then, Yearn manages everything, which means that even if the collateral you put in Yearn is then put into a Curve pool and earn Curve rewards, Yearn would automatically sell those rewards for the same token as your initial collateral, so that you don’t have any other token exposure. You just deposit your capital into the Vault and let the active strategies do the work for you.
Then comes Convex Finance, Convex is on the contrary purely created on top of Curve Finance. Their strategy is to give boosted CRV rewards to Curve liquidity providers without having the necessity to lock and stack CRV tokens, because Convex does that for you already. By depositing CRV LP into Convex, you will not only get CRV boost but also CVX rewards as a bonus.
If you have CRV tokens, you can also stack them into Convex to earn a share of the Convex platform fees in CRV, trading fees from Curve and CVX rewards. Convex is hence able to attract CRV tokens through stackers in their own platform and lock the tokens to accumulate veCRV, which is used to make decisions in their advantage.
Convex is quite different from Yearn: it only uses Curve, and it doesn’t manage the rewards for you. If your collateral was in USDC, Convex would distribute you some rewards in CRV and CVX, not in USDC. Therefore, unlike what Yearn offers, if you want to get those rewards in USDC you have to harvest and swap them to USDC. Everything has to be done manually, whereas Yearn does it automatically.
Finally, here is [Redacted]. [Redacted] has a whole new kind of strategy to enter the Curve war: it uses Olympus’ bonding mechanism to be the black hole of Curve’s tokens in exchange for their BTFLY token. Through that mechanism, not only each BTFLY is backed in value by Curve tokens, but [Redacted] also owns its own Curve tokens treasury.
Therefore, BTFLY holders would be able to earn great yields through stacking and hold a liquid asset entirely backed by Curve tokens, principally stablecoin LP tokens.
The idea behind all this is that through their treasury, [Redacted] would be able to accumulate as much CRV as possible, lock them to accumulate veCRV and become a major player in the Curve ecosystem. [Redacted] is very different from Yearn and Convex because it uses DeFi 2.0 concepts to solve major problems : first, [Redacted] is owner of its own liquidity, it does not depend on any liquidity providers. Then, it offers attractive APYs and finally, it will ensure that minters’ interest is best represented in the Curve gauge.
As we can see, all three strategies are very different from each other, but the final objective is the same: accumulate voting power in the Curve gauge to apply favorable decisions for their community.