Overview

When it launched in January 2020, Curve Finance was a newcomer to the DeFi space with a polarizingly retro interface and a novel-for-the-time focus on stablecoin liquidity in a landscape on the verge of an arguably unforeseen boom brought on by the global pandemic.

An Example Swap

An Example Swap

Developed by Russian physicist Michael Egorov over a two-year period, Curve’s arrival onto the scene occurred less than two months before much of the world entered into lengthy lockdown periods. Amid global financial uncertainty, interest in alternative investment vehicles surged. In hindsight, 2020 was dubbed the Year of DeFi, with TVL (total value locked) growing from approximately $1.05B in June of that year to $28B in Jan 2021 and increasing to $80B today, with unique wallet addresses totaling more than 4.3M in February 2022.

As DeFi overall continues its march toward the mainstream, the Curve Wars have emerged as a phenomenon driven by unique aspects of Curve and its automated market-maker algorithm, as well as tactics used by third-parties at play in the Curve ecosystem.

Background

While there are multiple decentralized exchanges (Uniswap, Sushiswap) that allow for liquidity providers to deposit cryptocurrencies and earn a portion of trading fees, Curve was one of the first to emphasize liquidity pools for stablecoins. This aspect of Curve results in lower volatility in the liquidity pools. Lower volatility, in turn, allows the Curve algorithm that is at work to constantly rebalance the value of the tokens in its pools to allow trading with comparatively lower transaction fees, lower slippage and less impermanent loss risk.

For example, the trading transaction fee on Uniswap is currently .3%, while the trading transaction fee on Curve is .04%, a significant difference that only becomes more significant for those providing increased liquidity.

TDLR: Curve’s combination of lower fees and what is perceived by many to be a less risky trading environment has increased its popularity among traders seeking to provide liquidity to earn on their cryptocurrency holdings.

But Curve’s appeal doesn’t stop there – and here is where it all starts to get interesting. When liquidity providers earn, they earn Curve’s $CRV token. If you hold $CRV, you can stake the token for another token called veCRV (the ve is just confusing looking shorthand for vote-escrowed). On Curve, veCRV holders have voting rights that are doled out based on the size of your holdings and the length of time you’re staking $CRV.

The bottom line is this: if you hold $CRV, that is the gateway to earning voting power on Curve in the form of the veCRV token. Why would you want to hold veCRV and gain voting power on Curve?

  1. Transaction fees. veCRV holders receive a portion of Curve’s administrative fees.
  2. Voting rights. Along with automatic payouts from transaction fees, which are allowing one to earn on top of the earnings they’re already receiving as a liquidity provider, veCRV holders have the right to cast votes as part of the Curve governance DAO. These votes influence how transaction fees and boosts are distributed, with possible “boosts” increasing yields by up to 2.5X.

The Gauge

The Gauge