Game of Thrones: The Struggle Between Yearn, Convex, and Stake DAO on Curve

This article is sourced from Rekt and compiled by Babit.
A power struggle is underway between different DeFi protocols.
Yearn, Convex, and Stake DAO are competing to accumulate veCRV, aiming to gain power and influence over Curve Finance DAO, ultimately providing higher yields for their users.
The rules here are:

• Each player must seek to increase TVL by offering attractive yields to their users.
• To provide the highest yields, each player must accumulate points in the form of veCRV tokens.
• The veCRV tokens allow each player to boost their yields and control Curve governance votes, thus enabling them to attract more TVL.

Different players can use different strategies in the same game, but it makes no sense to play elsewhere.
There are no losers here, only big winners and small winners.
And the game will continue indefinitely.

On the surface, it seems there are three definite competitors in this game; however, the reality is much more complex.

In the Curve war, not only whitelisted protocols are fighting, but also centralized entities that hope to incentivize their currencies or projects.

So, who exactly is fighting whom, and what will the final game look like?

The arrival of Convex adds extra urgency to the game that Yearn and Stake DAO are already playing.

Convex has "the support of Curve" (see the footer of the Convex website), meaning that some developers from Curve have invested in this project and helped them write code.

We can see Convex as a player entering their own game with Curve.

While this clearly gives them an advantage, their position is not much different from Julien Bouteloup (Stake DAO), who, despite being a member of the Curve core team, is still fighting for control of Curve.

Andre Cronje and Banteg—two of the most well-known Yearn developers—also have a head start in this race, gaining massive amounts of CRV through contributions to the project, providing liquidity, or through Banteg's "pReMiNinG" on Twitter.

In this race, no player can be seen as an "outsider"; they have all contributed to the creation of Curve in some way. However, this does not mean that the level of competition is diminished.

CRV was launched on August 13, 2020.

Ten days later, Andre Cronje tweeted, marking the beginning of the Curve war.

AC has gained significant power over the Curve protocol and is trying to incentivize his new yPool heavily.

When you consider who controls the 0x431 wallet, Curve's response makes even more sense.

Nansen lists 0x431 as the first wallet to farm YFI. In addition to holding a large amount of K3PR, this wallet is now also voting to increase the weight of the Fantom pool, so perhaps you can draw your own conclusions.

Over time, more and more users will lock their CRV in veCRV, and voting power will become less concentrated, allowing Curve to continue to grow…

It was the Yearn backscratcher vault launched in November 2020 that brought this struggle to the level of protocol vs. protocol.

By permanently locking their CRV in the backscratcher vault (and thus granting their voting power to Yearn), users can earn a higher APY than if they locked their tokens in Curve itself.

Then, Yearn can use these CRV to influence Curve's votes in their favor and increase the yields of all their Curve-based pools; ultimately bringing in more users and higher TVL.

At this point, Yearn has no real competitors. Cronje is building his decentralized monopoly, and no one is trying to stop him.

1. Stake DAO and Julien Bouteloup

Stake DAO is a direct competitor to Yearn Finance. Both platforms offer users yields on various assets and use Curve as the foundational layer for their main treasury.

The arrival of Stake DAO was not without drama. Yearn developers accused Julien of copying their protocol without adding anything of his own, leading to Julien being kicked out of several private group chats and further escalating a feud that had been brewing for some time.

As soon as Stake DAO emerged, Yearn began heavily promoting their yveCRV treasury on Twitter. Then, the struggle began.

From January to March 2021, Yearn and Stake DAO began directly competing for CRV deposits. Each protocol was actively promoting their treasury and lobbying CRV whales to deposit on their respective platforms.

When Yearn launched the yveCRV<>ETH pool in early February, allowing users to withdraw from the backscratcher to improve trades while increasing competition, users' assets were no longer stuck in that strategy.

While users can now withdraw their CRV, the treasury continues to grow as Yearn leverages their partnership with SushiSwap to incentivize the yveCRV<>ETH pool and create a higher APY, increasing demand for yveCRV.

This improved user experience forced Stake DAO to offer the same service. In May, Stake DAO launched an sdveCRV balanced pool with a 90/10 ratio of sdveCRV/CRV, still incentivizing users to lock their CRV but also providing some exit liquidity for those looking to unlock.

The above image shows the stable accumulation of veCRV by Yearn and Stake DAO, while Convex saw a sudden rise in May.

However, both sides reacted differently to the arrival of Convex.

Yearn actively promoted their accumulation strategy, while Stake DAO chose a different route.

Stake DAO did not use their veCRV to boost their own treasury but instead opted to migrate their Curve pool to operate on Convex. This move currently allows them to offer a higher APY than Yearn. However, in the future, Stake DAO may regret giving up more power to the already strong Convex platform.

As shown in the chart below, the proposed weight changes indicate that both whales and projects are fighting to incentivize their agendas.

2. How does Convex use their power?

Convex surpassed Stake DAO and Yearn in just 2 days and 14 days, respectively.

At the end of the 4-year CVX incentive program, Convex may have enough TVL and platform revenue to provide sustainable high APY for cvxCRV stakers. By then, Curve will also launch new products, and as Curve grows, Convex will grow.

Since they already have a good positioning, if Convex decides to launch some unique strategies in the future, they could easily compete with Yearn and Stake DAO, not just for CRV.

As DeFi evolves, more "yield aggregator" platforms will be launched, and the demand for those built on Curve will only increase. There won't always be just three competitors.

This race is far from over, but the entry requirements make it increasingly difficult to join.

For a protocol to use veCRV, it must be listed in Curve's "SmartWalletWhitelist" contract.

Since the veCRV of smart contract addresses can be transferred among owners, smart wallets must go through a whitelisting process to prevent abuse.

Currently, only Yearn, Stake DAO, and Convex are on this list.

With the CRV token priced at $2, a protocol must attract about $130 million worth of veCRV (30% of the supply) to become whitelisted on Curve.

However, even with funding, getting on the whitelist is not easy. Several proposals have already failed because they were rejected for lacking sufficient direct benefits to the Curve protocol or its token holders.

All participants in Curve governance are incentivized to prevent any whitelisted protocol or those listed in the Curve UI from selling excessive CRV.

A common protocol strategy is to sell farmed CRV to create an APY for their own users.

This is a hot topic on the Curve governance forum, and many token holders have protested against it, using it as a reason to exclude applicants from the whitelist.

Some have proposed distributing farming rewards in the form of veCRV instead of CRV, or distributing both in a ratio, to slow down Yearn's farming/dumping speed.

When Alchemix wanted AlETH to be listed in the Curve UI, Curve intervened and blocked it, which sparked some controversy. Curve stated that this was to prevent "double-dumping," but some questioned whether Curve should be involved in defending its token price.

We interviewed Alchemix's lead developer, Scoopy Trooples, to understand what happened.

Scoopy Trooples said, "Through Charlie, I got in touch with Curve. A few weeks before we launched alETH, I was inquiring about the Curve eth pool. He said they didn't have (that plan). I replied that it seemed we would have to use Uniswap or Balancer. Then Charlie said he would make us an alETH/eth Curve pool. Then, a few weeks passed, and I told Charlie we were ready to launch, but he said not to do that pool anymore because Alchemix uses Yearn and 'would dump too much curve.' Later, in the days leading up to the launch, I was anxiously looking for an alternative and complained about it in egirl, and then egirl member devopsfan suggested putting aleth on Saddle. Seeing that Saddle had the properties we wanted for a soft peg pool (since it is the Solidity version of Curve), we accepted their invitation and deployed there in a short time. This was not a slight against Curve. It was just the best thing to do for our protocol's interests. While I enjoy collaborating with other protocols, I won't harm our project to be loyal to others. If we had chosen Sushi, Uni, or Balancer, establishing and maintaining the alETH peg would have been much harder."

Crypto Twitter loves drama, so the factionalism of these events makes it a popular topic.

However, some people have a different view on it.

Parasitic protocols can be excluded from the whitelist, but it is more challenging to combat forks.

First, there is Swerve, with its own "anonymous" team, and then there is Saddle, with their venture capital backing.

Curve has valid, enforceable intellectual property in its code, but that hasn't stopped any of them from attempting to copy.

Saddle Finance directly copied Curve's code, but Curve was written in Vyper, while Saddle rewrote it in Solidity.

Curve could stop Saddle by enforcing this intellectual property and send a warning signal to future competitors, but should they do so?

Currently, its users have not decided.

The main topic of debate is not whether there is such a case of plagiarism against Curve, but whether it should be pursued. Many forum members see this as a behavior of TradFi; a reassertion that does not align with DeFi's open-source culture.

However, it is not just Curve looking for lawyers.

The new Uniswap V3 is the same. They claim to be competitors of Curve and are on the offensive to keep the code to themselves.

Uniswap V3 operates under a commercial source license that restricts unauthorized use of its source code for two years, so that "the Uniswap community can build an ecosystem around the Uniswap V3 core codebase" [mondaq].

How effective this license will be for an anonymous team remains to be seen.

But what if "incompatible math" is actually the best moat…

It is understandable for any developer to want to protect their work, especially when it is so unique and economically valuable, but what does this have to do with open-source DeFi? Will either side continue to pursue such litigation?

Robert Leshner does not support this idea…

Perhaps it would not look good for Curve to sue Saddle, but what if Curve were to sue TradFi invaders?

We won't always be fighting among ourselves…

Perhaps now is the time to set a precedent; will the next Curve war happen in court?

3. Curve VS Uniswap

The biggest challenger to the Curve protocol is the latest Uniswap V3.

Some expect Uniswap V3 to become the "Curve killer" with its active management LP technology.

While Curve is not dead yet, Uniswap V3 has already taken a significant chunk of their market share. In June 2021, Uniswap V3 facilitated 40% of all stablecoin trading volume.

Since both offer very similar results on major stablecoin trading pairs under $10 million, for most users, their choice between the two will primarily be based on personal preference rather than financial savings APY.

But this has not stopped the two protocols from having a public feud, as they fight to provide the best rates to users.

Both sides are fighting for victory, and Curve is now directly competing with Uniswap by introducing volatile asset trading in Curve V2.

This battle is still ongoing…

While the Curve protocol is at the center of so much drama, its founder rarely speaks in public.

However, the Rekt detective always goes straight to the source.

We found Curve's founder, Michael Egorov, and sat him down to clarify things.

Rekt:

Hi Michael, thank you for talking to us. It has been nearly a year since the CRV token was launched, and the tokenomics have defined a large part of the entire industry. Is Curve developing as you expected?

Michael:

Yes, I think so.

Rekt:

Alright, let's get straight to the point. What requirements must a protocol meet when applying for the SmartWalletWhitelist?

Michael:

Basically, the wallet should not become a sellable ticket (selling value is fine). And the project should be audited by a reputable company.

Rekt:

Currently, there are very few whitelisted protocols, and those that are whitelisted have a significant advantage over all others. Isn't this a conflict of interest for Curve, since they "support Convex," while Convex never allows other protocols to benefit from whitelisting?

Michael:

Well, I think if the project is absolutely safe and can benefit from being whitelisted, then there should be no problem doing so. Of course, the trick is that if Yearn, Convex, and Stake DAO all don't want to whitelist a certain project, then I won't have enough voting power to overturn them. Because those projects themselves have voting power. But Yearn voted in favor of whitelisting Convex!

Rekt:

Why was Alchemix rejected?

Michael:

Just checked. Alchemix never asked, nor was there a proposal. My understanding is that they are using Yearn's second-layer protocol, so it's unclear what benefits there would be. If they start using Curve directly, then… in short, they need to inquire/write a forum post.

Rekt:

They have decided to use your competitor, Saddle Finance. What do you think of Saddle?

Michael:

That's a completely different matter from the wallet whitelist; it's a soft vote for being listed in the UI. DAO participants hesitated to list alETH because the collateral would dump CRV. I think it would be good to go live in this case anyway. But due to the slow pace, they chose Saddle instead. And alETH was attacked a few days later. In principle, if it is safe, there is no problem going live again; they just had an operational issue.

As for Saddle, I think Saddle violates Curve.fi's intellectual property because it effectively translates Vyper's code into Solidity. This can be proven in court. But I think it's a worthless project, so doing so is meaningless. Moreover, litigation would hurt Saddle's founders but not the venture capitalists driving it. So that may be even more pointless.

Rekt:

Robert Leshner said, "If you want courts and politicians to protect and control you, then there's 'finance.' But if you want a resilient, self-sufficient, open, and upgradeable system, then there's DeFi." Do you think litigation has a place in decentralized finance?

Michael:

I think as long as there is a legal entity that can sue another legal entity, it is very likely. And both curve.fi and saddle have that. But it's strange to hear such a statement from Robert. (Keep in mind) Compound sued dForce when they cloned their first version. It's a bit like saying Compound is not DeFi. But anyway. I don't like the idea of suing Saddle for other reasons.

Rekt:

Very interesting. We need to talk to Mr. Leshner about this. Also, Yearn has been described as a "parasitic" protocol because of the large amount of CRV they farm and dump. What do you think about how each whitelisted protocol uses Curve, and what would you like to see in the future?

Michael:

I don't think "farming and dumping" is parasitic; it's part of the game. But of course, double incentivizing dumping should not happen. I think Yearn's way of working is good—it's not parasitic. People just shouldn't create recursive farms—circular dumping (for example, imagine wrapping a tokenized farm in a pool that will get more CRV and dump, then…)

I recently had some thoughts about those stable tokens, but dumping (or collateral) could incentivize in different ways, like incentivizing trading volume (instead of the current liquidity). It is still unclear how it will work, but it feels beneficial for both Curve and the tokens.

Rekt:

Speaking of trading volume, the forex industry currently has a daily trading volume of about $6.6 trillion. Do you see Curve taking some of TradFi's trading volume in the future, and if so, how do you view the adoption?

Michael:

That's our plan. I think it can be achieved by supporting the exchange between stablecoins of different denominations (not just the dollar). Of course, it should include that growth.

Rekt:

Great. But you are not the only one aiming to disrupt this market. Uniswap V3 has already taken a significant chunk of your stablecoin trading volume. What do you think of their V3, and how does Curve plan to compete with Uniswap?

Michael:

There are several ways. One, we only believe in automated methods, while Uniswap V3 seems not to. Less automated methods work for stablecoin/stablecoin trading, but it's very challenging for volatile currency pairs. The numbers show that vaults aimed at automating Uniswap V3 liquidity management are losing compared to "no-fee Uniswap V2," which means they are very suboptimal. Therefore, we may counterattack in a more volatile (asset) area (which requires a lot of optimization work, currently in progress).

As for stablecoin/stablecoin pairs—Uniswap currently benefits from the fact that it is very well-known to users who are not familiar with dex aggregators. Even with Uniswap V2, trades through the USDT/USDC pool are like that (traders lost a lot of value there due to slippage).

Rekt:

Curve's first fund pool using volatile assets, Tricrypto, launched nearly a month ago. Are you satisfied with its performance so far? What are the next steps?

Michael:

I will relaunch it: I made some modifications based on what I've learned, plus got a faster simulator and found more optimal parameters. A lot of things performed very well, but it needs +1 iteration. That's why we don't do "100% final release and replace everything." It's a rolling release system so that we can iterate flexibly.

Rekt:

Thank you for talking to us, Michael. Oh, one more thing… do you have any news about 0xc4ad recently?

Michael:

Ah. Not really sure, no. Unless you think the anonymous deployer of the eth2 staking contract is 0xc4ad…

Rekt readers, do not be mistaken; what we are witnessing here is a power struggle, not a wealth struggle.

The founder himself tells us that Curve's goal is to disrupt a multi-trillion-dollar market, and if you are reading this article, you may share his vision.

Decentralized exchanges are becoming increasingly powerful, and ironically, because of this, different parties want to centralize that power again for their own benefit.

While whales fight for power, retail investors are still seeking wealth, and they will only benefit from it.

The future of this multi-trillion-dollar industry relies on a few developers forming who are seizing the opportunity to build their empires while this space is still fresh.

Curve's first-mover advantage makes it hard to replace their position, and although competition is heating up, the team will continue to bring a lot to the table.

Perhaps the user interface does not suit everyone's taste, but if Curve's future is as a foundational protocol rather than a "direct-to-user" experience, does that really matter?

If you think the Curve struggle is intense, just wait for the Convex struggle to begin.