Is the Curve ecosystem a nested doll or a clever combination of DeFi Legos? Trying to understand Redacted Cartel

Author: Wayne, TokenInsight

This article attempts to simply understand Redacted Cartel based on the foundation of Curve War, viewing Redacted Cartel as an extension platform for Curve War's Bribe, serving as a Marketplace for Bribes to compete for more voting rights and, in turn, higher liquidity.

Curve War

The understanding of Curve War is usually quite simple. Before introducing this, we need to have a general idea of what Curve War actually is.

The essence of Curve War is the competition for liquidity on Curve. Higher liquidity is definitely better for projects. For example, if UST wants to expand its ecosystem, better liquidity is certainly the first step, and having a higher TVL pool on Curve is one of the important indicators. Therefore, projects like UST and FRAX will desperately want their tokens to have higher liquidity in Curve's pools.

The simplest way to provide higher liquidity is to provide it oneself, but obviously, this comes at a very high cost. For instance, UST not only needs a large amount of UST but also requires a significant amount of other stablecoins like USDC/USDT to form the pool. Thus, the optimal way is to attract others to provide liquidity. The methods by which various external protocols attract liquidity and the resulting conflicts are what we call Curve War.

Money always flows to where the highest returns are. The mechanism of Curve dictates that the amount of CRV voting power one holds can determine the yield of different pools in Curve. At this point, the more explicit Curve War refers to the competition for CRV voting power. There are two ways to obtain CRV voting power: one is to directly purchase more CRV, and the second is to "bribe" others to vote for oneself, only purchasing the voting power of CRV.

In fact, the cost of directly purchasing CRV is much higher. Therefore, different projects tend to prefer the "bribing" method, purchasing CRV voting power without owning CRV itself, which is a more economical way to achieve their goals.

At this point, the more defined scope of Curve War is the "war" among different projects to purchase CRV voting power.

Convex War

Interestingly, the projects participating in Curve War seem to revolve around Convex rather than Curve itself. Why is that?

The reason is simple: a large portion of CRV voting power is controlled by Convex. In fact, Convex controls a significant amount of CRV, thereby controlling its voting and yield rights. However, other protocols are not very concerned about yield rights, but only about voting rights.

This is akin to a general manager delegating most of their power to a secretary, so the briber essentially needs to bribe the general manager, but most of the power has actually shifted to the secretary, making the target of bribery the secretary.

Before this power was handed over to the secretary, there were actually many secretaries competing for the general manager's power, and ultimately one prevailed. Convex is that winning secretary. As for the specific reasons why Convex was able to prevail, this article will not elaborate further.

By now, you should be able to understand:

• To achieve higher liquidity, different protocols need to compete for voting rights on Curve to attract others to provide TVL, as this is more cost-effective than providing it themselves.
• The method of competing for voting rights has shifted from directly purchasing CRV to "bribing" CRV holders, only purchasing voting rights, as this is also more economical.
• Since a significant portion of CRV is already controlled by Convex, the main battlefield of the "war" is on Convex.

Don't rush; Convex is not the endpoint.

Since Curve War has evolved into Convex War, this means that the "Curve voting rights" held by Convex have been transferred to Convex's own token: CVX. The result is that users who stake CVX on Convex can vote on the Convex platform, determining the rewards for liquidity pools on the Curve platform, thereby affecting the liquidity levels of different pools on Curve.

However, voting has its issues: a user may not actually know which pool to vote for, nor which pool has the highest yield, or the process of voting and receiving voting rewards may be too complicated. To solve this problem and help users maximize their voting rewards, a new so-called "voting aggregator" has emerged.

Redacted Cartel

This article aims to introduce Redacted Cartel, making its appearance quite timely. What Redacted Cartel aims to do is to serve as such a voting aggregator.

Given the many concepts involved, let's do a brief recap:

• Various pools on Curve compete for liquidity.
• Convex "acts as" a pool aggregator for Curve, controlling a large amount of CRV voting power.
• Convex's token CVX can thus command CRV.
• Curve War has evolved into a competition for CVX voting power.
• The voting process is user-unfriendly, leading to the emergence of voting aggregators.
• Redacted Cartel is such an aggregator, but unlike Convex, it will support more similar projects in the future, helping more projects and users achieve optimized voting.

To possess Convex's voting power, Redacted Cartel needs to hold a large amount of CVX or CRV (CRV can be directly staked on Convex), just as Convex controls Curve. If Redacted Cartel also wants to support voting for other protocols, it will similarly need a large amount of governance tokens from other protocols. How to obtain a large number of these tokens becomes the core issue, as only a large quantity can influence the governed projects.

Redacted Cartel adopts a method that forks OHM's Bonding mechanism. Users can purchase Redacted Cartel's native token BTRFLY at a discount, similar to OHM's process. The tokens currently accepted in the Bonding process include TOKE, ETH, FXS, CVX, CRV, and BTRFLY-OHM LP. Clearly, the supported tokens also indicate which protocols Redacted Cartel's Bribe aggregator will support in the future.

So summarizing the above content, let's look back at what Redacted actually is.

Redacted is a fork of OHM, with its native token being $BTRFLY. It combines the mechanisms of OHM and Convex and is dedicated to building a trading market around governance/voting/bribing. Redacted is an extension of Convex War and does not only serve Convex but also plans to serve other projects with similar mechanisms.

If we were to use a trendy term, DeFi 2.0 is a liquidity service solution, Liquidity as a Service (LaaS), while Redacted and similar projects are a voting service solution, Vote as a Service (VaaS).

Currently, Redacted's Treasury holds assets worth approximately $114 million.

Among these, CVX and CRV account for more than half, with the number of CVX exceeding 1 million. In comparison, Frax and Terra are currently the two largest holders of CVX, holding approximately 3.65 million CVX in total, with Redacted ranking third. From this perspective, Redacted is already able to exert some influence on the outcomes of Convex.

After acquiring Votemak (the governance voting place for Tokemak), Redacted will integrate and re-launch a Bribe trading market called Hidden Hand. Hidden Hand will be the core venue for VaaS, while also supporting Redacted's expansion beyond Convex to other protocols.

Specific Process

1. Users delegate their assets with voting rights to Hidden Hand.
2. Hidden Hand bids the voting rights to external protocols in need, receiving Bribe rewards in return.
3. Hidden Hand redistributes the rewards, giving part to users and another part to Redacted Treasury, which is then distributed to BTRFLY holders.

Source: Redacted Cartel

All voting processes and maximizing voting rewards are handled by Hidden Hand, completed in the aforementioned second step. Meanwhile, BTRFLY holders can gain the power to command Hidden Hand by staking BTRFLY.

I wonder if you fully understand the transition from Curve War to Convex War, and then to Redacted (and possibly future Redacted Wars).

Continuing with the previous secretary analogy, once the secretary gains the general manager's trust through their abilities, they also gain the power delegated by the general manager. Secretary two similarly earns secretary one's trust by solving some issues, thus obtaining secondary delegated power from secretary one. Secretary three…

In addition, Redacted also plans to launch Pirex. Pirex can be understood as a derivatives trading market for voting rights. If you believe that the price of Bribes will increase in the future (meaning voting rights will become more expensive), you can buy voting rights in advance and sell them later when the price rises, and vice versa.

Source: @RedactedCartel Tweet 8th April 2022

There are many aspects that should be addressed but are not covered in this article.

This article only attempts to introduce what Redacted is in a relatively simple way, inevitably touching on many aspects of Curve War and involving multiple projects, hoping to help you understand what Redacted and Curve War are about. There are many things that have been overlooked in this article.

For example, Curve itself has a Bribe market where users can vote directly on different pools in Curve.

A similar situation exists with Votium, which is a Bribe market built on Convex and is currently the main Convex market. After staking CVX on Convex, users receive vlCVX certificates that can be used for voting. If users do not want to vote themselves, they can delegate vlCVX to Votium, allowing Votium to solve these issues in one stop. From this perspective, Votium and Redacted have a certain competitive relationship.

Source: llama.airforce

Voting on Votium occurs every two weeks. In the most recent voting round, the total Bribe amount spent by external protocols reached $21.37 million. The average price per vote (i.e., the price for purchasing two weeks of voting rights for one vlCVX) reached $0.56. The highest expenditures were from Frax and Terra, amounting to $7.76 million and $5.07 million, respectively.

The above understanding of Redacted is from the perspective of Curve; another angle is from OHM's perspective. The underlying yield logic of OHM is replaced with Bribe yield. A similar understanding can be found in FloorDAO, which also utilizes OHM's Bonding mechanism, where the underlying yield is generated by providing liquidity for NFT assets.

The earlier statement that Curve War is essentially a competition for higher liquidity is from the perspective of external protocols; the ordinary user's goal in participating in Convex is certainly to achieve higher yields than directly staking on Curve.

Moreover, Curve's yields are not solely determined by the amount of votes but also consider the TVL of the pools themselves. The higher the TVL of a pool, the greater the rewards it can receive.

Recently, Terra's proposed 4pool is aimed at competing with the 3pool and may become the main battleground for liquidity competition in the future. If significant funds are spent to capture part of the liquidity from the 3pool, it is even possible to surpass it. It remains to be seen whether DAI will retaliate by spending money to purchase voting rights and reward the 3pool.

Additionally, about ten hours before this article was written, Do Kwon tweeted that once Terra's own Bridge is ready, it may no longer use Curve, which could pose a significant bearish impact on both Curve and Convex.

Will the Bribe Marketplace be a Big Thing? If so, how will the competitive landscape of these projects change in the future? From Curve to Redacted, and even to the next protocol commanding Redacted, does this infinite nesting hold any significance?

In crypto, don't underestimate everything.

In crypto, don't overestimate everything.

Simple explanations of various terms:

• $CRV - The native token of the Curve platform.
• $veCRV - The certificate obtained after locking CRV on Curve, which holds yield and governance rights.
• $CVX - The native token of the Convex platform.
• $cvxCRV - The certificate users receive after staking $CRV on Convex. In fact, Convex stakes $CRV for $veCRV, but the certificate given to users is $cvxCRV.
• $vlCVX - The token obtained after staking $CVX.
• $BTRFLY - The native token of Redacted, obtainable through Bonding.
• $xBTRFLY - The token obtained after staking $BTRFLY.
• $wxBTRFLY - The wrapped version of $xBTRFLY, which can be used as collateral for other protocols.
• $pBTRFLY - Tokens reserved for the team, which can be exchanged for $BTRFLY at a low price in the future.
• $glBTRFLY - The governance rights certificate for Hidden Hand obtained after staking.
• $blBTRFLY - The yield certificate for Hidden Hand obtained after staking.
• 3pool - The most well-known pool on Curve: USDT/USDC/DAI.
• 4pool - A pool initiated by Terra on Curve, aiming to surpass 3pool: USDC/USDT/UST/FRAX.

Thanks to Ellie, Adam, and Sean for their help with the article.

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