High Quality Passive Income with Curve & Convex

Introduction

What is Curve?

How AMM Works?

Key Metrics- TVL, Trading Volume, Fees

Tokenomics

Supply

  • 62% to community liquidity providers
  • 30% to shareholders (team and investors) with 2–4 years vesting
  • 3% to employees with 2 years vesting
  • 5% to the community reserve
  • 5% to pre-CRV liquidity providers with 1 year vesting
  • 30% to shareholders (team and investors) with 2–4 years vesting
  • 3% to employees with 2 years vesting
  • 5% to the community reserve

veCRV

  1. Proposing a new liquidity pool on curve or casting votes on proposals
  2. Earning trading fees on Curve protocol. 50% of trading fee earned by the protocol will be distributed to veCRV holders
  3. Boosting the staking rewards by up to 2.5x
  4. Airdrops from other protocols that want to build liquidity pool on Curve

Investment Thesis on Curve

  1. Secular trends in growing usage of stablecoins. Stablecoins are viewed as one of fundamental infrastructure in the DeFi system. Stablecoins basically enable investors to generate yield on the crypto assets in the DeFi market while alleviating the potential adverse effects of market volatility. Ever-growing DeFi market will continue to create demand for stablecoins so is volume for stablecoins exchange.
  2. Best-in-class tokenomics and DAO governance. The locking mechanism and revenue sharing help offset inflation of CRV from rewards in my view. This is the main reason you can potentially earn steady and high APY without suffering from depreciation of token value due to inflation. In fact, Curve tokenomics and DAO governance have become the gold standard in the DeFi market.
  3. Curve V2. Curve has launched its V2 update, which allows users to swap between unpegged assets and thus directly compete with AMM exchanges such as Uniswap and Sushiswap. Similar to Uniswap V3, Curve V2 also offer concentrated liquidity feature allowing users to choose which price range they’d like to provide liquidity for. A major improvement from Uniswap V3 that requires active management on liquidity pools (therefore, it is largely used by professional users but not average users), Curve will automatically concentrate all liquidity from its LPs around the current price to reduce slippage and price impact. Curve V2 will help the protocol expand its TAM in the DeFi market.
  4. The Great Curve Wars. Curve Wars is a non-zero-sum game that external protocols aim for getting dominance over the Curve protocol in order to get most weight on CRV rewards. It is the unique and most beautiful part of Curve protocol in my opinion. Put this in a simple way. An emerging decentralized stablecoin protocol wants to offer attractive yield to its users that are incentivized to provide liquidity to the stablecoin pair. In order to achieve high yields for its users the stablecoin protocol needs to increase its influence on governance and alter the liquidity mining rewards for its pool on Curve, so the protocol could do either 1) buy a lot of CRV and lock them all to increase voting power (this creates buying pressure on CRV and boosting the CRV price), or 2) bribe other CRV holders to vote the favor of increasing rewards on its pool (this could add another 20–30% APY to CRV holders). Either scenario will enhance benefits of CRV holders.

Investing in Curve Through Convex

Quick Background on Convex

The Flywheel

  1. Stake cvxCRV (50–60% APR): Convert CRV to cvxCRV on Curve or Sushiswap dex, and then stake you cvxCRV on Convex (You may also convert CRV & stake cvxCRV on Convex but this will cost more gas fee). You will get 50–60% APR rewards composed of CRV, 3Crv, CVX, and EPS airdrop.
  2. Stake cvxcrvCrv (50–60% APR): Deposit liquidity (CRV or cvxCRV) into the Curve cvxcrv pool (without staking in the Curve gauge), and then stake your cvxcrvCrv tokens on Convex. You will get 50–60% APR rewards composed of CRV and CVX.
  3. Stake & Lock CVX (30%+ APR): Stake and lock CVX (16 weeks + 4 days) to get about 4% APY of fees in the form of cvxCRV plus 30%+ APY of bribe rewards by delegating vote weight.
  4. Stake 3poolCrv (6-7% APR): Swap 3Crv for 3poolCrv LP on Curve and then stake 3poolCrv on Convex to get 6–7% APY rewards in the form of CRV and CVX.
  5. Stake MIMCrv (20%+ APR): Swap 3Crv for cvx3pool on abracadabra and borrow MIM, and then deposit MIM on Curve MIM pool to get mimCrv LP token. Stake mimCrv on Convex to get 20%+ APR rewards in the form of CRV and CVX.
The Flywheel with Curve DeFi
The Flywheel with Curve DeFi

Closing Thoughts

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Senior equity research analyst, covering Internet, Fintech, and Crypto/Blockchain

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Hans Chung

Hans Chung

Senior equity research analyst, covering Internet, Fintech, and Crypto/Blockchain

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