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The first part of this article
Depegged Curve DAO CRV liquid lockers. Why and what to expect?
Let's discuss the motivation for buying liquid locker tokens during depeg periods, recall the design details and operating mechanisms of these tokens, and see what happens in practice.
Depeg is not a catastrophe, but an opportunity for different market participants. Let's examine their strategic motives:
Key motivation: Transforming current CRV income from LP into a new high-yield position.
Use regular CRV inflows
Form positions with potentially high annual percentage rate (APR) in liquid lockers
Act as experienced investors: buy assets during sales
Goal: Expanding influence and control over the ecosystem
Buy tokens with voting rights
Provide liquidity support for their own projects
Gain tools for voting on incentives in desired pools
Strategy: Monetization of accumulated assets
Use CRV as a tool for generating additional income
Diversify assets through locker token purchases
Case: Extracting profit from price differences
Example arbitrage trade 1:
CRV price: $0.85, peg: 80%
Sell 10000 yCRV
Received: 6800 crvUSD
CRV price: $1.2, peg: 50%
Reverse exchange
Received: 11333 yCRV
Profit: +66%
Example arbitrage trade 2:
CRV price: $1.0, peg: 60%, yvyCRV price $0.6
Buy yvyCRV at $0.6
Short futures at $1.0 with 40% APY funding
CRV price: $1.4, peg: 80%, yvyCRV price $1.12
Close short at $1.4, loss -40% + funding for 3 months +10% (risk of taking longer for peg and funding not always being positive)
Close long on yvyCRV at $1.12, profit 86%
Profit: +56% over 3 months without delta risk on the base asset.
Mechanics: Arbitrage between lending platforms
Borrow CRV for short periods
Convert to liquid lockers
Extract income above loan interest rate
⚠️Requires constant position monitoring
Goal: Quick integration into Curve ecosystem
Use depeg period for liquidity formation
Create pools on DEX and lending platforms
Minimize entry barriers
Strategic task: Increasing governance weight
Growth in total veCRV share
Strengthening decision-making influence
Potential for increased future income
Depeg is not a bug, but an opportunity for strategic maneuvers. Each participant finds their advantage during turbulent periods.
Now let's move on to questions about locker token design and the activities of DAOs that issued them. Each DAO directs efforts toward forming conditions to maintain the balance of pools that provide liquidity for liquid locker tokens.
Website: https://curve.convexfinance.com/stake
Main cvxCRV liquidity pools:
https://curve.fi/#/ethereum/pools/factory-v2-22/deposit — previous version pool
Convex POL (Protocol Owned Liquidity) amounts to approximately 15%. Both pools have an active gauge and receive CRV incentives.
Note the vote share that the CRV-cvxCRV pool has - 12.48%. The pool receives 328,805 CRV incentives weekly. Currently, this pool is the most incentivized pool on Curve and ranks first in $CRV emissions. To maintain pool incentives, Convex offers $CVX rewards for vlCVX holders who vote for CRV-cvxCRV.
The Convex DAO treasury regularly receives income in the form of CRV. Income sources include:
CRV income received from staking POL of various pools owned by Convex;
2% fee retained on the Convex platform.
On a regular basis, the Convex team makes decisions about the use of accumulated CRV. Currently, we observe that the team is adding CRV to the CRV-cvxCRV pool, increasing their POL position and creating a positive impact on the cvxCRV peg. Example of Convex team transaction.
Website: https://www.stakedao.org/lockers/crv
Main cvxCRV liquidity pools: sdCRV liquidity is present on three networks: Ethereum,Arbitrum, Polygon.
On Arbitrum and Polygon, liquidity exists not in the form of native sdCRV, but in the form of vsdCRV and asdCRV.
asdCRV and vsdCRV are wrapper tokens for sdCRV. Both tokens support cross-chain functionality using the LayerZero service and can move between Ethereum, Arbitrum, and Polygon. The bridge interface is located at https://www.stakedao.org/bridge
vsdCRV is a token that is issued and redeemed at a fixed rate to sdCRV. The rate is always 1 sdCRV = 1 vsdCRV. Through veSDT delegation, the vsdCRV token has increased voting power when voting for CRV incentives and other proposals in Curve DAO, but does not receive commission income in the form of crvUSD. The voting power boost coefficient at the time of writing is 1.47. This means that 1 vsdCRV has voting power equivalent to 1.47 veCRV or alternatively - 1.47 CRV that is locked for 4 years in Curve DAO.
asdCRV is a token created through a partnership between StakeDAO and Alladin DAO. It is an automated vault token where all received income is capitalized into more sdCRV. Deposits and withdrawals of sdCRV from the asdCRV vault occur at the rate (index) at the time of such transaction. The cheaper sdCRV is, the more the vault will accumulate.
StakeDAO POL makes up approximately 18% of the main sdCRV pool on Ethereum. DeBank.
Additionally, StakeDAO directly owns 1,899,999 sdCRV for independent voting purposes. DeBank.
Liquidity pools have active gauges on different networks and receive CRV incentives. The total amount of incentives is 57,258 CRV per week.
StakeDAO has implemented automatic voting of vsdCRV in pools for incentives in pools where vsdCRV exists.
This solution triggers the "mill" mechanism during a depeg event. The larger the depeg, the more vsdCRV in the pool and the more votes will be for this pool, and the more CRV incentives will flow into this pool, and increased incentives will lead to growth in percentage income and will motivate participants to deposit CRV and balance the pool.
When the pool is balanced, the peg is restored and the issuance (minting) of new sdCRV (vsdCRV) resumes.
An additional measure to stimulate pool balance for sdCRV is regular campaigns to attract votes through the Votemarket platform.
The screenshot shows that there is currently a campaign underway, during which 60,000 $SDT has been directed over four weeks to stimulate vote attraction. The StakeDAO treasury regularly receives income in the form of CRV. Income sources include:
CRV income received from staking POL of various pools owned by StakeDAO
2% fee retained on StakeDAO platforms
Income from partnership agreements for over-the-counter exchange of SDT for CRV with other DAOs.
StakeDAO does not conduct regular buybacks of sdCRV, but when significant amounts of CRV accumulate, such operations do occur.
As part of the asdCRV vault operation, implementation by sdCRV and vsdCRV holders of voting rights for CRV incentives and receiving rewards, all received income is converted to sdCRV and distributed in the form of sdCRV. Example transaction of converting income to sdCRV.
Converting income to sdCRV during sdCRV depeg has a positive effect on the liquidity pool balance and allows increasing the proportion of long-term sdCRV holders.
Website: https://ycrv.yearn.fi/
Main yCRV liquidity pools:
https://curve.fi/#/ethereum/pools/factory-v2-280/deposit
Yearn DAO POL makes up approximately 27% of the yCRV liquidity pool. DeBank.
In addition, Yearn DAO deposited 1,910,588 yCRV into the yCRV yVault, which reinvests CRV and yCRV. DeBank.
The yCRV liquidity pool has a gauge and receives CRV incentives amounting to 1% of CRV per week.
Yearn DAO votes independently for CRV incentives in the yCRV liquidity pool. This process utilizes 10% of all veCRV locked in the Yearn locker.
Yearn DAO does not uses platforms for attracting votes from veCRV holders but has an additional incentive mechanism in the form of a dYFI gauge.e.
veYFI holders vote for dYFI incentives for approved vaults. There is also a boost system for veYFI holders who deposit tokens into the Vault and stake them.
StakeDAO is the largest veYFI holder (via its sdYFI locker) and offers the maximum boost through its platform for staking tokens in Yearn vaults.
yCRV token holders can deposit yCRV tokens into the yVault, which will automatically capitalize income into more yCRV.
Operations for purchasing yCRV tokens using holder income positively impact the balance of the yCRV liquidity pool.
Currently, approximately 40M yCRV (roughly 50% of yCRV tokens) are in the yCRV yVault. As a result, the income generated by these tokens creates demand for yCRV purchases.
yCRV yVault contributors receive an automatic maximum income boost compared to veCRV, under the operating framework of yCRV.
yCRV holders who wish to receive income not in the form of yCRV but in crvUSD tokens can stake their tokens and gradually achieve the maximum boost over four weeks.
Example of income generation and conversion into yCRV.
Transaction history can be conveniently tracked on the Yearn vault page.
Yearn regularly earns income in the form of CRV. Income sources include:
CRV revenue from staking POL in various pools owned by Yearn
Fees for using Yearn resources in Yearn vaults — typically 10% of the income.
The Yearn treasury sporadically buys yCRV, usually when a significant volume of CRV accumulates.
In summary, each DAO with a liquid veCRV locker has mechanisms to maintain pool balance and incentivize liquidity. However, during significant short-term seller pressure, a time lag is required for these mechanisms to take effect.
Author: Y K from Curve Rus chat. Edited by hell0men. Date 08.12.2024
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