DiligentDeerFundamentals of Stablecoin Mechanics & Variants
Here is what we are going to cover:Types of stablecoin mechanismsCollateral Debt Position (CDP)Rebase model for purely algorithmic stablecoinsSeigniorage model for purely algorithmic stablecoinsThis article provides a buildup for a fractional algorithmic stablecoin $FRAX. The information is basic and foundational to understanding the complex mechanics behind the stablecoin mechanisms and it is the first article in a series of articles dedicated to Frax Finance.If this simple reading layout do...
DiligentDeerVariables in Impermanent Loss mitigation models
Here is what we are going to cover:Impermanent loss mitigation mechanisms.IL mitigation variables.Liquidity depth - Slippage - Trade value correlation.This article explores the variables that need to be considered in an ecosystem of AMMs when mitigating impermanent loss. The article provides intermediatory information on the actions of traders, AMMs, arbitrageurs, LPs, and liquidity depth and their effects on net profits and losses.ContextThe main incentive for the users to supply liquidity i...
DiligentDeerA Primer on Convex finance (Convex-Curve)
Here is what we are going to cover:How Convex links to CurveActivities on Convex finance integrating CurveRewards breakdown for activities.This article goes in an easy-to-understand way in explaining different actions that a user might perform on Convex finance and the incentive mechanism around them.If this simple reading layout doesn’t excite you, you could scroll down to consume the same content as if it were a magazine. ⚠ Disclaimer: All information presented here is my perspective and sh...
DeFi Researcher & Data Analyst. Working with @LlamaRisk team.
DiligentDeerFundamentals of Stablecoin Mechanics & Variants
Here is what we are going to cover:Types of stablecoin mechanismsCollateral Debt Position (CDP)Rebase model for purely algorithmic stablecoinsSeigniorage model for purely algorithmic stablecoinsThis article provides a buildup for a fractional algorithmic stablecoin $FRAX. The information is basic and foundational to understanding the complex mechanics behind the stablecoin mechanisms and it is the first article in a series of articles dedicated to Frax Finance.If this simple reading layout do...
DiligentDeerVariables in Impermanent Loss mitigation models
Here is what we are going to cover:Impermanent loss mitigation mechanisms.IL mitigation variables.Liquidity depth - Slippage - Trade value correlation.This article explores the variables that need to be considered in an ecosystem of AMMs when mitigating impermanent loss. The article provides intermediatory information on the actions of traders, AMMs, arbitrageurs, LPs, and liquidity depth and their effects on net profits and losses.ContextThe main incentive for the users to supply liquidity i...
DiligentDeerA Primer on Convex finance (Convex-Curve)
Here is what we are going to cover:How Convex links to CurveActivities on Convex finance integrating CurveRewards breakdown for activities.This article goes in an easy-to-understand way in explaining different actions that a user might perform on Convex finance and the incentive mechanism around them.If this simple reading layout doesn’t excite you, you could scroll down to consume the same content as if it were a magazine. ⚠ Disclaimer: All information presented here is my perspective and sh...
DeFi Researcher & Data Analyst. Working with @LlamaRisk team.
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Here is what we are going to cover:
The flow diagram for Curve flywheel
Risk-Reward breakdown for actions on Curve finance
Nuances related to the value accrual of $CRV
This article goes in-depth in explaining how value is accrued to $CRV as we move forward in time. The article also explores the risks and rewards for different possible actions that can be executed on the protocol.
The article concludes by declaring trading volume and $CRV price as a core driving variables in the whole flywheel.
If this simple reading layout doesn’t excite you, you could scroll down to consume the same content as if it were a magazine.
⚠ Disclaimer: All information presented here is my perspective and should be considered educational content. I won’t be responsible for any kind of financial profits or losses derived from your decisions. Financial and investment advice
Communicating with the flowchart and some noteworthy points:
The Flow diagram is extremely simple to understand, following the analogy that A causes B.
Though it’s simple to understand there are some portions that need some focus before diving into the flywheel.
The trade volume is connected to the liquidity but after a certain point increase in liquidity would not alter the trade volume as it used to in the adoption phase of the protocol.
Trading volume is dependent on slippage but it is not the only factor feeding the trade volume.
Similar to trade volume, $CRV price is dependent on the value of $CRV but public sentiment also plays a major role in deciding the price for $CRV regardless of the current value of $CRV.
Understanding the flywheel:
It is better to start with an action that is dependent, this will help to frame out assumptions in a better way. If we start from Liquidity providers, assuming that the market sentiment is in favor of LPs, liquidity will increase in the pools. Ultimately increase in liquidity will impact the vAPY for the liquidity pools thus attracting more LPs and completing the loop for the flywheel.
More liquidity = lesser slippage, traders would choose an AMM with low slippage to get better exchange value thus increasing the trading volume.
vAPY is basically the 50% portion of the swap fees from the liquidity pools. An increase in swap fees will increase the vAPY. Higher rewards will attract more LPs to complete the loop.
The flywheel heavily relies on the assumptions we made:
Favorable market conditions for LPs.
Curve remains the only AMM with the lowest slippage.
Increased rewards are high enough able to attract more LPs.
When LPs supply liquidity they might boost their $CRV rewards by accumulating $veCRV. The action of accumulating $veCRV would cause the$CRV price to increase and finally the tAPR rises and if the increase in tAPR is enough, LPs would be attracted to provide liquidity.
As $CRV emissions would decrease every year, there might be a time when the increase in tAPR would not look fancy enough to pull the LPs.
The loop is explained in the upcoming part.
Users and protocols hold $veCRV for the governance power over the liquidity gauges and the bribes that are generated through delegating votes or manual voting on a specific pool. Though the 50% admin fees are not so significant compared to the bribes, there is another integrated flywheel that increases the tAPR with an increase in Swap fees.
Admin fees are basically the 50% portion of the swap fees generated on the Curve platform. These admin fees are distributed to $veCRV holders, thus when these rewards (admin fees) increase the demand for $veCRV increases as well to some extent.
Locking $CRV is the only way to get $veCRV so users will tend to lock more and more $CRV, $CRV demand would increase, and subsequently, the selling pressure for $CRV would decrease due to $CRV locking. High demand and less sell pressure will cause the $CRV price to go up. $CRV price affects the value of $CRV inflation i.e. tAPR. Again increased rewards will likely cause more LPs to provide liquidity.
This flywheel as well heavily relies on the assumptions:
An increase in admin fees is enough for users to opt for owning $veCRV.
$CRV inflations are high enough to attract more LPs.
Thank you for being here.
You can provide the same value by sharing this article with your circle.
You could even contribute/support these articles by owning one ✌.
Thank you for being here.
You can provide the same value by sharing this article with your circle.
You could even contribute/support these articles by owning one ✌.
Here is what we are going to cover:
The flow diagram for Curve flywheel
Risk-Reward breakdown for actions on Curve finance
Nuances related to the value accrual of $CRV
This article goes in-depth in explaining how value is accrued to $CRV as we move forward in time. The article also explores the risks and rewards for different possible actions that can be executed on the protocol.
The article concludes by declaring trading volume and $CRV price as a core driving variables in the whole flywheel.
If this simple reading layout doesn’t excite you, you could scroll down to consume the same content as if it were a magazine.
⚠ Disclaimer: All information presented here is my perspective and should be considered educational content. I won’t be responsible for any kind of financial profits or losses derived from your decisions. Financial and investment advice
Communicating with the flowchart and some noteworthy points:
The Flow diagram is extremely simple to understand, following the analogy that A causes B.
Though it’s simple to understand there are some portions that need some focus before diving into the flywheel.
The trade volume is connected to the liquidity but after a certain point increase in liquidity would not alter the trade volume as it used to in the adoption phase of the protocol.
Trading volume is dependent on slippage but it is not the only factor feeding the trade volume.
Similar to trade volume, $CRV price is dependent on the value of $CRV but public sentiment also plays a major role in deciding the price for $CRV regardless of the current value of $CRV.
Understanding the flywheel:
It is better to start with an action that is dependent, this will help to frame out assumptions in a better way. If we start from Liquidity providers, assuming that the market sentiment is in favor of LPs, liquidity will increase in the pools. Ultimately increase in liquidity will impact the vAPY for the liquidity pools thus attracting more LPs and completing the loop for the flywheel.
More liquidity = lesser slippage, traders would choose an AMM with low slippage to get better exchange value thus increasing the trading volume.
vAPY is basically the 50% portion of the swap fees from the liquidity pools. An increase in swap fees will increase the vAPY. Higher rewards will attract more LPs to complete the loop.
The flywheel heavily relies on the assumptions we made:
Favorable market conditions for LPs.
Curve remains the only AMM with the lowest slippage.
Increased rewards are high enough able to attract more LPs.
When LPs supply liquidity they might boost their $CRV rewards by accumulating $veCRV. The action of accumulating $veCRV would cause the$CRV price to increase and finally the tAPR rises and if the increase in tAPR is enough, LPs would be attracted to provide liquidity.
As $CRV emissions would decrease every year, there might be a time when the increase in tAPR would not look fancy enough to pull the LPs.
The loop is explained in the upcoming part.
Users and protocols hold $veCRV for the governance power over the liquidity gauges and the bribes that are generated through delegating votes or manual voting on a specific pool. Though the 50% admin fees are not so significant compared to the bribes, there is another integrated flywheel that increases the tAPR with an increase in Swap fees.
Admin fees are basically the 50% portion of the swap fees generated on the Curve platform. These admin fees are distributed to $veCRV holders, thus when these rewards (admin fees) increase the demand for $veCRV increases as well to some extent.
Locking $CRV is the only way to get $veCRV so users will tend to lock more and more $CRV, $CRV demand would increase, and subsequently, the selling pressure for $CRV would decrease due to $CRV locking. High demand and less sell pressure will cause the $CRV price to go up. $CRV price affects the value of $CRV inflation i.e. tAPR. Again increased rewards will likely cause more LPs to provide liquidity.
This flywheel as well heavily relies on the assumptions:
An increase in admin fees is enough for users to opt for owning $veCRV.
$CRV inflations are high enough to attract more LPs.
Thank you for being here.
You can provide the same value by sharing this article with your circle.
You could even contribute/support these articles by owning one ✌.
Thank you for being here.
You can provide the same value by sharing this article with your circle.
You could even contribute/support these articles by owning one ✌.
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