In all this ambient noise around the quality of stablecoins and the drama of Terra, we very quickly forget the whole theory of games around this type of asset, and in the first place that which is currently taking place between the different entities of the ecosystem, both around the stablecoins themselves and through the tools of their success.

Curve:

Curve is the most important protocol in DeFi thanks to its market making algorithm, specifically optimized for stablecoins, allowing efficient onchain arbitrage of stablecoins. But also thanks to the design of the protocol as well as its innovative governance system.

Everything revolves around its tokenomics (escrowed vote) and its gauges system (measures the supply of liquidity in weight and types) which decides the inflation incentive of the CRV token within the different pools of the protocol. Indeed, governance is built around the locking of CRV in order to benefit from different powers (to vote in governance, to vote on gauges, veBoost) more or less important depending on the locked time. Here it is the voting power on the gauges that holds all the attention.

This tokenomic was initially highly criticized because misunderstood, the first major contributors to the protocol used it to increase the yield of their strategies by selling the token and thus creating selling pressure.

But the first protocol to have understood the interest of controlling Curve was Convex with the first flywheel in DeFi. The Convex protocol is entirely built on Curve (from DeFi Lego) and also offers aggregation of interests by synergy rather than interference. The whole strategy of Convex was based on acquiring CRV tokens in order to lock them on their own and take control of the governance of Curve. The protocol thus offered the cash equivalent of a veCRV via an incentive to exchange its CRVs for cvxCRVs. These tokens lose all governance capabilities but allow the native return of veCRV in addition to liquidity mining of CVX and a portion of farmed CRVs.

This same CVX corresponds to a voting capacity on Curve, and just like the protocol on which Convex is built, in order to mobilize its voting capacity it is necessary to lock these tokens in vlCVX.

The gains generated by Convex thus attracted other protocols spawning this famous "Curve Wars" and thus determining who will end up controlling the protocol the most. Protocols such as Yearn Finance, Redactel Cartel or Bent Finance have sought to acquire a piece of the pie. Yearn subsequently decided to partner with Convex by selling them 23M of veCRV (keeping the voting power). The other two hardly follow this hardly but nevertheless remain involved. StakeDAO is the third player after the Convex-Yearn alliance which stands out and which has recently released its Liquid Lockers (sliver and liquid system like cvxCRV) to take ever more control of veCRV.

Convex's virtual monopoly on veCRVs causes other protocols to entice these holders to vote in their gauges on Curve. The additional incentive system available since Curve's inception was taken to scale by bribe.crv and protocols now use it to buy veCRV's voting power.

The Curve war has escalated into a war on CVC, with entities or protocols seeking to acquire as many tokens as possible in order to indirectly take control of Curve. The system initiated by Convex was also built on top of its own, by Votium with a snippet protocol on the vlCVXs, allowing Convex's voting power to be redistributed. The control of CVX by the DAOs is a very important data for the link between the Curve Wars and the Stablecoin Wars.

La stablecoin wars:

The stakes for stablecoins are incredibly high, it is hundreds of billions of dollars currently but it is ultimately a multi-trillion dollar market and a very lucrative one. The network effect is the cornerstone of this battle, those who stand out from the pack will be very strongly established for years to come.

Over the past two years, the stablecoin market has grown by 1700%, since dominated by the three behemoths USDT, USDC and BUSD. But many competitors have been trying for months to find a place in this market, which is essential for the entire ecosystem.

The battle is between several types of stablecoins:

Centralized stablecoins are very opaque (USDT, USDC, BUSD) and favor a very large network effect and the security offered by the guarantee of being backed by the dollar. Or those partially centralized (FRAX, DAI) which although qualifying as decentralized, they only have the name. Their collateral largely consists of USDC, which makes them highly censorship-prone stablecoins.

Decentralized stablecoins that seek by some mechanism not to suffer from the possibility of being controlled or censored by institutions. Initiatives such as the UST, overwhelmingly algorithmic (an arbitration system via mint/burn from LUNA and Terra) seeking to collateralise on the BTC, which ended up falling, thus causing a black swan for the ecosystem . Liquity USD on the other hand promotes the guarantee by Ethereum to be fully decentralized and uncensorable.

UST and FRAX were the stablecoins that grew the most in recent months and their market caps had even exceeded (for UST) those of DAI and BUSD. This success challenged the hegemony of USDT, USDC and DAI within the DeFi ecosystem. FRAX was far less successful than UST but was an important part of this battle.

Within DeFi, the network effect is built around the structural protocols of the ecosystem such as DEXes, lending & borrowing protocols and bridges. The depth of liquidity and the synergy offered on stablecoins are essential for the success of a stablecoin. Although the stablecoins that dominate the market are widely used more within these different protocols, the power of the UST was growing.

This is where all the interest of the Curve Wars comes in, taking control of the votes of Curve gauges actually allows a huge competitive advantage. It is with this in mind that Terra and FRAX have accumulated as much CVX as possible in order to become the largest CVX owners among the various DAOs, but also accompanied by very strong incentives via the snippet systems.

The 3pool (USDC, USDT, DAI) is the most important pool of Curve because it allows thanks to its efficiency to maintain the "peg" of the different stablecoins. Not only the three cities, but also that of all the other pools of liquidities which are interconnected with the latter. The power of the 3pool was called into question by the planned creation of the 4pool (USDC, USDT, UST, FRAX) and the voting power on the gauges that Terra and FRAX possessed thanks to their CVXs.

The whole strategy of these two entities was to dry up the 3pool and consequently the liquidity of DAI in favor of the UST and the FRAX, thus allowing their rise to even greater power.

Although the DAI could have been strongly impacted by this 4pool, this stablecoin nevertheless remains the darling of institutions (just like the USDC) for their onchain investments. Indeed, MakerDAO has positioned itself as a bridge between traditional finance and DeFi! The Real World Asset (RWA) is probably the next focal point in this battle as it will attract a lot of liquidity to the market. It is in this perspective that MakerDAO has positioned itself. The collateralization of MBS with SG Forge in order to mint the DAI was the first initiative, it is quite simply akin to REPO.

The latter are bonds backed by real estate loans and introduced on the blockchain via an OFH security token.

This is only a first, it would be possible in the more or less near future, to have other banking structures or private companies seeking to issue bonds against tranches (junior and senior) to collateralize their financial assets. on Maker and get access to DeFi. Centrifuge has partnered with Maker and AAVE to enable this through RWA.

The fall of the UST:

However, on May 8, 2022, an attack on the 3pool brought down the UST even before this execution. This "attack" took place during the transfer of liquidity of UST ($150M) from the pool linked to the 3pool to the 4pool by TFL in order to prepare for the arrival of the latter. A withdrawal of $84M from UST led to a depeg of the UST due to the low liquidity remaining in this same pool, which worsened during a new withdrawal of $100M in order to operate the arbitrage against LUNA to take back the peg. By leaving so much of the pool, the arbitrage of the latter was rendered ineffective due to the drying up of liquidity. The following days, TFL drained its treasury and had to use the LUNA/UST burn/mint mechanism causing the token to multiply in supply in order to restore the stablecoin's peg. But this mechanism is ineffective if the LUNA loses too much of its value. This only further diluted its value without allowing UST to regain its peg. A vicious circle was then created and a total destruction of the value of LUNA and UST took place, leading the market into this black swan. If this black swan had not taken place, it would have been very likely that the UST and the FRAX could have taken on even more importance via the 4pool and thus dried up the DAI. Do Known's vision (that Luna is the biggest holder of BTC to protect the peg) could have had even more dramatic consequences if this event had taken place in the future. This unfortunate precedent has raised many questions within the authorities and risks blocking decentralized initiatives.

In all this ambient noise around the quality of stablecoins and the drama of Terra, we very quickly forget the whole theory of games around this type of asset, and in the first place that which is currently taking place between the different entities of the ecosystem, both around the stablecoins themselves and through the tools of their success.

Curve:

Curve is the most important protocol in DeFi thanks to its market making algorithm, specifically optimized for stablecoins, allowing efficient onchain arbitrage of stablecoins. But also thanks to the design of the protocol as well as its innovative governance system.

Everything revolves around its tokenomics (escrowed vote) and its gauges system (measures the supply of liquidity in weight and types) which decides the inflation incentive of the CRV token within the different pools of the protocol. Indeed, governance is built around the locking of CRV in order to benefit from different powers (to vote in governance, to vote on gauges, veBoost) more or less important depending on the locked time. Here it is the voting power on the gauges that holds all the attention.

This tokenomic was initially highly criticized because misunderstood, the first major contributors to the protocol used it to increase the yield of their strategies by selling the token and thus creating selling pressure.

But the first protocol to have understood the interest of controlling Curve was Convex with the first flywheel in DeFi. The Convex protocol is entirely built on Curve (from DeFi Lego) and also offers aggregation of interests by synergy rather than interference. The whole strategy of Convex was based on acquiring CRV tokens in order to lock them on their own and take control of the governance of Curve. The protocol thus offered the cash equivalent of a veCRV via an incentive to exchange its CRVs for cvxCRVs. These tokens lose all governance capabilities but allow the native return of veCRV in addition to liquidity mining of CVX and a portion of farmed CRVs.

This same CVX corresponds to a voting capacity on Curve, and just like the protocol on which Convex is built, in order to mobilize its voting capacity it is necessary to lock these tokens in vlCVX.

The gains generated by Convex thus attracted other protocols spawning this famous "Curve Wars" and thus determining who will end up controlling the protocol the most. Protocols such as Yearn Finance, Redactel Cartel or Bent Finance have sought to acquire a piece of the pie. Yearn subsequently decided to partner with Convex by selling them 23M of veCRV (keeping the voting power). The other two hardly follow this hardly but nevertheless remain involved. StakeDAO is the third player after the Convex-Yearn alliance which stands out and which has recently released its Liquid Lockers (sliver and liquid system like cvxCRV) to take ever more control of veCRV.

Convex's virtual monopoly on veCRVs causes other protocols to entice these holders to vote in their gauges on Curve. The additional incentive system available since Curve's inception was taken to scale by bribe.crv and protocols now use it to buy veCRV's voting power.

The Curve war has escalated into a war on CVC, with entities or protocols seeking to acquire as many tokens as possible in order to indirectly take control of Curve. The system initiated by Convex was also built on top of its own, by Votium with a snippet protocol on the vlCVXs, allowing Convex's voting power to be redistributed. The control of CVX by the DAOs is a very important data for the link between the Curve Wars and the Stablecoin Wars.

La stablecoin wars:

The stakes for stablecoins are incredibly high, it is hundreds of billions of dollars currently but it is ultimately a multi-trillion dollar market and a very lucrative one. The network effect is the cornerstone of this battle, those who stand out from the pack will be very strongly established for years to come.

Over the past two years, the stablecoin market has grown by 1700%, since dominated by the three behemoths USDT, USDC and BUSD. But many competitors have been trying for months to find a place in this market, which is essential for the entire ecosystem.

The battle is between several types of stablecoins:

Centralized stablecoins are very opaque (USDT, USDC, BUSD) and favor a very large network effect and the security offered by the guarantee of being backed by the dollar. Or those partially centralized (FRAX, DAI) which although qualifying as decentralized, they only have the name. Their collateral largely consists of USDC, which makes them highly censorship-prone stablecoins.

Decentralized stablecoins that seek by some mechanism not to suffer from the possibility of being controlled or censored by institutions. Initiatives such as the UST, overwhelmingly algorithmic (an arbitration system via mint/burn from LUNA and Terra) seeking to collateralise on the BTC, which ended up falling, thus causing a black swan for the ecosystem . Liquity USD on the other hand promotes the guarantee by Ethereum to be fully decentralized and uncensorable.

UST and FRAX were the stablecoins that grew the most in recent months and their market caps had even exceeded (for UST) those of DAI and BUSD. This success challenged the hegemony of USDT, USDC and DAI within the DeFi ecosystem. FRAX was far less successful than UST but was an important part of this battle.

Within DeFi, the network effect is built around the structural protocols of the ecosystem such as DEXes, lending & borrowing protocols and bridges. The depth of liquidity and the synergy offered on stablecoins are essential for the success of a stablecoin. Although the stablecoins that dominate the market are widely used more within these different protocols, the power of the UST was growing.

This is where all the interest of the Curve Wars comes in, taking control of the votes of Curve gauges actually allows a huge competitive advantage. It is with this in mind that Terra and FRAX have accumulated as much CVX as possible in order to become the largest CVX owners among the various DAOs, but also accompanied by very strong incentives via the snippet systems.

The 3pool (USDC, USDT, DAI) is the most important pool of Curve because it allows thanks to its efficiency to maintain the "peg" of the different stablecoins. Not only the three cities, but also that of all the other pools of liquidities which are interconnected with the latter. The power of the 3pool was called into question by the planned creation of the 4pool (USDC, USDT, UST, FRAX) and the voting power on the gauges that Terra and FRAX possessed thanks to their CVXs.

The whole strategy of these two entities was to dry up the 3pool and consequently the liquidity of DAI in favor of the UST and the FRAX, thus allowing their rise to even greater power.

Although the DAI could have been strongly impacted by this 4pool, this stablecoin nevertheless remains the darling of institutions (just like the USDC) for their onchain investments. Indeed, MakerDAO has positioned itself as a bridge between traditional finance and DeFi! The Real World Asset (RWA) is probably the next focal point in this battle as it will attract a lot of liquidity to the market. It is in this perspective that MakerDAO has positioned itself. The collateralization of MBS with SG Forge in order to mint the DAI was the first initiative, it is quite simply akin to REPO.

The latter are bonds backed by real estate loans and introduced on the blockchain via an OFH security token.

This is only a first, it would be possible in the more or less near future, to have other banking structures or private companies seeking to issue bonds against tranches (junior and senior) to collateralize their financial assets. on Maker and get access to DeFi. Centrifuge has partnered with Maker and AAVE to enable this through RWA.

The fall of the UST:

However, on May 8, 2022, an attack on the 3pool brought down the UST even before this execution. This "attack" took place during the transfer of liquidity of UST ($150M) from the pool linked to the 3pool to the 4pool by TFL in order to prepare for the arrival of the latter. A withdrawal of $84M from UST led to a depeg of the UST due to the low liquidity remaining in this same pool, which worsened during a new withdrawal of $100M in order to operate the arbitrage against LUNA to take back the peg. By leaving so much of the pool, the arbitrage of the latter was rendered ineffective due to the drying up of liquidity. The following days, TFL drained its treasury and had to use the LUNA/UST burn/mint mechanism causing the token to multiply in supply in order to restore the stablecoin's peg. But this mechanism is ineffective if the LUNA loses too much of its value. This only further diluted its value without allowing UST to regain its peg. A vicious circle was then created and a total destruction of the value of LUNA and UST took place, leading the market into this black swan. If this black swan had not taken place, it would have been very likely that the UST and the FRAX could have taken on even more importance via the 4pool and thus dried up the DAI. Do Known's vision (that Luna is the biggest holder of BTC to protect the peg) could have had even more dramatic consequences if this event had taken place in the future. This unfortunate precedent has raised many questions within the authorities and risks blocking decentralized initiatives.