CIP#26 - Add a bonded CRV (bCRV) token design

Proposals
#1

Summary:

Introduce a way for LPs who are not interested in governance or time locking their CRV to earn a boost and contribute to the Curve ecosystem by supplementing the CRV tokenomics design.

Abstract:

For reference, this proposal was inspired by a question posed on the yearn gov forum. The question is: what financial incentive could appeal to the LP not interested in governance or time locking, other than dumping farmed CRV?

Motivation:

  1. Improve CRV tokenomics
  1. Give LPs who aren’t willing to time lock CRV a way to support the ecosystem and get paid to do it
  1. Grow a community fund that the DAO can deploy for various initiatives.

Specification:

Create a new token functionality that behaves similar to veCRV. We’ll call it bonded CRV or bCRV. It has a similar behavior as veCRV in that it involves a time lock and the quantity decreases until the unlock date. In the case of bCRV, only a 4 year lock is available, and results in a 1:1 CRV:bCRV conversion. It does not offer governance rights and does not pay trade fees. Its only purpose is to offer LPs a way to earn CRV boost without being subjected to a time lock. bCRV provides a boost equal to what the same amount of veCRV would provide.

An LP who owns bCRV and wishes to redeem their CRV may, at any time, release their bCRV. This balance is then able to be purchased by another LP at a discount. The cost of assuming the bCRV initiates at 1:1 CRV:bCRV, but gradually declines until some bidder chooses to accept the offer. The LP who has released their bCRV will always receive less CRV than they originally locked, and this is the cost they pay for the flexibility of redeeming their CRV at will.

The CRV originally locked to mint bCRV is deposited into a community fund that the DAO can use at its discretion. This may be used to fund grants, initiatives, insurance or anything the DAO wishes to put funds toward.

EXAMPLE
LP Elpie wants to earn a boost on his CRV yield, but he doesn’t care about governance and he doesn’t like the idea of time locking his CRV. He has $10,000 of liquidity and he is earning around 10% annual yield in CRV without a boost. He has the possibility to boost this yield 2.5x to earn 25%, which is the difference between $1000 and $2500 annually. He has 1000 CRV to put toward his boost.

Elpie locks his CRV as bCRV, giving him 1000 bCRV. 1 year passes, and his quantity of bCRV has decreased to 750. He wishes to remove his liquidity and redeem his locked CRV. He selects to release his bCRV for bidding.

LP Llama sees bCRV is available on the market, and he is in need of a boost. The bid has started at 750 CRV for 750 bCRV. Llama could mint his own bCRV at that price, so he does not take the bid. After a day, the bid reduces to 740 CRV for 750 bCRV. This is a more attractive deal, so Llama purchases the 750 bCRV and 740 CRV is sent to Elpie.

Elpie has only redeemed 740 CRV for his 1000 CRV deposit, but over the year he earned $1500 more than he would have without the boost, and he was able to redeem his CRV at will. He considers this a good deal and exits happily.

The Curve DAO received Elpie’s original deposit of 1000 CRV. They voted to use this fund toward integrating Curve onto L2 and improving the ecosystem.

For:

Although the CRV tokenomics are designed to incentivize LPs to lock CRV and be involved in governance, there will always be a demographic of LPs who do not want a say in governance, and do not want to time lock their CRV. We should give them a financial motive to participate in the well being of our ecosystem so they have an option besides immediately dumping their CRV yield.

Against:

Too complicated to implement an entirely new tokenomics design on top of CRV.

We only want to incentivize LPs who have an interest in governance. We shouldn’t spend effort offering incentives to LPs who don’t have a long term vested interest in Curve.

Poll:

https://signal.curve.fi/#/curve/proposal/QmbKHv9dYqsZYdGH2U8N1UWTcqUHJFuVAbXP9WhDpbK64r

See Also:

This discussion took a different approach to try solving this same problem. It’s flawed, but linking here as a reference.

#2

Need to think whether it is possible to implement at all. I can see the rationale but really need to wrap my head around the proposal in details.

#3

Very interesting…

I don’t see this being problematic. If some whale wants to buy a bunch of CRV to get bCRV for a week or two, so be it. Better they remove it from the market for the week or two than not.

The important distinction here from previous proposals is that it doesn’t in effect the veCRV incentive which I think is key.

Is the CRV originally used to mint bCRV locked for the same time period? We wouldn’t want to double count CRV in bCRV.

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#4

The way I am imagining it, which is up for debate, is:

The primary market is between the minter and the DAO. Minter deposits CRV and it remains there until the DAO decides to do something with it.

The secondary market is between LPs, who can buy the bCRV position at a discount. In the example, Llama sends Elpie CRV and receives bCRV.

The CRV deposited when bCRV is initially minted will never be “unlocked” like how veCRV unlocks after its expiration. bCRV continues to lose value at a constant rate until it is worth 0 CRV.

#5

DAO decides to do something with it.

…

will never be “unlocked”

I’m not following…either it’s available to be distributed as CRV (or sold for some other purpose) or it’s locked…forever? It should at least be locked long enough so that it can’t be re-locked for more bCRV/veCRV while it’s still representing the original bCRV.

#6

I think this is a good idea but I don’t like introducing another token into the mix. Would it be possible for us to do something similar with veCRV instead? That is, give the ability to folks to sell their veCRV for CRV to the curve DAO (we set aside funds for this) with a price penalty (the longer the lock that is remaining on the veCRV the higher the penalty). This veCRV that we buy back can be transferred to the DAO and get interest paid to it as any other veCRV. As the veCRV expires over time and becomes CRV again, perhaps we can redistribute the CRV back to veCRV holders (this is similarly to us buying CRV from the market and returning it to veCRV holders)?

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#7

An additional token and the bidding process complicates matter. There are other ways to increase incentives for people to lock up their CRV tokens. Given enough veCRV, a person would have no choice but to participate in governance - he could choose to delegate to someone he trust too (future CIP?).

#8

That’s a pretty cool idea. I think veCRV can’t be transferable but it would be interesting if it were only transferable to the 1 DAO address.

The problem I see with this, even if it were possible, is then it undermines the purpose of the veCRV lock. If anyone can buy themselves out of the lock at any time, no one really has the long term vested interest.

But I do like the idea of scaling the penalty with how much lock time is remaining. It’s a good idea

#9

So when I was thinking how it might work, the possibility of extending your lock time or being able to redeem the full value of your CRV after your lock just seemed problematic. It’s tricky because if there’s a secondary market trading bCRV, the underlying value of any bCRV quantity would depend on the amount of lock time remaining. It would be messy figuring out how much bCRV you’re getting compared with how much underlying CRV the minter needs to be made whole.

I wanted to keep the veCRV behavior that its quantity is decreasing At a constant rate so that there isn’t an advantage to locking as bCRV over veCRV. If bCRV were a persistent quantity and its boost power never declined, people would Maybe be inclined to choose to lock bCRV over veCRV. Now that I think about it, the 4 year lock is problematic if you mint bCRV today and mint some more in 6 months. Rather, there should be some constant rate that all bCRV declines.

So the bCRV can be sold but people will only buy it if they pay less CRV than the amount in bCRV. If I lock 100 CRV and after some time my bCRV is now 75, someone might buy them for 70 CRV. I’m not entitled to my original deposit, only the current value my bCRV today has to some other LP. My original 100 CRV went straight to the DAO reserve where the DAO can vote how they want to put those funds to work. This whole process is really a method for the DAO to raise money from LPs who are rewarded with a boost.

And just to be clear, if I lock 100 CRV as bCRV and I keep it forever, eventually my bCRV will fall to 0. At that point, I can’t redeem any CRV. The amount I am able to redeem will always decrease over time. I am paying for the privilege of getting the boost without being required to time lock

#10

I think the approach that I described is probably easier to implement as opposed to launching a new token and creating a market place for people to bid on bCRV when folks want to release it. I think the development effort for such a system wouldn’t be trivial.

I also don’t think that this undermines the purpose of veCRV lock due to the penalty that you are going to have to pay. The penalty should be high enough to discourage individuals from doing so in the first place and I think most will consider it twice before they release their veCRV.

#11

I’m against, not because it’s necessarily a bad idea, but I wouldn’t use it personally and I think dev resources can be better spent elsewhere. Plus complexity is the enemy of security so I think getting this right would take a lot more work than is readily apparent.

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