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.
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?
- Improve CRV tokenomics
- Give LPs who aren’t willing to time lock CRV a way to support the ecosystem and get paid to do it
- Grow a community fund that the DAO can deploy for various initiatives.
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.
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.
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.
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.
This discussion took a different approach to try solving this same problem. It’s flawed, but linking here as a reference.