[Discussion] On Curve's value and future

Since my (re)discovery of DeFi back in March 2020, I have been focusing my attention and my capital on things that were bringing value to me. Things I actually needed on a daily basis.

  • Uniswap allows me to trade any token even before their listing on any exchange, or sometimes cheaper that on an exchange (arbitrage).
  • Compound and Aave allow me to earn passive interests on the assets I am long on, with one of the lowest security risk on the market (simple-ish smart contracts).
  • Loopring (zk-rollups) allows me to trade/invest with a smaller amount of capital per trade (50$) and do DCA or arbitrage more easily than on Uniswap.

On the three platforms above, there are sometimes opportunities involving me trading/depositing a stablecoin A (ex: DAI), while I own a stablecoin B (ex: BUSD) of the same value.

  • Curve, for that purpose, has been a game-changer for me, allowing me to trade a stablecoin B for a stablecoin A for a very low slippage (especially DAI). It actually used to be the lowest net-slippage on the market, which makes Curve extremely valuable - and stablecoins are here to stay.

Some things have changed though :

  • More and more centralized platforms allow you to trade multiple types of stablecoins (ex: Binance enabling DAI pairs).
  • Ethereum higher Gas prices mean that using Curve is not the no-brainer solution anymore when it comes to stablecoin swapping. A search on 1inch or Paraswap shows that sometimes, alertnative exchanges can propose a net-slippage lower than on Curve. That is exclusively due to the amount of gas required for swaping on Curve (the raw-slippage is still the best on the market). This morning, I wanted USDC/DAI for BUSD. Unfortunately - and despite a 60 gwei gas - it was more interesting for me to transfer my BUSD to Binance and transfer USDC from Binance (hence paying fees to Binance). It was only a 4K trade, and I think Curve is still more interesting for larger trades (> 20K), but the fact that I didn’t use Curve for that operation means something to me and triggers an orange light.

I know that the team (or at least, people) are working on developing Curve further and beyond, with a lot of exciting stuff coming.
However, I just want to make sure that everyone agrees that the original value of Curve (lowest slippage stablecoin exchange) is still the main “why” people are actually using the platform and finding value in it (and hence, the reason Curve will continue growing and have guenine adoption).

I would translate this to :

  • Finding a way to lower those fees (zk-rollups, Optimistic Rollups, sidechain).
  • (a) While not creating a barrier for one-time users (cheap L1<->L2 transfers).
  • (b) And/Or guaranteeing interoperability with the most popular platforms (Uniswap, Compound, Aave and others).

I am wondering if the team agrees with this vision, and if not, what is the team’s vision.
As a side question (but could be it’s own topic), what type of relationship is the team willing to have with it’s users ? With it’s “shareholders” / governance participants ? I feel like a lot is going on behind the scenes while being very discrete in term of communication. Is it a choice from the team or are you simply not sure yet or where your seat should be in the DAO ?

I am mostly talking as an user who needs the platform on his DeFi journey, but I acknowledge that my vision can be biased because also being a techy, investor and farmer.
That is why I would be glad if USERS seeing this topic could give their opinion on all of that.

11 Likes

The prospect that excites me most right now (although I don’t know the technical barriers to this) is composability with Synthetix. Curve can serve as the on-ramp for any crosschain assets (ie. renBTC) or native assets (ie. ETH), route the trade through a Synthetix sToken equivalent, and exit into any Ethereum asset. Or the opposite. Routing through Synthetix gives the trader access to infinite liquidity, allowing very large transactions between nonstable currencies with very low slippage. This would extend Curves value prop from Low slippage stable exchange to Low slippage anything exchange.

I also think the team needs to be more transparent about what they are working on. We hear bits and pieces of plans in the chats, but there should be regular updates. It would help engage the community who can help move this thing in the right direction, and build public awareness and excitement about curve. They’re definitely involved with the community if you look on telegram, but I think we need some more formal public dialogues going to make people feel like we’re all really in this together.

13 Likes

I think this is an important conversation. I wish I had all the answers or even some of the answers. I have few.

Loopring - has kinda thin markets. It works as a trading platform, but getting money on and off the platform sometimes takes a while. Sometimes, I’ve gotten better pricing on Loopring, only to have to wait over an hour to get my money out of there. Still, the point is fair, and I’m sure they’ll evolve and grow.

Compound & Aave - I think these are both great platforms and I have a lot of respect for Robert and Stani and their teams. They’re good savings vehicles. But… I scratch my head as to why people tie up so much money on those platforms at such low yields. It must be people looping the systems and doing some kind of fancy arbitrage that’s more complicated than my small brain can understad.

Uniswap/Balancer - is a fine place to make a trade. Fees tend to be higher than on Curve. As a LP, I’m reluctant to put money into Uniswap (or Balancer) pools because they don’t tell me an expected yield going in and to figure out my yield I have to keep track of two quantities and two prices. And then at the end, I’ll likely wind up with more of one asset and less of the other asset, and so for tax I have to record a weird ass imputed sale of one asset and an imputed purchase of the other. One of the things I like about Curve is that Curve makes this much simpler. You can put in a single asset and take out a single asset. And you get paid in CRV. So it’s a simpler experience as a LP on Curve than on Uniswap or Balancer.

Top things that I think need figuring out:

  • Why should anyone buy (or hold) CRV? This question hasn’t been satisfactorily answered IMHO. I’d love to see an analysis of how many of the top CRV holders are buying CRV.
  • What is the yield going to be on locked veCRV? We’ve passed the resolution so that value will accrue to veCRV holders, and we see a little glimpse of it on the useCRV page, which is telling me that I’m getting $x per day and y% yield, but I don’t see a balance of anything, so it’s hard to know how to assess veCRV. And my veCRV quantity is falling each day and the veCRV yield is falling each day, and it’s hard to impossible to project either of these out for the next four years.
  • Where should Curve go next? Gold? chinese cryptos? smaller stablecoins? None fo these are easy questions. There should be some methodology behind how the expansion happens.
3 Likes

Lowering fee for users by implementing L2 solution is a must but there’s one big problem we need to sort out first. CRV price continues under water and we need to consider to increase trading fee (4bps is too low) to make p/s ratio lower and attract new investors to buy & hodl. Currently fee generated in the platform is too small. Extract from tokenterminal fyi:

I personally disagree with that. I don’t really mind if CRV price is going underwater or not.
Think about it : If price is lower, then you get more CRV generated from your fee share (veCRV) so what happens is you just accumulate more CRV and increase your share of the ownership of the protocol, which binds your investment even more to Curve’s future success.
I have absolutely no problem with than, but that’s just my opinion.

7 Likes

@Neozaru - I think you’re right to a point. There are some issues, however.

One issue is that claiming CRV is a taxable event for many investors. And so some (ie US) investors would have tax due if they claim CRV and roll it all over into veCRV. A button that converts CRV to veCRV automatically might address this.

Another issue is that I believe the veCRV is going to be paying out in CRV, and so if those CRV are declining in value, then it doesn’t really reduce selling pressure at all, it just moves it from CRV holders to veCRV holders.

A third issue is the declining yields shown on the usecrv page. I log my positions and the yields that are quoted. (Yes, I’m a little paranoid). I’m seeing a steady downward trend on the quoted yield. image
It’s hard to know for sure, because “Claiming is not yet available. Distribution is recorded from 17/09/2020 00:00 UTC”.

I think the core question is why should an investor hold CRV for an extended period of time? I think that argument needs articulating.

1 Like

We are in deflationary spiral, there’s no new investor willing to invest now then lock to earn 100% APY because you can get more CRV later in same 1 USD than buy & earn admin fee accrual(even at 100% apy) with 1 USD today.

image

From business perspective, I believe trading fee is too low. FTX charges 10bps for stable coin swaps (if you do not trade). Binance doesn’t charge but assumes it is because they can use Curve for 4bps and they earn more from other cross sells. Curve only has trading fee as a source of income, we need to maximize this. That’s my argument. (as inflation cannot be modified)

1 Like

Do you mean “inflationary” spiral (as in the supply is growing too fast)?

Actually 4bps trading fee is around optimal for stablecoins from the point of view of maximizing profit.

For non-stable coins, optimum is probably much higher

1 Like

@Jon Sry, yes Inflationary in CRV term, Deflationary in USD term.

@michwill thanks for your insight, good to know the team is aware profit maximizing point is 4bps is already at optimal point. then I have nothing to say more.

@Jon Personally I am not too worried about the price of CRV long term (barring any black swan events like a critical bug or a competitor that manages to steal all our liquidity). Like most projects in crypto (and maybe even in traditional finance too), speculators far outweigh investors. Although I have no data to back my claim, I’m under the impression that most of the current selling pressure is coming from speculators dumping their bags after FOMOing into a project they never intended to use (i.e.: vote and collect dividends). IMO, price will stabilize and might even start rising again once the majority of CRV holders are active participants in the project and not simply speculators.

This phenomenon is not restricted to CRV either. For instance, only ~25% of YFI holders are active stakers in the project (i.e.: they collect fees). A quick look at the Uniswap governance forum will also tell you that most UNI holders have no interest in long term commitment to the protocol and are only interested in short term plays to artificially boost the value of their holdings (e.g.: burning tokens, which I think is a really weak way to increase the value of a protocol).

Once fees start being distributed, you will probably see a shift in the type of holders away from speculation and towards investing/long term commitment.

3 Likes

“Compound & Aave - I think these are both great platforms and I have a lot of respect for Robert and Stani and their teams. They’re good savings vehicles. But… I scratch my head as to why people tie up so much money on those platforms at such low yields. It must be people looping the systems and doing some kind of fancy arbitrage that’s more complicated than my small brain can understad.”

Yield isn’t the only thing matters. You can use deposits as collateral and borrow against it. Rinse and repeat and leverage it up.

Since you mention black swans that could Have a negative impact on a fundamental level, I don’t feel that enough people take the risk of stablecoins going off peg as seriously as they should.

We have so far only really seen DAI go off peg, and it actually went >$1, which generally doesn’t hurt LPs. But if we live long enough, we are practically guaranteed to see a pegged token go to 0, and this would be devastating to Both LPs who lose all of their money and CRV owners who will likely see a corresponding price crash. Not to mention the affect it would have on Curve’s reputation and ability to attract liquidity and trust going forward.

I think we need to a public discourse on how to prevent losses by finding the best ways to insure funds and mitigate risks (metapools certainly help contain risk). And we need to talk about what our disaster response strategy would be, so we aren’t caught off guard when it happens. I mean, there’s hundreds of millions of dollars that could vanish right now if a single pegged token is kill. That’s kind of terrifying and we should be aggressively confronting this.

3 Likes

That is an excellent point! Diversifying to other pegged assets (like the ETH market with an sETH/ETH pool and the gold market with sXAU/PAXG/… pool) would spread out the risk among a wider class of assets.

However, this does not directly address the risk of, say, Tether going off peg (which might not be too far fetched as many in the crypto community suspect that they are operating on fractional reserves).

Metapools are certainly a good start, but it is unclear how we can mitigate the risk of non-metapools like the Y pool, which contains USDT.

One potential solution, albeit a not very elegant one, could be to upgrade the pool contracts to algorithmically freeze a pool if one of the assets (which are all supposed to be equivalent) falls too far off the peg relative to the other ones. If a pool is frozen by mistake (e.g.: because of high market turmoil but stablecoins remains on-peg), the pool could then be unfrozen by a governance vote.

More formally, we could add a check at the end of each trade that looks at the ratios of each asset in the pool (which in theory should be the same), and if the ratio are too unbalanced (beyond a specific threshold that allows small deviations), then the contract would cancel the trade and freeze the pool.

As I said, this solution is far from elegant and there is the possibility that a pool is frozen by mistake if the threshold is too conservative. But it might be better to have some pools frozen by mistake (which can always be unfrozen by governance vote) than letting the pool be drained in case of a stablecoin going off peg, which, as you point out, would be disastrous.

Note that when I say “freeze the pool”, I mean turn off the ability to trade, but not to add/remove liquidity.

1 Like

Is there any insurance out there that protects against permanent loss of peg?

1 Like

I agree with some of the sentiments here around certain assets being more risky than others (tether). It looks like the whole point of meta pools is to help mitigate the risk of these risky assets from affecting LPs in the base pools. I am wondering if it makes sense to refactor some of the base pools and move the risky assets (e.g. USDT) to their own metapool?

Alternatively, if the above is not doable then I am wondering if we are better of by creating a #-pool with only safe USD backed stable coins (pax, usdc, busd, tusd, etc…)?

There are two that I know of, although neither have the liquidity right now to come close to meeting Curve’s needs. There’s:

  1. Opyn - Could potentially make put option contracts with pool tokens as the underlying. Represented as oTokens tradeable on Uniswap. Can exercise in case virtual price drops x%.

  2. Opium - They’ve recently released a credit default swap product for USDT. This lets the market speculate on Tether’s insolvency. By extension, we could hedge ourselves against every asset we list. Also, we could compose assets in a specific pool as a single hedging product.

I think these types of derivatives products haven’t gained traction because, first of all, there isn’t a great way to match buyers and sellers, like how we’ve seen AMMs take off on the spot markets. Pooled liquidity doesn’t seem to work for derivatives, far as I’ve seen.

But there also probably hasn’t been a whole lot of demand up until now. It used to be DeFi was mostly individual degens willing to #yolo and not really interested in the extra step or cost to get insured. Kind of a fragmented, everyone’s on their own ethos. Now that every DeFi app is starting to organize in DAOs, they’re starting to identify as an entity that has a lot more at stake. Maybe Curve is the catalyst the derivatives market needs to realize there’s a lot of pent up demand to insure all our asses?

@glenn I think metapools are helpful to contain a situation, but I’m not sure you can contain Tether, no matter how tightly you seal the box :sweat_smile:. I’m leery of considering any stable coin safe. They’re either run by a centralized entity that can be shut down, or they’re a “decentralized” experiment that honestly have a much wider and unpredictable risk surface than centralized alternatives.

You can borrow USDT on AAVE or Compound. :smile:

Yes claiming CRV is a taxable event, but automatically converting to veCRV is still taxable income. Locked veCRV may not be available when taxes are due.

I saw a convo in the telegram between @michwill and some others where, if I remember correctly, @michwill argued that the “freeze point” needs to be really close to 1 in order to save the LPs because of the way Curve works, which possibly makes this method at best problematic. I’m just a messenger here, and possibly I misunderstood, but would love for someone from the team or someone with better understanding of the algos than me to chime in.

2 Likes