E2M Research: Steven (July 2024)
Daily Discussion
think
After Curve was stolen at the end of July last year, various OGs, institutions and VCs all helped. Bitmain and Matrixport co-founder Jihan Wu posted on social media: "In the upcoming RWA wave, CRV is one of the most important infrastructures. I have bought it at the buy the dips, which does not constitute financial advice."
Huang Licheng confirmed on social media that he purchased 3.75 million CRV from the founder of Curve through OTC and pledged them in the Curve protocol. The next day, Justin Sun's related address also transferred 2 million USDT to Egorov's address and received 5 million CRV.
Then projects such as Yearn Finance, Stake DAO, and a number of institutions and VCs such as DWF joined in the firefighting operation of CRV.
I am very confused about the significance of these groups standing up for Curve and why they want to save it.
The rate of return is a matter of horizontal comparison of web3, and is no longer a specific segment track.
CM: Will it have any impact if the founder of Curve sells his chips and has nothing to do with Curve? No problem. There is no need to develop the infrastructure layer protocol after a certain stage. It is mature enough. Putting aside the market level, not developing it will not affect its use. Many people who rescue the market are aware of this point, so they have this motivation.
DEX
Llama Stablecoin Algorithm + Lending Market
VE Model
Bribery and Liquidity Systems
Curve has several models that allow VeCrv holders to govern themselves. As for the existing institutions, parameters and configurations, they can operate completely independently, which is in line with the original intention of decentralized applications, and the authority is completely reduced to the community.
As for how the market performs, that is another matter. It is basically certain that the fundamentals are worse than the last time. There will not be a particularly outstanding performance compared to the past, but there will still be demand for liquidity mining as the cycle lengthens. If you think that the chain is in a state of flourishing, Curve still has a chance, and Uni cannot solve the problem. Curve provides a complete framework, and the chips have completed a decentralization. The prospect of cross-cycle plans will be better, provided that it is believed that the chain needs incentives in the future.
There are many project parties that buy. Liquidity mining was the core way to get started in the last cycle. In the early stages of a project, liquidity was rented. Crv solves the problem that a project party does not need to inflate its own economic model in the early stages of its launch, but instead uses the liquidity of renting Crv, thereby solving the problem of token inflation and using the tokens for other utilities. At the same time, the tokens are still meaningful after being unlocked. Crv can also support transactions of non-stable currencies, similar to Uniswap. At the time of purchase, those that could not be purchased in the queue were given priority to the project party. The project will not die and will not be cannibalized by Uniswap in a short time.
1. Curve Events
Time point 1
Arkham published a statement saying that Curve founder Michael Egorov currently borrowed $95.7 million in stablecoins (mainly crvUSD) on 5 accounts in 5 protocols with $140 million in CRV as collateral. Among them, Michael has $50 million in crvUSD borrowed on Llamalend, and Egorov's 3 accounts have accounted for more than 90% of the crvUSD borrowed on the protocol.
Arkham pointed out that if the price of CRV drops by about 10%, these positions may begin to be liquidated. Subsequently, the decline of CRV continued to expand, once falling below $0.26, reaching a new historical low, and the CRV lending positions on Michael's multiple addresses gradually fell below the liquidation threshold.
Time point 2
Time point 3 Current situation
Data source: https://platform.arkhamintelligence.com/explorer/entity/michael-egorov
Investors are facing disaster.
On the one hand, the price drop triggered the liquidation of other lending platforms. Fraxlend's lenders suffered millions of dollars in liquidations. According to Lookonchain monitoring, some users had 10.58 million CRV (3.3 million US dollars) liquidated on Fraxlend.
2. Curve data comparison
20240616
Trading volume 3 pool ($ 12.3 M), steth ($ 6.7 M), fraxUSDC ($ 756.8 M)
TVL compared to last year's top three fraxusdc ($ 15.8 m), steth ($ 249.7 m), 3 pool ($ 178.3 m)
Frax TVL is too low so I took a screenshot
202307 —— Refer to the research report at that time
Among the top ten pools by TVL, fraxusdc ($ 0.6 b), steth ($ 0.58 b), and 3 pool ($ 296.65 m) rank in the top three
Data source: https://curve.fi/#/ethereum/pools (TVL sorting)
The top three in terms of trading volume are 3 pool ($47.86m), steth ($18.64m), and fraxUSDC ($17.96m). The TVL of 3 pool is only half of the top two, but the trading volume is more than 2.5 times.
Data source: https://curve.fi/#/ethereum/pools (daily transaction volume sorting)
Compare Uni
Income comparison
The left side is new, the right side is at that time.
Uniswap trades on-chain meme in a bull market and mainstream assets in a bear market.
3. Some problems revealed by this Curve incident
Poor liquidity caused by Ve model head effect
The essence of CurveWar is to compete for Curve's liquidity. After winning the liquidity, Boost is used to improve the pool that provides liquidity as an LP. However, the higher the liquidity, the better for the project. The way different projects purchase CRV voting rights has triggered the so-called "war", which may lead to market instability and manipulation.
When we first discussed Curve, we thought that Curve might be like a traffic platform, where new projects would buy voting rights to boost their own pools in order to gain a certain amount of attention (such as Frax at the time). After nearly a year, this effect was not achieved at all, and the yield was not as good as the points display or Pendle, so it was basically abandoned.
Loan liquidation
Collateral with large price fluctuations, such as Crv, Aave, Comp, etc., may not be suitable as collateral. In the future, the crypto world should still be able to grow with usdt/usdc/dai+BTC+ETH.
The risks of lending are complex. The volatility of the price of the collateral itself and the leverage and bubbles caused by Lego dolls make it difficult for Web3 lending to achieve economies of scale.
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