Thread by @JackNiewold

The Curve Wars are in full tilt.

The early skirmishes are being fought.

Here's everything you need to know about $CRV and $CVX (Convex), the war between protocols to accumulate them, and how you can make money on the trade.

(A thread in 3 parts) 👇

PART 1: THE LIQUIDITY PROBLEM

DEXes rely on Automated Market Makers (AMMs) to function.

These AMMs rebalance with every crypto swap/trade. With every sale, price goes down.

The more liquidity in the liquidity pool, the better, as price doesn't slip/rebalance as much.

This is important for any crypto asset, as illiquid pairs mean buyers and sellers get a worse deal.

You sometimes see this when buying microcaps. DEXes ask you to adjust slippage tolerance, which basically means the price of your asset is changing due to your trade.

With stablecoins, liquidity is even more important, as they need to hold a constant $1 price.

If there's not enough liquidity, price on DEXes fluctuates all over the place due to slippage and AMM rebalancing.

A $1 stable coin trading for $0.85 is not a stablecoin.

Let's use $SPELL as an example (I talk about it a lot).

It's a lending protocol with a stablecoin, $MIM, that is essentially their product.

$MIM gets minted against the collateral and then gets loaned out.

So if $MIM doesn't hold its peg or trades below $1, the whole system breaks.

Your loan becomes worthless, the interest rates are no longer valid, you can't trade large amounts, etc.

With too little liquidity, the stable loses its $1 peg.

How do protocols normally get liquidity? Liquidity Providers (aka yield farmers)

You can go out and earn $SPELL tokens by providing liquidity to Dexes. As compensation, you get paid in $SPELL.

But these tokens come from somewhere, which causes $SPELL supply to inflate.

As supply inflates, yield farmers sell tokens, those tokens drop in price, which makes investors poor and sad.

THE DILEMMA: protocols need liquidity for their protocols to work, but they have to pay for it, which tanks the native token.

PART 2: CURVE AND CONVEX

Curve is the #1 stablecoin DEX, with a ton of volume, so protocols use it to make sure their stablecoins have liquidity.

Some protocols use the standard model, incentivizing liquidity with their native token.

But Curve is different from other DEXes.

Curve distributes $CRV to some liquidity pools, and it allows token owners to vote on how many $CRV tokens each pool gets (via gauges).

So if your pool gets enough votes, you don't have to incentivize liquidity using your own token.

You can incentivize with Curve's token.

Which means the votes by $CRV holders allow protocols to save money.

Which makes the votes themselves WORTH money.

Enter Convex, the kingmaker.

Convex figured out that Curve was worth money not just as a governance/farm token for Curve, but as a token that could actually help out other protocols save money.

So they began to accumulate Curve.

Holders vote on where liquidity goes with Votium for $CVX and dao.curve.fi for $CRV)

Votes are valuable, so protocols seeking cheap liquidity began to offer up substantial bribes to $CVX and $CRV holders, airdropping tokens to anyone who voted in their interest.

To review, look at $SPELL again:

They want liquidity, so they bribe $CRV and $CVX holders with $SPELL tokens to vote on their $MIM liquidity pool.

This is A LOT cheaper than directly offering up $SPELL to liquidity providers

Anyone who owns CRV and CVX becomes powerful.

PART 3: THE CURVE WARS
In recent months, protocols have realized how vital the control over these votes will be to anyone who wants stablecoin liquidity.

Big names like:
• $OHM
• $FRAX
• $SPELL
• $YFI
are accumulating CRV and CVX left and right.

And it's only begun: as more and more protocols pull $CRV and $CVX off the market, they will lock it up and votes will become more and more valuable.

The Curve wars are being waged, and it is a battle among billion-dollar protocols for a scarce resource: liquidity.

My friends, if you believe in liquidity's role in crypto, if you believe that CRV and CVX will make kings...

There is but one way to win this war.

BUY.

Thanks for reading! If you liked the thread, please help me get it out to more people by RTing/Favoriting the first tweet, linked below 👇

https://twitter.com/JackNiewold/status/1476334616797749248?s=20

I get my Curve info from:

• @Tetranode
• @noahseidman
• @knowerofmarkets
• @crypto_condom
• @rektfoodfarmer
• @B49Jme
• @Pentosh1

And many more I can't mention that won't all fit here...

If you want to learn more about the fundamental analysis and narratives behind altcoins, you'd probably like my newsletter, check it out below.

And for more tweet threads like this follow me: @JackNiewold

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