Thread by @DeFi_Cheetah

[Curve vs Uniswap part 2]
Why is @CurveFinance better positioned itself to be the core DeFi infra than @Uniswap?

TLDR:
1. $CRV tokenomics protects Curve against competition [1-13]
2. Curve’s liquidity-as-a-service: functionalities that solve on-chain liquidity issue [14-19]
...

@CurveFinance @Uniswap ...
3. UniV3 loses pricing power by
(i) malfunctioning at extreme market as liquidity dries up outside of LPs' various price ranges [20-22],
(ii) lifting threshold of liquidity management for new projects to set up pools of long tail assets permissionlessly [23-26] & ...

@CurveFinance @Uniswap ...
3(iii) stirring up competition among LPs which
(a) poses extra difficulty for new projects to bootstrap liquidity [27-32] &
(b) puts v3 itself at risk of being outcompeted [32-34]
4. CurveV2 Summer [36-40]

If you get confused by the logic flow, come back to TLDR!
Here we go!

@CurveFinance @Uniswap 1. Background

2 weeks since the discussion regarding my thread about Curve vs Uniswap, great points and counter-arguments are distilled to make the comparison more compelling. Fruitful discussion provides food for thought as to what DeFi's next.

https://twitter.com/DeFi_Cheetah/status/1611798497250136069

@CurveFinance @Uniswap 2. $CRV tokenomics protects @CurveFinance against competitors, by aligning interests of LPs, projects & Curve itself.
How?
#CurveWars turn most $CRV emission into $veCRV (most locked for 4 years) when fighting for yields (in APR) & mintage
(more info -

https://twitter.com/DeFi_Cheetah/status/1527821328924876800

)

@CurveFinance @Uniswap 3. What's mintage? The action/process of minting coins

When it comes to crypto, it refers to the capacity of minting more pegged assets with respect to its underlying.

Depeg risks are imminent when (i) pegged assets are not instantly convertible to its underlying & (ii) ...

@CurveFinance @Uniswap 4. ... circulating supply exceeds too much on-chain liquidity, ie those available on DEXes for swap (eg UST-LUNA)

Imagine what would happen if $stETH pool size on @CurveFinance is too small? As $stETH can't be instantly redeemed as $ETH, holders may try to front-run others by...

@CurveFinance @Uniswap 5. ... selling $stETH directly to Curve pool to get back $ETH, esp when the pool is shallow enough to cause panic. That's why, for pegged assets like LSDs, mintage is important for them to keep the peg as they scale up (even after Shanghai update; discuss later in a LSD thread)

@CurveFinance @Uniswap 6. Both LPs and projects creating pools on @CurveFinance mostly have locked $CRV to compete for mintage. LPs can benefit from projects' fight for mintage, while projects of pegged assets need mintage to scale up business. If there's a new stableswap, it's hard to compete with...

@CurveFinance @Uniswap 7. ... Curve since to attract LPs, it has to give incentives at least higher than yields LPs can get from locking $CRV.

$veCRV APR = tx fees (in 3CRV, $99.8M in 3+ yrs) + boosted reward (in $CRV) and/or bribery ($243M, only captured by $veCRV in @ConvexFinance since 21 Sep 2021)

@CurveFinance @Uniswap @ConvexFinance 8. Also, to avoid liquidity fragmentation, projects prefer all their liquidity in one venue, not willing to fight for mintage in a new protocol, or else they need to maintain the peg at a higher cost of liquidity.

Thus for a new stableswap, it's hard to attract liquidity

@CurveFinance @Uniswap @ConvexFinance 9. That's why @CurveFinance can hardly find a competitor in the realm of stablecoins/pegged assets; $CRV tokenomics makes sure LPs & projects to stand with Curve.

Main criticisms of $CRV tokenomics are (i) $CRV is highly inflationary & (ii) $CRV emission as costs exceeds tx fees

@CurveFinance @Uniswap @ConvexFinance 10. For (i), when mentioning $CRV inflation rate is 28%, critics often ignore bribery which is actually the main source of yield! With bribery, $CRV APR is ~40% which offsets the inflation rate. Capital efficiency can also achieved when $1 bribery can get >$1 $CRV emission.

@CurveFinance @Uniswap @ConvexFinance 11. For (ii), $CRV emission is not a cost, as it is already prepaid before emitted.

How?

$CRV emission is directed by gauge weight voting. To vote, one can (i) buy more $CRV and lock to get $veCRV or (ii) bribe $veCRV holders to vote. Either way, $CRV is paid to get directed.

@CurveFinance @Uniswap @ConvexFinance 12. Projects buy $CRV directly or bribe voters to get $CRV emitted, in order to get mintage that can strengthen peg by deepening on-chain liquidity. If not, inflationary $CRV model will dwarf projects' influence on directing $CRV emission, and on-chain liquidity will shrink.

@CurveFinance @Uniswap @ConvexFinance 13. As every $CRV emitted is prepaid by projects as the cost of liquidity, $CRV emission is thus the cost of projects to maintain on-chain liquidity, not a cost of Curve itself!

@CurveFinance's unique positioning and ve-model differentiate $CRV from other inflationary tokens

@CurveFinance @Uniswap @ConvexFinance 14. @CurveFinance has other functionalities that very few know.

Issue: before Curve launched lending pools, lenders on @compoundfinance holding $cUSDC may not be able to get back $USDC if the relevant lending pool is depleted there; same for $cDAI holders who wanna get back $DAI

@CurveFinance @Uniswap @ConvexFinance @compoundfinance 15. Lending pools on @CurveFinance resolve lenders' withdrawal issue in case pools on lending protocols are drained.
How?
When one provides $USDC or $DAI to lending pools on Curve, they lend $$ to @compoundfinance, and their cTokens will be sent to lending pools on Curve as LP.

@CurveFinance @Uniswap @ConvexFinance @compoundfinance 16. Lending pools serve as exit liquidity for lenders and help rebalance pools on lending protocols.

How?

For eg if $USDC pool on Compound is drained, $cUSDC holders can go to @CurveFinance lending pools to swap $cDAI with $cUSDC and then convert $cDAI to $DAI on Compound.

@CurveFinance @Uniswap @ConvexFinance @compoundfinance 17. Curve make itself inevitable in DeFi & the whole crypto industry by positioning it as a liquidity reservoir where

i.) LPs are incentivised by a good APR & projects get mintage to scale businesses by locking $CRV or $CVX in ve-model, aligning their interests with Curve...

@CurveFinance @Uniswap @ConvexFinance @compoundfinance 18. ... so that they tend to stand with Curve against competitors
(cf @Uniswap where @SushiSwap once got some DEX market share by forking UniV2)

ii.) Bribery market (crucial but often ignored, invented by @AndreCronjeTech) allows $CRV to be prepaid even before they are emitted

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech 19.
iii.) Lending pools on @CurveFinance allow lenders to withdraw principal at any time even when pools on @AaveAave or @compoundfinance are drained

Such a degree of composability & the lower cost to gather on-chain liquidity are what make Curve electricity and water in crypto

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 20. Besides superb ve-tokenomics, @CurveFinance is better positioned itself since UniV3 has lost pricing power over long tail assets by
(i) malfunctioning at extreme market,
(ii) lifting the threshold of liquidity management &
(iii) stirring up vigorous competition among LPs.

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 21. For (i), LPing on UniV3 is like range orders: when a market is pumped/dumped, LPs need to re-adjust a price range, or else they can't earn any tx fees

Screenshot (14 Jan) shows most LPs did not adjust promptly, causing liquidity dry-up

In contrast, Curve v2 has no downtime

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 22. The phenomenon above isn't uncommon, due to liquidity crunch outside 'normal price range'. Indeed, in UST crisis, UniV3 couldn't function properly as $LUNA kept hitting "no man's land".

How can a DEX have pricing power if its price info is not reliable at extreme market??

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 23. For ii, new projects find it difficult to manage v3 liquidity

If the price falls outside of a range selected, UniV3 LPs either (i) realise IL and select a new price range, or (ii) wait till the price falls back to the range (not guaranteed), during which LPs earn NO tx fees

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 24. For (i), IL accumulates every time when LPs rebalance its position. At extreme market, LPs could suffer the death by a thousand cuts.

For (ii), LPs suffer huge opportunity cost apart from IL: they earn no tx fees as capital in UniV3 is idle, while they don't wanna realise IL

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 25. The threshold of liquidity management in UniV3 is lifted, and becomes too high for new projects to launch long tail asset pools there. Below is feedback of some new projects lead:

https://twitter.com/gmdSaul/status/1611928353090711554

Result: very very few projects choose to launch new tokens on UniV3

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 26. This is detrimental to UniV3's goal of becoming inevitable in DeFi/ web3, as its positioning originally was a DEX where, apart from being complementary to CEXes, it allows users to trade long tail assets as new projects can launch tokens permissionlessly.

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 27. For iii as said in [20], UniV3 stirs up competition among LPs, which Curve V2 prevents by making LP positions fungible. In UniV3 passive LPs are outcompeted by active LPs as, even if LPs choose to provide liquidity full-range, for whatever assets at whatever price...

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 28. ... there must exist some LPs that provide liquidity within a narrower price range, so that LPs that provide full-range liquidity can earn much less than LPs that happen to provide liquidity in the range only.

Concentrated liquidity is a leverage: higher tx fees + higher IL

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 29. Eg if you provide full-range liquidity to ETH/USDC, LPs with narrower price ranges always earn more than you do

If you select a range you may have to rebalance it and realise IL from time to time as said in [23]

Result: UniV3 passive LPs are discouraged to provide liquidity

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 30. If only professionals are suitable to be v3 LPs, why not just using orderbook?

2 issues with v3 LP professionalisation with this pseudo-orderbook design:
(i) additional difficulty for new projects to bootstrap liquidity &
(ii) susceptible to challenges from DEX aggregators

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 31. For i, professional LPs (or market makers in orderbook) are risk-averse and profit mainly from their MM strategies. Thus they are unlikely to provide liquidity to pools launched by new projects, but instead focus mainly on market-making of blue-chip tokens

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 32. This may explain why v3 doesn't support liquidity mining as professional LPs give no shxt to it

It cements thesis of v3 losing pricing power over long tail assets. Order flow toxicity deteriorates as % of uninformed order flow is greater in long tail assets than in blue-chip

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave 33. For ii, v3 professional LPs may leave and go to DEX aggregators such as @1inch when they monetize order flow that consists of retail traders (payment for order flow - PFOF)

How?
Instead of routing trades to public DEXes, they can route trades to private MMs to facilitate tx

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch 34. LPs can avoid being arbitraged and profit more from the spread when trading against retail flow.
Retail traders get price improvement, MMs make more money, and @1inch takes a small fee for its service

Everyone wins, except @Uniswap

More about PFOF:

https://twitter.com/thiccythot_/status/1618165796890644486

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch 35. Some argued UniV3 can be tailored for professional MMs and UniV2 can cater for new token launch. But the reason for V3 to exist is due to UniV2's capital inefficiency, and this means passive LPs' way out is to go back v2.

Why can't they just go to Curve V2 then?

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch 36. Curve v2 also allows concentrated LP, but algos automatically adjust the range based on market price, with higher tx fees to compensate LPs as the price moves away from equilibrium, in case of time lag of range adjustment where they can't earn tx fees

https://twitter.com/Kurt_M_Barry/status/1404496489703952384

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch 37. Curve v2 improves capital efficiency without lifting threshold of liquidity management: LPs enjoy concentrated liquidity without rebalancing the position manually.

And all LPs provide liquidity at same price range, it facilitates interoperability as LP positions aren't NFTs.

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch 38. Interoperability is key if Curve aims at being part of DeFi bedrock upon which stacks or protocols are built, which becomes the dominant DeFi trend (@synthetix_io endeavours to this too).
LP position as ERC-20 can scale up much easier than NFTs by working along with others.

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch @synthetix_io 39. In fact, CurveV2 Summer is coming!

i. LDO/ETH was just added on Curve and has a vote for gauge, ie to receive weekly $CRV emission
ii. Same for $MATIC/ETH
iii. $STG is paired with FraxBP pool, ie $STG, $Frax, $USDC in the same pool
...

More details:

https://twitter.com/CurveCap/status/1618251045544816641

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch @synthetix_io 40. As there are more pools with volatile asset trading pairs, tx fees on Curve will improve dramatically. In fact, most tx fees are now generated from small amount of TVL based on Curve v2!! It is interesting to see how Curve v2 jumps in volatile asset market to take a share!!

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch @synthetix_io 41. Next thread I will talk about how @CurveFinance can benefit from the rise of LSD which could potentially trigger another phase of #CurveWars!!

credits: @thiccythot_ @CurveCap @Kurt_M_Barry

https://twitter.com/DeFi_Cheetah/status/1618645060291284998

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch @synthetix_io @thiccythot_ @CurveCap @Kurt_M_Barry Tagging gigabrains:
@crypto_condom @rektdiomedes @LouisCooper_ @DefiIgnas @CryptoGrills @TheDeFISaint @DeFi_Dad @llamaintern @DAdvisoor @Only1temmy @CompleteDegen @TheDeFinvestor @blocmatesdotcom @officer_cia @DeFiMann @defiprincess_ @Crypto_Bandits @Subli_Defi @DeFiMann

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch @synthetix_io @thiccythot_ @CurveCap @Kurt_M_Barry @crypto_condom @rektdiomedes @LouisCooper_ @DefiIgnas @CryptoGrills @TheDeFISaint @DeFi_Dad @llamaintern @DAdvisoor @Only1temmy @CompleteDegen @TheDeFinvestor @blocmatesdotcom @officer_cia @DeFiMann @defiprincess_ @Crypto_Bandits @adamscochran @0xShitTrader @Slappjakke @korpi87 @0x_d24 @0x94305 @charliemktplace @defi_naly @DefiMoon @0xJamesXXX @jason_chen998 @victalk_eth @bitouq @BillyBobBaghold @ShivanshuMadan @milesdeutscher @crosschainalex @alpha_pls @barryfried1 @defi_maestro @gham1lt0n

@CurveFinance @Uniswap @ConvexFinance @compoundfinance @SushiSwap @AndreCronjeTech @AaveAave @1inch @synthetix_io @thiccythot_ @CurveCap @Kurt_M_Barry @crypto_condom @rektdiomedes @LouisCooper_ @DefiIgnas @CryptoGrills @TheDeFISaint @DeFi_Dad @llamaintern @DAdvisoor @Only1temmy @CompleteDegen @TheDeFinvestor @blocmatesdotcom @officer_cia @DeFiMann @defiprincess_ @Crypto_Bandits @adamscochran @0xShitTrader @Slappjakke @korpi87 @0x_d24 @0x94305 @charliemktplace @cyrilXBT @RiddlerDeFi @CryptoGirlNova @defiwars_ @SamuelXeus @NDIDI_GRAM @TheEwansEffect @CrossChainAlex @crypthoem @defiprincess_ @DeFiMinty @GrowWithPassive @Chinchillah_ @OGtestnet

Extra: just to add a point to support [25]!

Another protocol has chosen to move from @Uniswap v3 to @CurveFinance v2 (check out comments of the tweet for the rationale of making such a move)!!

https://twitter.com/ameensol/status/1618639412103110656

@JackNiewold
Listening to your sharing in @AlluoApp twitter space about @CurveFinance & stablecoins
Would be grateful if you drop some feedback about this 🧵!!