Thread by @DeFi_Cheetah

[Curve vs Uniswap part 3]
Thesis: @CurveFinance is better positioned to be the core DeFi infra than @Uniswap

TLDR:
1. $CRV ponzinomics? a MISNOMER
- how inflation can be a scheme in game theory
- $CRV emission formula decoded
2. UniV3 needs stacks = worse cost structure

@CurveFinance @Uniswap 2. This is in response to a reply from a respectable DeFi OG @WinterSoldierxz who regularly publishes institutional-grade research. Those who haven't followed him should do it.

For his counter-arguments, refer to his thread:

https://twitter.com/WinterSoldierxz/status/1619054919058857984

In-depth content here we go!

@CurveFinance @Uniswap @WinterSoldierxz 3. $CRV ponzinomics is one common argument from critics: 28% inflation is crazy and $UNI doesn't have the issue. I argued that $CRV emission is not a cost, as it is prepaid by projects before emitted as the cost of projects to maintain on-chain liquidity!

https://twitter.com/DeFi_Cheetah/status/1618645944005984258?s=20&t=YeCmOGxIvl79MY7GJ96L5A

@CurveFinance @Uniswap @WinterSoldierxz 4. @WinterSoldierxz tried to show emission cost > profits.
First, it is not a cost as said.
Second, the calculation below missed one key aspect: $veCRV holders have to accumulate $CRV continuously & lock 4 years to maximise voting right for gauges!

https://twitter.com/WinterSoldierxz/status/1619054974285287425

@CurveFinance @Uniswap @WinterSoldierxz 5. Thus, apart from bribes & tx fees, projects prepay $CRV emission by buying & locking more $CRV. @ConvexFinance @StakeDAOHQ and other whitelisted projects keep locking $CRV; @fraxfinance and some others try to get whitelisted to buy & lock $CRV. This is their cost of liquidity.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 6. Clearly, money for buying $CRV & time value for locking $CRV haven't been taken into account. Stats show 46.7% of emitted $CRV is locked, most permanently. Thus this forms an integral part of $CRV tokenomics that is not negligible.

Why do projects have incentives to do so?

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 7. Short ans: INFLATION. In tokenomics, inflation is always portrayed as something negative in nature; for $CRV, it is necessary and not evil, without which game theory is hard to work well.

Before digging into it, let me explain what's my perception of inflation in economics.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 8. Inflation is a gradual process of wealth redistribution in society. Imagine if there is deflation, every dollar note is worth more than it was 1 year ago. Sounds decent right? Every one is making $$ by doing nothing!

That means people are disincentivised to work hard!

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 9. Inflation drives consumption, for otherwise you won't be able to afford what you can now, and people work hard to earn more $$.
In this process, wealth is always channeled to more productive people or businesses which manage to meet/create the increase in aggregate demand.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 10. If you want me to write a separate 🧵on inflation, LIKE this tweet + let me know!

Come back to crypto: what does it mean for inflation in $CRV tokenomics?
It is a a gradual process of governance power redistribution, favouring those more loyal and committed to the community!

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 11. Loyalty & commitment are exemplified by (i) CONSISTENT ACCUMULATION of $CRV + (ii) locking $CRV for a longer period.

With inflation, #CurveWars players cannot simply be idle and do nothing and meanwhile still keep their governance power and influence in the community.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 12. Moreover, bribery cited below is just those for $vlCVX: bribes for 289M out of 567M $veCRV, leaving bribes of 49% $veCRV NOT counted yet.
In sum, most fails to take into account (a) ALL bribes + (b) $$ for buying $CRV + (c) time value for locking $CRV

https://twitter.com/WinterSoldierxz/status/1619054984905265152

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 13. To me, whether a project is ponzi depends on whether the business underneath is sustainable and actually creates value to the industry. @CurveFinance definitely creates value with its 'liquidity-as-a-service' functionalities as said!

https://twitter.com/DeFi_Cheetah/status/1618646972130553856

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 14. Up to now I haven't mentioned how $crvUSD can improve @CurveFinance revenue stream. I have explained it in my previous 🧵. Essentially $crvUSD increases a lot revenue, and creates another flywheel to make it sustainable. Check out below:

https://twitter.com/defi_cheetah/status/1567803864417714178

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 15. $CRV emission formula is against any monopoly! How?
Let's revisit the formula: boost mechanism calculates one's earning weight by taking the smaller amount of two values. People often neglect the 'min' which prevents any $veCRV holder is too dominant to get most $CRV emitted

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 16. Put simply, a party's earning weight is capped by liquidity it provides. After $CRV emission is directed by voting gauge weight, how much one can get out of the portion of $CRV emitted to a particular pool is based on one's earning weight/total earning weight in that pool.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 17. Example
Support there is a pool of $50k with $10k from X, $10k from Y, and $30k from Z, while X has 40% $veCRV, Y has 1% $veCRV, and Z has 1 $veCRV.
If $100 $CRV is emitted to it, we calculate each party can get how much $CRV by first calculating the
total earning weight:

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 18.
X = min(10k*0.4+50k*0.4*0.6, 10k) = 10k
Y = min(10k*0.4+50k*0.01*0.6, 10k) = 4.3k
Z = min(30k*0.4, 30k) = 12k
total earning weight = 26.3k

Thus, out of $100 $CRV emitted:
X can get $100 * 10/26.3 = $38
Y can get $100 * 4.3/26.3 = $16.3
Z can get $100 * 12/26.3 = $45.6

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 19. X, though with 40% $veCRV holdings, cannot get most $CRV emission: in eg without cap 40% $veCRV allows X to get $57.4 instead!

This shows how the formula prevents monopoly. @CurveFinance endeavours to strike a balance between rewarding loyal & decentralising $CRV holdings.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 20. Regarding the relationship between Curve's TVL & emission, correlation does not mean causation, and Curve's TVL drop can hardly be resorted solely to emission.

I rather argue that the dominant cause is the TVL drop in the whole industry instead.

https://twitter.com/WinterSoldierxz/status/1619054952470712320

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 21. @WinterSoldierxz logic flow is that as $CRV emission is cut every Aug, TVL will become lower and can't go back to ATH.

This can't be true! And I am sure in the next bull run @CurveFinance's TVL must be higher than its previous ATH. Let time prove it.

https://twitter.com/WinterSoldierxz/status/1619054956115525632

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 22. Next, UniV3 supporters always argue stacks built on it make it more composable and better user exp.
But they don't consider this mean a worse cost structure: those stacks aren't doing it for free, and each of them charges a fee for providing services

https://twitter.com/WinterSoldierxz/status/1619055009295134720

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance 23. Unlike Curve V2 LPs who enjoy seamless all-in-one service, UniV3 LPs need to pay @ArrakisFinance & @xtokenterminal for what's free for Curve V2 LPs. It is against the trend of VERTICAL INTEGRATION.

What does vertical integration mean to cost structure? Take CEXes as an eg

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal 24. Crypto exchanges like @binance are vertically integrated platforms, combining both brokerage and exchange functions, and hence have more superior business models compared to traditional exchanges and brokerages.

Why?

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance 25. Traditional exchanges have to split fees with other parties responsible for brokerage, margins, risks, clearing, custody, GUIs, APIs, etc. Thus, it results in a much lower take-rate on trades due to more loss on fees to other middlemen.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance 26. Crypto exchanges by owning the front-end brokerage can improve the margin via the vertical integration, has direct access to customers as the sales channel, and has users’ data that can inform product rollouts and monetisation strategies.

All these drive a higher take-rate.

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance 27. Back to DEXes, all-in-one service to LPs means no loss to other middlemen and LPs can be more incentivised. This explains why @CurveFinance's TVL is much higher despite 50% of tx fees are taken away by the platform.

Thus, @Uniswap fee switch is more difficult to implement

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance 28. Moreover, UniV3 design favours whales to do LPs, and drawbacks of LP professionalisation are exhaustively explored in my thread at [30-34]

Do check it out!

https://twitter.com/DeFi_Cheetah/status/1618648145709375489

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance 29. That's it! Really appreciate @WinterSoldierxz for the informed discussion! Hope this arouses more discussion as to how DeFi can develop in the future!

Tagging gigabrains: @rektdiomedes @0xCha0s @crypto_condom @TheDeFISaint @llamaintern @DAdvisoor @adamscochran @0xShitTrader

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance @rektdiomedes @0xCha0s @crypto_condom @TheDeFISaint @llamaintern @DAdvisoor @adamscochran @0xShitTrader Con't:
@Slappjakke @korpi87 @0x_d24 @0x94305 @JackNiewold @cyrilXBT @RiddlerDeFi @Chinchillah_ @CryptoGirlNova @defiwars_ @SamuelXeus @NDIDI_GRAM @TheEwansEffect @CrossChainAlex @crypthoem @defiprincess_ @DeFiMinty @GrowWithPassive @OGtestnet @TheDeFinvestor @blocmatesdotcom

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance @rektdiomedes @0xCha0s @crypto_condom @TheDeFISaint @llamaintern @DAdvisoor @adamscochran @0xShitTrader @Slappjakke @korpi87 @0x_d24 @0x94305 @JackNiewold @cyrilXBT @RiddlerDeFi @Chinchillah_ @CryptoGirlNova @defiwars_ @SamuelXeus @NDIDI_GRAM Cont @CompleteDegen @officer_cia @DeFiMann @Crypto_Bandits @Subli_Defi @DeFiMann @charliemktplace @defi_naly @DefiMoon @0xJamesXXX @jason_chen998 @victalk_eth @bitouq @BillyBobBaghold @ShivanshuMadan @milesdeutscher @crosschainalex @alpha_pls @barryfried1 @defi_maestro @mrblocktw

@CurveFinance @Uniswap @WinterSoldierxz @ConvexFinance @StakeDAOHQ @fraxfinance @ArrakisFinance @xtokenterminal @binance @rektdiomedes @0xCha0s @crypto_condom @TheDeFISaint @llamaintern @DAdvisoor @adamscochran @0xShitTrader @Slappjakke @korpi87 @0x_d24 @0x94305 @JackNiewold @cyrilXBT @RiddlerDeFi @Chinchillah_ @CryptoGirlNova @defiwars_ @SamuelXeus @NDIDI_GRAM @CompleteDegen @officer_cia @DeFiMann @Crypto_Bandits @Subli_Defi @charliemktplace @defi_naly @DefiMoon @0xJamesXXX @jason_chen998 @victalk_eth @bitouq @BillyBobBaghold @ShivanshuMadan @milesdeutscher @CrossChainAlex @defi_mochi @DefiIgnas @CurveCap @EigenPhi @thedefiedge

To further clarify, $CRV 28% inflation in [3] may not be accurate enough as it includes vests: just as you count $UNI pre-allocation as inflation.

If this is excluded, then inflation is only 13.8% (details: docs.google.com/spreadsheets/d…)