DeFi projects are frantically attempting to acquire more Curve tokens (CRV) by first obtaining vote-locked Curve tokens (veCRV).
Projects can vote for more CRV tokens to be issued to their preferred liquidity pool using these vote-locked tokens. There will only ever be so many CRVs because the supply is limited (3.3 billion in total, to be precise).
As a result, with a limited supply, it’s effectively an accumulation race with additional steps: Acquire CRV, lock it up for veCRV, then vote to allocate CRV tokens to a chosen pool and earn more CRV. Rinse and repeat until you’ve exhausted all of your options.
A new market is growing amid all of this: bribery.
Several secondary sites now allow for bribes in some way or another. Let’s start by looking at how the mechanism works in general.
Let’s imagine you’re a big Curve Finance liquidity provider who wants to boost the amount of CRV awards that pool earns while you stay there and, well, offer liquidity. However, you can only have so much CRV (and thus only so much veCRV-based sway in this community).So you decide to set up some form of bribe. You essentially say, “Hey, if you vote for my pool to receive greater rewards with your veCRV holdings, I’ll give you another token in exchange,” It’s a good bargain if people believe the other token is more valuable.
You can take this all the way down to the protocol level.
Assume a project wants to make its native token more liquid. Naturally, offering the most appealing rewards to potential LPs, a la yield farming, is the simplest method to accomplish so. If you can offer them a high APY in exchange for adding liquidity to your freshly launched cryptocurrency, you’ll be able to attract a large amount of new capital and quickly make your new coin incredibly liquid. Andre Cronje, the developer of Yearn Finance and a slew of other DeFi companies, devised a framework that could be used to carry out this type of bribe. The website, dubbed “bribe.crv.finance,” is effectively a one-stop-shop for everything CRV bribe-related. Bribers can make offers, and bribees can take advantage of them.
However, because this concept is well-known (the Curve Wars officially began in 2020), there are currently a number of DeFi bribe systems available. Convex has proven to be one of the most successful of these systems.
It now owns over 53% of all CRV tokens in circulation, and it was created with the goal of acquiring as much CRV as possible by rewarding users with the maximum amounts of CRV.
It works like this: Users that deposit their CRV tokens (or even Curve’s LP tokens) on Convex receive another token called cvxCRV as a type of receipt. Users who hold this token are entitled to (1) Curve trading costs (remember, every trade on Curve earns 0.04 percent in fees), (2) Convex’s native token, CVX, and (3) the maximum reward achievable for a single Curve pool.
The variable APY in CRV shows that not everyone can take advantage of the full range without using Curve’s “Boosting” feature. However, you’ll need a lot of veCRV to do this, so it’s not really feasible for tiny holders.
Convex has the capacity to essentially max increase all benefits for every Convex user because they have pooled all of this CRV (and veCRV) through appealing bonuses and put it back to work.
And this is causing a flywheel effect, resulting in even higher CRV accrual. There’s also a rush to buy CVX so that holders can control Curve through proxies.
When you hear the term “governance extractable value” on Twitter, this is pretty much what it means: buying up large amounts of a project’s native governance token in order to take it over.
The market will have to determine whether the alarming increase of DeFi bribery is indeed the “end state of DeFi” or merely the next chapter. Or the authorities in charge?