Curve Wars

Curve accidentally built a political machine

Curve began with a fairly clean job: let people swap stablecoins without losing a stupid amount to slippage. But a good exchange needs deep liquidity, and liquidity providers need a reason to leave their money inside it. Curve's answer was CRV emissions. Pools received CRV, LPs received a yield, and the exchange became useful enough for the next person to trade through it.

The interesting bit was deciding which pools received that CRV. Holders could lock CRV for up to four years to get veCRV, then use it to vote on Curve's gauges. More votes for a gauge meant more CRV emissions for that pool. More emissions meant a better yield for its LPs, which usually meant more liquidity. Curve had quietly created a tap for liquidity, and handed its handle to veCRV voters.

Buying the vote

If you were building a stablecoin, that tap mattered a lot. You could spend years hoping people would naturally keep liquidity in your pool, buy and lock a pile of CRV yourself, or simply pay existing voters to point emissions at you. If a $50,000 bribe brought $100,000 of CRV rewards to your pool, the trade could make sense for the protocol, the voter, and the LP. Calling it a bribe made it sound shady. In practice, it was an open market for liquidity incentives.

On paper, a protocol could just buy CRV and lock it for itself. In practice, that meant sinking treasury money into a four-year lock and still competing for gauge votes every two weeks. Regular CRV holders had the opposite problem. They wanted the boosted rewards and voting power, but not everyone wanted to lock their tokens away for years. There was a lot of valuable voting power around, but no easy way to gather it in one place.

Then Convex showed up

Convex gathered it. Users could deposit CRV, receive cvxCRV, and let Convex lock the underlying CRV permanently for veCRV. Curve LPs could also deposit through Convex and receive boosted rewards without building their own veCRV position. Convex kept accumulating voting power while users kept a liquid token they could sell on the market.

Convex also had its own token, CVX. The distinction is important: cvxCRV was the liquid receipt for CRV locked inside Convex, while CVX governed what Convex did with all the voting power it had accumulated. Locking CVX for at least 16 weeks turned it into vote-locked CVX, or vlCVX. Those holders could tell Convex where to point its veCRV votes.

That changed the battlefield. A protocol no longer had to chase a scattered group of Curve voters. It could pay vlCVX voters through a market like Votium, and Convex would move its block of veCRV behind the chosen gauge. The war moved one floor up, from fighting over CRV to fighting over control of Convex's CRV.

This is the bribe loop shown below. One protocol pays vlCVX voters, Convex's votes move toward its gauge, and the CRV emissions follow.

Stablecoin armies

This is where the whole thing became very DeFi. Frax, Abracadabra's MIM, Terra's UST, Alchemix and plenty of others accumulated CVX, formed alliances, and spent their own tokens to pull emissions toward their pools. In one 2021 proposal, Alchemix, Frax and Fei casually described a shared pool backed by more than 500,000 CVX and additional voter incentives. Governance proposals started reading less like governance and more like military logistics.

By April 2022, Terra and Frax were pitching the 4pool: UST, FRAX, USDC and USDT in one Curve pool. The proposal said the two protocols held more than 3.65 million CVX between them and were already spending millions through Votium. The plan was not merely to list two stablecoins. It was to use their combined voting power and incentives to make 4pool the centre of stablecoin liquidity across multiple chains. Then UST collapsed in May, and one of the biggest alliances of the Curve Wars disappeared almost as quickly as it formed.

The machinery could also be abused. In November 2021, Mochi used incentives to direct Convex votes toward its USDM gauge and helped grow the pool to roughly $100 million. It then used a token and oracle setup it controlled to borrow and dump $46 million of USDM for DAI. Curve's Emergency DAO killed the gauge. It was a particularly ugly demonstration that control over emissions could create very real exit liquidity.

What everyone was actually fighting over

The funny part is that the Curve Wars were never really about governance. They were about distribution. A stablecoin with deep liquidity was easier to trade, easier to integrate, and much more believable as money. CRV emissions attracted that liquidity, so the right to direct them became an asset of its own. Convex bundled that asset, and bribing markets put a live price on it every two weeks.

For a while, some of DeFi's most important battles were fought with gauges, locked tokens, and public spreadsheets full of bribes. Slightly insane, but completely rational once you saw what the votes controlled.