Footprint: How Investors Can Earn Multi-APY in Curve

Author: Footprint Analyst Zoni [email protected]

In the previous article "Footprint: Why is Curve Leading in the DEX Race?" it was noted that Curve Finance, referred to as Curve, stimulates investors to deposit more funds by creating an attractive APY mechanism, which is one of the highlights of Curve's continued high TVL growth. As of the publication date, Curve's TVL is $18 billion, ranking first in the DEX race.

This article will further analyze Curve's APY mechanism from the following perspectives:

• How investors can earn more APY within and outside the Curve project
• Where does the motivation for the multiple APY mechanism come from
• Footprint's summary of observations on Curve

How Investors Can Earn Multiple APY

• Interacting with Pools within the Curve Project

Using the 3pool pool in Curve as an example.

During the stablecoin exchange process in the 3pool pool, traders need to pay a 0.04% transaction fee, with 50% going to Curve; the remaining 50% will be distributed as the basic reward to investors, more specifically, to the liquidity providers (LP) of the 3pool pool.

For investors, by depositing DAI, USDC, or USDT into the 3pool pool, Curve will automatically exchange the deposited stablecoins into a combination of three tokens in proportion. As a reward, investors will receive a 3poolCRV as an LP token, meaning the holder of this token will earn vAPY as the basic reward for investing in that pool.

Curve's APY mechanism encourages investors to activate their 3poolCRV in their wallets, which is a term used by Curve for the LP tokens deposited into the Gauge Curve, meaning the savings pool. The investor will receive CRV rewards based on the allocation percentage of the pool.

If investors wish to increase this reward ratio, they can withdraw the CRV rewards and deposit them back into the CRV Gauge. This action not only allows investors to potentially increase their rewards by up to 2.5 times, but also earn Curve's governance token, veCRV. The amount of veCRV that can be exchanged depends on the duration of the deposit: for the same amount of CRV,

1. Locking for 1 year, 4CRV = 1 veCRV
2. Locking for 4 years, 1 CRV = 1 veCRV

So, who has a strong demand for veCRV tokens? Stay tuned.

• Interacting with Multiple Protocols outside the Curve Project

Investors can also earn more APY by interacting with different protocols outside of Curve.

When an investor deposits their DAI into Yearn's yield aggregator project's vault pool, they will receive yDAI, which represents an equivalent value as an Interest Bearing Token. This yDAI is an asset accepted by the yPool pool within the Curve project. By depositing yDAI into the yPool pool, the investor will receive yCRV as a deposit certificate.

At this point, the investor has two options: 1) the investor can deposit this yCRV into Curve's Gauge as mentioned above, to earn CRV; 2) they can also deposit a mix of 2% YFI and 98% yCRV into a pool in Balancer, a DEX that supports custom pool structures, provided the investor holds the equivalent amount of YFI tokens from Yearn. As a reward, the investor will receive BPT representing their LP tokens and additional rewards in BAL, Balancer's platform token.

Furthermore, investors can re-deposit BPT into Yearn's vault to earn YFI as a reward.

Perhaps you now understand how these tokens serve as incentives between different protocols. The next section will break down Curve's DAO model and further explore how the interactions among Curve participants satisfy their needs through incentives.

The Motivation Behind the Multiple APY Mechanism

Who Needs a Large Amount of veCRV Tokens?

veCRV is Curve's governance token with voting rights. It is primarily used for voting on Curve Improvement Proposals (CIPs) or submitting new CIPs to the Curve DAO.

The Y Pool mentioned above is an official pool created by the Yearn protocol. For protocols that need to create new pools within Curve, they require a minimum of 2500 veCRV. Currently, veCRV can only be obtained by staking CRV in the CRV Gauge based on the duration of the stake. According to the redemption rules, protocol parties must purchase at least 2500 CRV locked for 4 years, or 10,000 CRV locked for 1 year from a centralized exchange (CEX) or decentralized exchange (DEX) in order to submit a new pool proposal (CIP).

But that's not all.

If the CIP is approved, the proposing party needs more veCRV to launch the pool. Of course, to ensure the CIP passes via voting, the protocol party would also need more veCRV to vote. Additionally, to make the pool more attractive, i.e., to offer a higher CRV APY to attract investors, the protocol party needs to have a sufficiently high percentage of staked CRV before determining the next week's CRV allocation rate.

Source: curve.fi/gaugeweight

According to the latest data released by Curve, the Min Pool, Tricrypto2, and Frax pools currently have the highest proportion of staked CRV in the CRV Gauge. Since the total amount of CRV distributed weekly is limited, the effective CRV APY for next week is distributed to the corresponding pools based on the staking ratio.

Answer revealed: Protocol parties are the largest demanders of veCRV.

The Positive Cycle of Curve DAO

From the perspective of investors and protocol parties, it is clear that Curve's DAO model has formed a virtuous cycle, meeting the needs of key participants in the project: investors, protocol parties, and Curve itself. For a specific illustration, you can refer to the previous article "Footprint: Why Curve Leads the DEX Race from Afar."

In summary: the more people trade, the higher the APY; this attracts more investors, which in turn attracts more protocol parties to create pools; the more staked CRV, the more competitive the APY, leading to stable coin prices and higher locking amounts. This results in more people and protocol parties choosing Curve for trading, investing, and pool creation.

Conclusion on Curve, Footprint:

Project Advantages:

• Curve focuses on the stablecoin sector, which has high demand, providing attractive low slippage and trading fees, encouraging more exchange transactions, and ultimately offering users higher vAPY as a basic reward shared from transaction fees;
• Curve has a well-designed DAO that meets the needs of all participants, including Curve itself;
• A locking period of over 3.5 years for CRV provides strong confidence for investors to invest and for protocol parties to create pools;
• The interaction between pools within Curve and external protocols offers various forms of APY, akin to a treasure hunt for investors.

Project Disadvantages:

• An outdated Windows 98 interface, different entry names for the same content, and a confusing website structure;
• Poor user experience, making it challenging for first-time investors to understand how to earn more APY, leading to potential errors from accidental button clicks, exacerbated by high Ethereum gas fees causing frustration;
• Displaying too many statistics without proper organization, making it difficult for investors to find relevant key information.

Popular pools at the moment:

• Pools with high trading volume have higher basic vAPY;
• Official pools supported by reputable protocols like Compound, Aave, etc;
• Pools with higher voting power, referencing official Gauge statistics, to earn higher CRV rewards;
• Pools with additional rewards, such as sUSDSNX.

Reminders from Footprint:

Exercise caution when investing in pools labeled "FACTORY" without thorough research, as these pools bypass the initial scrutiny of the pool's protocol party's financial strength and pool approval;

Staking LP in the Gauge is the key to earning CRV, often overlooked by most new investors;

Remember to select the correct network, as pools supported on some new networks may be limited;

Footprint has created a real-time dashboard for Curve to provide users with clear insights into key project indicators, such as total TVL across chains, token CRV price trends, trading volume, and relevant pool statistics. Anyone can create their own dashboard for DeFi projects using Footprint, so pay attention to the data.

Disclaimer: The content of this article represents the views of Footprint and is for reference and informational purposes only, not constituting investment advice.

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