FIP-10 Curve Integration

I think that any investments made by the FEI DAO to buy CRV will ultimately pay off. The CRV that you are buying and locking as veCRV will ultimately grant you a portion of the platform trading fees (50% of all fees collected in the pools go towards veCRV holders). At the same time, this veCRV can also be used to vote via the Curve gauge weight system to allocate a portion of CRV inflation to your pool. Additionally, any deposits made by the FEI DAO to the FEI-3CRV metapool can also be boosted by the veCRV that you have locked (assuming that pool gets listed and also has a gauge allocated).

The above is not possible unless you get added to the SmartWalletWhitelist contract on the Curve side which requires the DAO to vote in favor. You can take a look at the stakedao and convex proposal which the community voted in favor for whitelisting. Most recently, frax is also looking to be added as well.

As a first step (the above is probably not necessary currently but it is a good strategic decision for after), I recommend working on getting your metapool listed on the front page of Curve by going the route of ‘Curve Swaps - Curve Swaps’ and incentivizing this pool with rewards from your end so that FEI LPs will migrate their liquidity to this metapool. Volume should then follow and you might even consider lowering the reward rates for other FEI pools to attract a larger portion of LPs to this metapool. Once you meet the following requirements (I think volume is your problem at the moment):

At least one audit
Marketcap of at least $3m
Fortnightly volume over $3m
Pool liquidity over $500k in 3CRV
Pools on Factory v2 only

then your pool will easily be listed on Curve. I think that going this route is probably the best way to approach the Curve listing. Once you are on the front page, you can work with the Curve community to have a gauge added to your pool via a DAO vote. Typically, Curve LPs will vote in favor since some of them might be providing liquidity already (to earn TRIBE(?) incentives) and most of them want to also stack CRV rewards as well.

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Intuitively, the future stream of rewards should be reflected in the current CRV price. So buying CRV for the purposes of rewards would make sense only if we believe CRV will outperform alternative investments such as ETH or UNI, especially since we already have a way to incentivize the pool through TRIBE rewards. So I’m inclined to agree with @joey that a show-of-good-faith purchase makes more sense. But I can do some econ calculations if that helps.

Hi @fei.saver, thank you for the feedback.

I think that the only comparison in term of CRV performance is to ETH. Principally being that UNI is being acquired as a component of DPI, which the proposal would be live in a couple of weeks, and then I believe that Curve (at the top of the Defi Pulse rankings) can only grow with more integration to stablecoin projects and with Yearn, as well as its utility in voting power of veCRV. Hence, I’m pretty bullish on its performance. Especially with the low in ETH and other altcoin prices, we may be able to get a decent deal on a larger quantity of CRV than we have otherwise have.

Having said that, I would greatly appreciate if you could do some calculations on what you think would be a sweet spot. On Discord @joey mentioned that he would be comfortable with a 2k ETH purchase of CRV.

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I thought more about this and changed my mind. Because the DAO has a long time horizon and voting for gauge weights is a public good that should be provided by the DAO, I believe we should invest in a significant amount of CRV under the following conditions:

  1. We are long Curve protocol.
  2. We lock CRV for 4 years.
  3. We make use of the booster.
  4. We can buy CRV without too much slippage.

First of all, buying and vote-locking CRV isn’t that different from just incentivizing our Curve pool with TRIBE. The CRV reward is basically an inflation, so the future stream of CRV rewards is mostly reflected in the current price of CRV. In particular, the “APY” shown on Curve UI is not really an accurate measure of the profitability of investing in Curve. In this sense, the choice to reward the liquidity providers with CRV rather than TRIBE is to a large extent a bet on Curve. That is why the first order of business is to agree that we are not bearish on Curve - that we don’t think Uniswap v3 will end up killing Curve, for example.

However, the benefit of investing in CRV can be higher for the DAO compared to retail investors. There are two reasons. First, CRV holders who vote-lock for 4 years are essentially being subsidized by holders who vote-lock for a shorter period of time or those who don’t lock at all, in return for taking the risk of locking capital. So if we are more willing to lock CRV for 4 years than the average retail investor, then the PCV should buy CRV from them. But we know that we will use a certain amount of the treasury/PCV to incentivize liquidity for a long time, whereas retail investors may suddenly need liquidity to pay bills. As an institutional investor, it can be easier for the DAO to take a long term view without worrying about liquidity.

Second, retail investors who vote to increase a pool’s weight are subsidizing other investors who provide liquidity in the same pool. This means they do not have much incentive to hold more veCRV than is necessary to boost their own liquidity. On the other hand, we want to subsidize everyone who invest in our pool, so voting with veCRV benefits the DAO more than an individual holder.

Since the DAO can make better use of CRV than retail investors, it makes sense for us to buy from them, provided that they have CRV to sell. But CRV is being continuously minted and rewarded to retail liquidity providers, so we should buy this stream.

If we buy CRV, we should also make full use of the booster. If our veCRV is more than what is needed to boost the liquidity provided from the PCV (if any), we should find a way to use the remainder to boost user rewards.

Finally, a cursory search on 1inch seems to show that there isn’t that much CRV liquidity out there, probably because most have been locked. I think we should gradually build our position. In fact, it makes sense to continuously buy CRV from our LPs to maintain voting power. Perhaps we can partner with a protocol like Pickle to set this up, along with a way to boost user rewards using our veCRV.

If we agree that we can substantively invest in CRV, I can do some more careful calculations to figure out how much investment translates to how much rewards for users. But to be clear, that calculation will have no bearing on whether we should invest in CRV, since the rewards are mostly coming from the principal of the investment via dilution. The reason why we should invest is because the DAO has a long time horizon and voting for gauge weights is a public good that should be provided by the DAO.

Back-of-the-envelope formula for how much reward goes to users:
Assume the value of Curve protocol stays constant.
39% of circulating CRV (260 mm) is locked. Assume these CRV remain locked and the rewards that accrue to these CRV will be locked, and no additional CRV will be locked.
1.73 bn CRV is distributed to liquidity providers. So far, 260 mm has already been distributed, so 1.47 bn CRV will be distributed to this 39% of CRV holders (or the users of their protocols).
At the end of distribution, these holders will have 1.47 bn + 260 mm = 1.73 bn.
But the protocol only keeps the initial 260 mm. So the protocol only has .26/1.73 = 15% of the principal left. The users get 85% of the principal.
This means if we invest $100, we will be giving $85 to users over the course of the next few years and retain $15.
But in fact, the sum will be greater than $100 because we buy the CRV at a discount from retail investors for the reasons that I mentioned above, and also because there are swap fees accruing to veCRV holders. So it’s 85% + a going to users.

I want to emphasize again that this calculation does not depend on the APYs shown on Curve UI.

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I believe that most people here have agreed on a sizeable CRV investment from the PCV as a DAO operation. Great points mentioned there, the 4 year locking is perhaps the most economically efficient and I view this as almost like a CRV bond with a 4-year maturity. Obviously there are some risks there - I hope that Curve would still be operational in the future, and based on its symbiotic relationship with Yearn, it has an incentive to stick around.

I also think that as the DAO we should definitely make use of the (publicly) acquired voting power to vote on things which work in our favor - both the booster and gauge weight. That’s something that needs to be worked out based on how much we intend to invest.

Just to reiterate in closing - there is a positive appetite to invest in CRV, but the amount is still under scrutiny. My original proposal is to invest 10k ETH into CRV (actually, at today’s prices, we can probably get to quroum level with 9k ETH), but the low end of the investment would be 2k ETH. I think we can explore a middle option of 5k ETH, which would net us about 6.6M veCRV.

I share your concern about the lack of liquidity on CRV as most is already locked. A quick check on coingecko reveals that most of the volume happens on CEXs with the exception of Sushiswap. I agree that we will need to DCA a CRV purchase in multiple markets. There is about $2.4M and $3.5M liquidity on uniswap V2 and V3 respectively, and $15.9M on sushiswap.

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