[REVIEW] [GF: Phase 1 Proposal] Curve

Project Name: Curve

Author Name: WormholeOracle (Discord: WormholeOracle#6470, TG: @WormholeOracle)

I understand that I will be required to provide additional KYC information to the Optimism Foundation to receive this grant: Yes

Number of OP tokens requested: 1,000,000

L2 Recipient Address: [Work in Progress]

Grant category: Governance Fund, Season 2, DeFi

Is this proposal applicable to a specific committee? No

Project description: Curve is a multichain AMM exchange specializing in concentrated liquidity. Curve is designed for extremely efficient stablecoin trading and low risk, supplemental fee income for liquidity providers.

Project links:
Website: https://curve.fi
Twitter: @CurveFinance
Discord/Discourse/Community: Discord: Curve Finance, Telegram: Contact @curvefi
Please include all other relevant links below: Curve on Optimism- https://optimism.curve.fi/

Additional team member info: Curve Founder TG handle- @michwill

Please link to any previous projects the team has meaningfully contributed to: Michael was a founder and CTO of NuCypher, now known as Threshold Network.

Relevant Usage Metrics:

Data sourced on August 28, 2022

Competitors, peers, or similar projects: Uniswap

Is/will this project be open sourced? Yes

Optimism native?: No

Date of deployment/expected deployment on Optimism: Currently Deployed

Ecosystem Value Proposition:

Curve is the backbone of the burgeoning DeFi industry. It touches every piece of the stack and strengthens every integrated protocol. There is opportunity for Optimism to leverage Curve’s foundational role to further support its vibrant ecosystem.

Applications integrated into Curve have realized novel use cases. Synthetix heavily utilizes Curve for synth liquidity. Their atomic swap functionality recently integrated with Curve has produced staggering revenues for Synthetix stakers.

The stableswap algorithm, well known for enabling deep liquidity and low slippage swaps, has built a reputation for stabilizing pegs and enhancing stablecoin utility. See: FRAX, 3CRV

Curve has a number of integrations with lending markets and yield bearing derivatives. Swap fees compound the interest generated from these activities. See: Aave, stETH

Highly configurable V2 pools are unlocking new potential for FX markets and volatile crypto pairs. The concentrated liquidity algorithm offers advantages to LPs and traders, combining a composable AMM design with low slippage swaps. See: Tricrypto, eursusd

Curve also needs Optimism. A recent Delphi article demonstrated that although Curve regularly quotes better pricing than competitors, it underperforms on volume due to mainnet gas costs. Curve requires a scalable L2 where it can absorb liquidity and realize its potential. Optimism is the ideal partner in this regard.

Has your project previously applied for an OP grant? No

Number of OP tokens requested: 1,000,000

Did the project apply for or receive OP tokens through the Foundation Partner Fund?: In Process

If OP tokens were requested from the Foundation Partner Fund, what was the amount?: Undetermined, in process

How much will your project match in co-incentives?

Curve is currently incentivizing liquidity on Optimism in the form of CRV emissions. Emissions are controlled by veCRV voters, so it is impossible to predict exactly how much weighting they will give to Optimism pools going forward. However, we can expect that the influx of LPs to Optimism will create a virtuous cycle.

Increased incentives attract LPs → Influx of liquidity stimulates utility of Optimism pools → Utility incentivizes veCRV to more heavily weight those pools → Incentives attract more LPs to Optimism.

Curve’s inflation schedule takes place over the course of ~250 years, so Optimism can be confident that there are many years of incentives ahead.

Proposal for token distribution:

How will the OP tokens be distributed?

100% of OP will be distributed to LPs that provide liquidity on Curve.

Many projects with pools on Curve incentivize liquidity as rewards tokens in the Curve gauge contract. The OP will be distributed in much the same way, offered as incentives for a variety of pools.

Curve uses a gauge weight mechanism that directs inflationary CRV emissions toward specific pools. Pools receive a gauge by passing an on-chain DAO vote. veCRV owning governance participants vote weekly on where to allocate inflation, which may be pools on any network, including Optimism.

Each week, the RootChainGauge on Ethereum mints all CRV emissions of the previous week and transfers them over the Optimism bridge where they are received to a ChildChainGauge contract deployed to the same address. After checkpointing, they are transferred to the ChildGaugeFactory, the contract which handles distribution to all gauges on Optimism.

Contract Name Contract Address
ChildGaugeFactory 0xabC000d88f23Bb45525E447528DBF656A9D55bf5

This decentralized mechanism for rewards distribution will determine how OP is distributed to LPs. There are currently five pools with gauge on Optimism (sUSD, sETH, sBTC, 3pool, and FraxBP), although the number of pools and opportunities for LPs will be increasing over time.

Current Optimism Gauges Eligible for Incentives:

We plan to distribute a fixed quantity of OP per week, to the amount of 50,000 25,000 OP/week. By calculating the weekly gauge weight allocated to Optimism pools, we can determine the proportional OP allotment toward each pool.

For example, assume the weekly gauge vote weights result in 5,000 CRV toward sUSD pool, 3,000 CRV toward sETH pool, and 2,000 CRV toward sBTC pool. We would then match weekly distribution of OP as:

(5,000 / 10,000) * 25,000 = 12,500 OP toward sUSD pool
(3,000 / 10,000) * 25,000 = 7,500 OP toward sETH pool
(2,000 / 10,000) * 25,000 = 5,000 OP toward sBTC pool

Note: this is an example weekly allocation. The overall quantity is fixed every week (25k) but the proportional allocation depends on the number and weighting of gauges receiving CRV each week.

How will this distribution incentivize usage and liquidity on Optimism?

Curve’s stableswap AMM excels for pools involving like-kind assets. LP’s are attracted to these pools as a way to earn real yield from swap fees, while mitigating the risk of impermanent loss (as assets supplied to Curve pools are expected to be mean reverting). This is an expectation of increased assets bridged to Optimism, largely stablecoins, as LPs seek superior yield opportunities on Curve.

Users trust the design, implementation, and security of Curve’s contracts. Curve has been live on mainnet since early 2020, and has subsequently expanded to a number of side-chains and L2’s. Its system is robust and battletested. Thanks to the integrity of its team and its brand, Optimism will surely see LP’s onboard en masse to its incentivized pools.

Once onboarded, the goal is to retain LPs on Optimism. Early converts incentivized with a stake in the network are more likely to express long term loyalty toward Optimism . Curve LPs are power users, some of the most capable at traversing the DeFi landscape. Whereas most protocols regard liquidity as mercenary, Curve has found an enduring alignment with its LPs, largely thanks to veTokenomics. Optimism has this opportunity to make allies of the best DeFi has to offer.

Why will the incentivized users and liquidity remain after incentives dry up?

Curve’s value proposition has not only attracted individual depositors, but has spawned new categories of DeFi application as protocols build their services around Curve. When these applications establish themselves, liquidity becomes anchored on Curve.

  • Use case 1: Synthetix and Curve have a deeply intertwined history that began with the need for Synthetix to offer low-slippage exposure to their sTokens. The partnership eventually expanded with the ability to accomplish cross-asset swaps using a combination of Curve and Synthetix. Now atomic swaps are fully realizing this functionality. For example, a user might swap USDC → sUSD on Curve, sUSD → sETH on Synthetix, and sETH → ETH on Curve, all in a single transaction. This is a powerful tool for LPs, who can provide liquidity in a single token without exposure to impermanent loss. Both Curve and Synthetix are seeing a surge in volumes thanks to this functionality.

  • Use case 2: Yearn was one of the first protocols built on Curve with their Y pool. They essentially invented the yield aggregator that kicked off the farming craze of 2020. Their service involves accepting user stablecoin deposits and optimizing yield on those assets across several lending applications (later expanding to a variety of other strategies). Its viability depends on Curve’s deep liquidity and the assurance that their users can withdraw their stables without suffering impermanent loss. This use case was simply not possible before Curve.

  • Use case 3: Lido has chosen Curve as the source of liquidity for their liquid staked ETH derivative, stETH. Their service involves accepting user deposits of ETH and staking them on the ETH2 beacon chain. While deposits are temporarily locked before the merge, the stETH pool allows depositors to exit their position back to ETH. The deep liquidity and composability offered by Curve’s stableswap AMM made it an excellent choice for Lido’s integration.

From these examples, it is evident that Curve is foundational to the DeFi ecosystem. It does not exist in isolation, but rather as a building block for novel use cases. Once those applications establish themselves, liquidity becomes firmly cemented within Curve, ultimately becoming the fuel that powers the Optimism flywheel.

Over what period of time will the tokens be distributed?

The distribution will take place over 20 40 weeks (50,000 25,000 OP will be distributed weekly for the total of 1,000,000 OP).

Feedback Summary from Discussion (Sept. 19, 2022)

feedback in bold, followed by author’s response

The proposed 5 month distribution is too short, should increase duration.

Several people have mentioned the duration being too short, and I have no problem accommodating the request. My revised proposal is to distribute 25,000 OP/week for 40 weeks (Twice duration of original proposal).

Number of incentivized pools seems limited and mainly Synthetix pools. Core pools should have gauges, such as Tricrypto [ETH, BTC, USDT] and 3pool [USDT, USDC, DAI].

When the proposal was first written, only Synthetix pools had gauges on Optimism. Since then, 3pool and FraxBP have received gauges on Optimism. These are basepools and set a foundation for liquidity on Curve Optimism.

Curve is not an Optimism native platform, so governance involving addition of gauges and gauge weighting (a requirement for pools to begin receiving OP) would require activity on main net Ethereum. Additionally, the admin fee returns 50% of swap fees to token holders on main net.

This line of reasoning takes the position that Ethereum mainnet and Optimism are somehow in competition. There’s some ideology wrapped up in it, but ultimately behind it is the ambition for Optimism to absorb liquidity most effectively. From Curve’s perspective, the liquidity it draws to Optimism through incentivized pools far outweighs any fees/vote incentives sent to mainnet. Additionally, Curve has established partners on main net who are likely to align themselves with Curve on Optimism. The net result of Curve’s presence is an overwhelming influx of capital.

Gauge weighting is a decentralized mechanism collectively controlled by all veCRV. This makes a commitment of co-incentives from Curve side an uncertain proposition.

CRV emissions have been flowing to Optimism for the better part of a year, and emissions last for hundreds of years. Bootstrapping Curve now is a small investment for the potential of attracting essentially endless co-incentives.

Bribes are a more cost effective way to increase TVL

This proposal was formulated specifically to reward users on Optimism, who are the LPs. It’s our opinion that these users are the rightful recipients of this style of grant being offered by Optimism governance.

OP reward should be proportional to the amount of CRV allocated to pools each week, as opposed to the fixed rate of distribution laid out in the proposal.

This suggestion was made to ensure that CRV is adequately co-incentivizing the pools. However, this distribution method involves more complexity, requiring the need for price oracles or manual processes. This proposal prefers the simplicity of a fixed distribution. The criticism takes issue with Curve’s gauge weight system, which is decentralized and therefore unpredictable. We do, however, expect a positive feedback loop of increased LP presence on Optimism drawing high gauge weighting toward Optimism pools.

Distribution plan is clear and straightforward. OP is not retained by the team/protocol, but instead is distributed entirely to LPs who are Optimism’s user base.

Increased incentives on Curve could attract prominent partners such as Lido to make their products the primary venue on Optimism.

Competition is not a zero sum game. Increasing TVL on Curve will benefit all trading venues on Optimism.

21 Likes

Good proporsal :+1: curve & optimism

2 Likes

I like the proposal. The information is complete. I especially appreciate the detailed information on how the OP tokens are distributed and the distribution period. I would have liked the OP tokens to be distributed over a longer period than 6 months, but 5 months, according to TVL, is acceptable. And I have more confidence that you didn’t rush to apply for governance funding in the first few voting cycles, this is an advantage that the Optimism community knows the project and have time to use the Curve Protocol.

2 Likes

Good proporsal and good team, I trust you

Hey @WormholeOracle , Adding all the link here referred in the proposal.

3 Synthetix (SNX) | Dashboard | Token Terminal
4 https://curve.fi/files/stableswap-paper.pdf
5 Curve.fi
6 Curve.fi
7 Curve.fi
8 Curve.fi
9 Deep Dive: Curve v2 Parameters - nagaking
10 Curve.fi
11 Curve.fi
12 https://members.delphidigital.io/reports/uniswap-vs-curve-which-is-the-best-dex
13 Gauge Weights - Curve Finance
14 Contract Address 0xabc000d88f23bb45525e447528dbf656a9d55bf5 | Optimism
15 Curve.fi
16 Curve.fi
17 Curve.fi
18 Contract Address 0xc5ae4b5f86332e70f3205a8151ee9ed9f71e0797 | Optimism
19 Contract Address 0xcb8883d1d8c560003489df43b30612aabb8013bb | Optimism
20 Contract Address 0x172a5af37f69c69cc59e748d090a70615830a5dd | Optimism
21 Curve.fi
22 Curve.fi
23 https://dao.curve.fi/inflation

8 Likes

Heya - Alex from the Velodrome Team here. Even though I’m Velodrome founder, I’m a big Curve and Convex fan. Got my start following and writing about them! I’ve got a few thoughts and questions.

  1. @WormholeOracle are you a member of the Curve Team? How did this proposal come to be?

  2. Am I correct in understanding all of the economic activity around staking veCRV, bribing for votes, and actual voting for Curve emissions would remain on main-net? So any projects looking to actually engage with the Curve ecosystem (outside of swapping or LPing) will need to do so off of Optimism?

  3. I understand 50% of trading fees on Curve go to LPs and 50% go to veCRV holders, does this mean that 50% of the fees generated by this subsidized liquidity would be routinely transferred off Optimism?

  4. When you say that “Curve is currently incentivizing liquidity on Optimism in the form of CRV emissions” you mean that there are veCRV lockers voting for pools such as sUSD-3CRV, right? The Curve Team itself isn’t currently voting for OP pools or offering any matching incentives.

  5. Why would Curve be asking for 1M in $OP from governance solely to offer pool 2 rewards on Synthetix pools? Didn’t the Synthetix Team already received 7M OP to do just that?

Would be good to understand this before weighing in. :slight_smile:

5 Likes

The proposal didn’t say anything about SNX pool 2s to my knowledge…

They seem to be directing all the rewards to their highest volume pools (the same L1 synth pools) which are pegged ETH, BTC and USD pools. Those pools generally have 2-3 assets other than synths in them as well.

Yeah, apologies my note was unclear. I was more looking to understand why (as a Curve proposal) the focus is entirely on incentivizing s asset pools versus the 3pool or CRV or any of the other top main-net pools, especially given the 3M already granted by governance to Synthetix to do that (at least for sUSD). Is intended to be more of a joint Curve/Synthetix proposal?

From Curve core. I’ll answer here:

  1. @WormholeOracle are you a member of the Curve Team? How did this proposal come to be?

Wormhole is a distinguished community member, and a member of the Curve Grants council. He is not a curve core dev.

  1. Am I correct in understanding all of the economic activity around staking veCRV, bribing for votes, and actual voting for Curve emissions would remain on main-net? So any projects looking to actually engage with the Curve ecosystem (outside of swapping or LPing) will need to do so off of Optimism?

Yes. Because no such service exists on Optimism (yet) due to technical reasons explained in the next question.

  1. I understand 50% of trading fees on Curve go to LPs and 50% go to veCRV holders, does this mean that 50% of the fees generated by this subsidized liquidity would be routinely transferred off Optimism?

Yes this is by design, since there is a technical challenge that has a dependency on Ethereum EIP: https://notes.ethereum.org/@vbuterin/verkle_tree_eip, and could be updated once Ethereum core devs sunset Merkle Patricia Proofs and onboard Verkle Trees.

  1. When you say that “Curve is currently incentivizing liquidity on Optimism in the form of CRV emissions” you mean that there are veCRV lockers voting for pools such as sUSD-3CRV, right? The Curve Team itself isn’t currently voting for OP pools or offering any matching incentives.

Curve Stakeholders and veCRV holders vote for sUSD-3CRV.

  1. Why would Curve be asking for 1M in $OP from governance solely to offer pool 2 rewards on Synthetix pools? Didn’t the Synthetix Team already received 7M OP to do just that?

This is not a join Synthetix/Curve proposal: this should be clear.

2 Likes

The proposal is NOT focusing on incentivizing synth pools only. This misunderstanding seems to arise from unfamiliarity with how CRV emissions work.

Currently only the synth pools on Optimism are getting CRV emissions (see here). This is why they were used for the example.

The way emissions work is they are determined completely by voting from the DAO. Once gauges are voted for inclusion in the periodic gauge weight votes, they will get CRV emissions based on the proportion of voting power they receive.

Note however that the DAO voting power is comprised of large entities such as Convex, Yearn, etc., in addition to many smaller longtime holders. While unanimous decisions can occur, results often are the result of much compromise and discussion amongst community members.

I understand, but I think this is a distinction without a difference at the moment.

You are saying that until or unless the DAO votes for the inclusion of other non s asset pairs in the gauge weight votes (a process that takes time and buy-in), the requested incentives will only benefit the outlined s asset pools.

And if any other ecosystem projects were to want to try to participate this process by getting their own gauges approved, participate in the gauge weight votes, or bribe for votes for that their only option to do this would be on mainnet.

This essentially makes the program inaccessible to Optimism native protocols or new entrants that don’t have existing presences on mainnet or in Curve goveranance.

This is all absolutely fine by the way, but at least in my opinion is not the kind of thing that governance should be directly incentivizing. At least until participation in Curve governance is actually possible on Optimism and there is no longer a need for 50% protocol revenue to be shipped off the chain.

Perhaps Curve could apply for a grant through the partner fund to help to accelerate these kinds of efforts and revisit LP incentive boosts from goverance once they’re further along?

This was very clear! Thank you.

This is factually incorrect, since protocols that build on Optimism are not forbidden to use Ethereum (the protocol that secures Optimism). So new protocols can just as easily participate in one of the most decentralised protocol governance processes on Ethereum mainnet to determine how its protocol on Optimism evolves.

So I don’t see how it becomes suddenly ‘inaccessible’.

1 Like

Right, so all an Optimism protocol would need to do is lobby veCRV holders to get gauges approved for their token pairs, then lobby to get a share of the OP rewards.

Once the OP incentives run out, they’d have to consistently bridge funds from Optimism to mainnet to build a veCRV position or bribe veCRV holders to continue incentivizing their liquidity.

Best case for Curve, the CRV wars heat up among Optimism protocols and they all bridge funds to mainnet to compete. Eventually Curve attracts the majority of liquidity and trades on Optimism, and they all automatically route 50% of fees back to mainnet.

As a Velodrome team member, I’m biased, but this is not what I’d like for the ecosystem.

2 Likes

The proposal does not seem to have any incentive matching for protocols whose tokens are not already on gauges approved by the Curve DAO for CRV emissions. I don’t think CRV that may be approved in the future by the Curve DAO should be referenced as co-incentives supplied by the protocol in this proposal. The duration of the emission incentive program is also too short.

Fair enough.

It is not inaccessible, it’s significantly less accessible. 1M in OP incentives that you can only access if you leave the chain and do some combination of purchasing and staking CRV, persuading mainnet voters to approve your gauge, vote or bribe voters to direct emissions to your pool, etc etc.

Again, this is a fine behavior to ask for participation in Curve. But, not if Optimism is the one providing the incentives. There are plenty of existing native options that don’t have these limitations.

I think any grant would be better served helping the Curve Team remove these barriers first. Then consider juicing the incentives to participation.

Right, so all an Optimism protocol would need to do is lobby veCRV holders to get gauges approved for their token pairs, then lobby to get a share of the OP rewards.

There are other options than lobbying veCRV holders directly, but ultimately garnering support is necessary, as is the case for receiving any emissions from Curve.

As a Velodrome team member, I’m biased, but this is not what I’d like for the ecosystem.

You guys have already stated you understand the importance of working with Curve (and Convex) when you airdropped $VELO to veCRV and vlCVX holders:

$VELO tokens will be distributed to the people who have played the biggest role in incubating Velodrome and those likeliest to contribute to its long-term success”

I assume you were aware all along this is how the protocol works when you airdropped to veCRV holders. I would like to understand where this objection is coming from. Are you are looking out for other protocols on Optimism? They may not be able to marshall the efforts you guys were able to? I would say let’s not underestimate others, including your potential competition.

Best case for Curve, the CRV wars heat up among Optimism protocols and they all bridge funds to mainnet to compete.

Best case perhaps in a static world.

I would love to take a moment to appreciate how beautifully written this proposal is . Distribution plan is clear with contact address and pool name along with number of token to be distributed in each pool.

Author has left nothing to the readers imagination by providing 25 citation. Thank you @WormholeOracle, this was a good read. To be frank, I still find math behind curve mind boggling but worth a read nonetheless.

Now coming back to proposal.

On co-incentives, from what I understood, curve emission is part of the curve protocol, right ? Its not something special that you are doing only on OP chain ?

Do you have project or DAO budget in form of CRV ? Will you be able to provide any form of co-incentives ?

2 Likes

Curve is one of the best protocols in DeFi, and Velodrome exists thanks to it. That’s why we airdropped tokens to veCRV holders.

The point though was to attract said veCRV holders into Optimism to participate in the ecosystem.

As explained above, without being fully deployed on Optimism, Curve’s success would lead to a direct flow of capital AWAY from Optimism and into Mainnet in the form of fees, bribes, and veCRV acquisitions.

This is not in the best interest of Optimism as it tries to grow while competing for resources with other L2s.

2 Likes

Curve’s success would lead to a direct flow of capital AWAY from Optimism and into Mainnet in the form of fees, bribes, and veCRV acquisitions.

As any accountant will tell you, what’s important is net flow. If you are saying this is the net result, that’s a (suspect) claim to know the future. If you claim this is one flow of many, then ok.

But keep in mind: the most important flow is from Mainnet to Optimism. Curve will be a strong ally for that.