In relation to the Curve 4pool, $UST and $FRAX.
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This thread covers:
β’ Curve and its importance to stablecoins.
β’ The partnership between $UST and $FRAX, and the formation of the Curve 4pool.
β’ The effects on the stablecoin economy.
β’ Curve and its importance to stablecoins.
β’ The partnership between $UST and $FRAX, and the formation of the Curve 4pool.
β’ The effects on the stablecoin economy.
If you donβt already know, @CurveFinance is a the largest DEX in DeFi accounting for more than $20bn in TVL.
Due to having such substantial liquidity it has become an essential DEX for stablecoins if they're aiming to become a prominent player within the DeFi stablecoin space.
Due to having such substantial liquidity it has become an essential DEX for stablecoins if they're aiming to become a prominent player within the DeFi stablecoin space.
So, how can a protocol attain this liquidity?
1. They can provide it themselves.
2. They can buy and stake CRV/CVX to increase CRV incentives to their stablecoin pool.
3. They can βbribeβ other CRV/CVX stakers to increase CRV incentives to their stablecoin pool.
1. They can provide it themselves.
2. They can buy and stake CRV/CVX to increase CRV incentives to their stablecoin pool.
3. They can βbribeβ other CRV/CVX stakers to increase CRV incentives to their stablecoin pool.
But these mechanics are expensive and have resulted in the Curve wars, where different stablecoin protocols such as @terra_money and @fraxfinance compete with one another for liquidity incentives.
Currently, Curves largest stablecoin pool Is the 3pool (consisting of $USDT, $USDC and $DAI), despite the fact that none of them pay for liquidity incentives.
So why do people provide liquidity to this pool if itβs not incentivised?
So why do people provide liquidity to this pool if itβs not incentivised?
Simple, itβs the central liquidity pool. All stablecoins achieve liquidity through pairing with this pool. For example:
β’ $UST is paired with the 3pool
β’ $FRAX is paired with the 3pool
β’ $UST is paired with the 3pool
β’ $FRAX is paired with the 3pool
So when Terra uses their CRV/CVX voting power and βbribesβ to incentivise $UST liquidity on Curve, they are also directly incentivising $USDT, $USDC and $DAI liquidity.
The same goes for $FRAX, $MIM, and all other stablecoins.
The same goes for $FRAX, $MIM, and all other stablecoins.
So, whatβs about to change?
@terra_money and @fraxfinance have announced a partnership which will introduce the curve 4pool which consists of $UST, $FRAX, $USDC and $USDT. Both protocols will direct all their CRV/CVX voting power (3.8M $CVX) and βbribesβ toward this new 4pool.
@terra_money and @fraxfinance have announced a partnership which will introduce the curve 4pool which consists of $UST, $FRAX, $USDC and $USDT. Both protocols will direct all their CRV/CVX voting power (3.8M $CVX) and βbribesβ toward this new 4pool.
This has significant effects on the overall stablecoin economy.
β’ Increased liquidity and peg stability for $UST and $FRAX.
With the 4pool, there will be a significant increase in $UST and $FRAX liquidity due to incentives being used together rather than against eachother.
β’ Increased liquidity and peg stability for $UST and $FRAX.
With the 4pool, there will be a significant increase in $UST and $FRAX liquidity due to incentives being used together rather than against eachother.
As other protocols pair their stablecoin pools to the 4pool rather than the 3pool, we will find that the demand for $UST and $FRAX will follow that for the greater stablecoin economy.
For example, if there is an increase in demand for $MIM liquidity, and itβs pooled with the 4pool, there will have to be a corresponding increase in demand for $UST and $FRAX, which will then be added to the 4pool liquidity pool.
Through having these high amounts of liquidity, both $UST and $FRAX will have built a defensive cushion that can act as a counter-party to sellers during contractions in demand. This results in increased peg stability and decreased risk.
β’ Loss in $DAI liquidity and demand.
Currently the 3pool holds 1.5 billion $DAI. With incentives being moved from the 3pool to the 4pool, we can expect a significant loss of yield and hence also liquidity in the 3pool as yield farmers flock to the 4pool for the higher yields.
Currently the 3pool holds 1.5 billion $DAI. With incentives being moved from the 3pool to the 4pool, we can expect a significant loss of yield and hence also liquidity in the 3pool as yield farmers flock to the 4pool for the higher yields.
A decrease in $DAI demand in conjunction with loss of liquidity could pose significant risks to the protocol.
On top of this $UST and $FRAX partnership, there is @redactedcartel, who currently holds in excess of 1.4M $CVX and has agreed to also incentivising the 4pool.
On top of this $UST and $FRAX partnership, there is @redactedcartel, who currently holds in excess of 1.4M $CVX and has agreed to also incentivising the 4pool.
Surprise! Thatβs not all.
Although it hasnβt been officially voted on by @OlympusDAO participants, @Ohmzeus has also shown interest in supporting the 4pool.
Although it hasnβt been officially voted on by @OlympusDAO participants, @Ohmzeus has also shown interest in supporting the 4pool.
If done, this will result in 4 of the top 7 DAOs by $CVX holdings funnelling incentives into the 4pool. Collectively, they hold 6M $CVX.
This close to guarantees that the Curve 4pool will be the deepest liquidity pool for all stableswaps.
This close to guarantees that the Curve 4pool will be the deepest liquidity pool for all stableswaps.
If you enjoyed this thread, you may also enjoy some of my other threads which you can find in my Notion.
Have a good day and remember that nothing I say is financial advice, always DYOR.
cryptoharry.notion.site
Have a good day and remember that nothing I say is financial advice, always DYOR.
cryptoharry.notion.site
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