Yearn, Convex, and Stae DAO battle it out on Curve Wars
The battle to attract liquidity from investors in what many now describe as the “Curve Wars” has continued to rage on as major DeFi protocols struggle to increase TVL by offering attractive yields.
For some context, liquidity providers can earn veCRV rewards by buying and locking up the CRV (Curve’s native token) for a long time. Each liquidity provider (LP) tries to increase its total value locked (TVL) by offering attractive yields to users. Furthermore, in order to offer the highest yields, LPs must accumulate points in the form of veCRV. The battle essentially involves which projects can offer the best returns on Curve’s stablecoin pools. According to the Curve team:
The main purposes of the Curve DAO token are to incentivize liquidity providers on the Curve Finance platform as well as getting as many users involved as possible in the governance of the protocol […] Vote locking CRV allows you to acquire voting power to participate in the DAO and earn a boost of up to 2.5x on the liquidity you are providing on Curve.
That being said, Yearn Finance dominated the “Curve Wars” scenes in late 2020 until Stake DAO joined the battlefield later on. Both protocols were in direct competition, with each team aggressively promoting their vaults and lobbying for CRV investors to increase their TVL until a third protocol (Convex Finance) joined the war.
In just two days, Convex was able to overtake Stake DAO in TVL, and two weeks later, it surpassed Yearn. The reason for the aggressive pump may be due to support from Stake DAO. While Yearn adopted an accumulation strategy, Stake DAO threw in the trowel and put its weight behind Convex by migrating their pools to Convex. While the move allows Stake DAO to offer higher APYs than Yearn, the decision could prove to be disastrous in the future.
This makes Yearn finance and Convex the two biggest contenders in the Curve Wars. To attract investors and offer mouth-watering interest rates, Convex is incentivizing stakers with its CVX governance token. Furthermore, SUSHI holders are rewarded for staking cvxCRV in the Sushi cvxCRV-CRV liquidity pool in Convex. This is a winning strategy since Yearn is unable to incentivize participation with its governance token.