As we highlighted in our Yearn & Curve research report from last October, a symbiotic relationship can start to form as external protocols lock up CRV in governance, receiving veCRV in return, to earn boosted yields and gain influence over Curve’s DAO. At the time, the vast majority of issued CRV was not locked up in governance but this has gradually changed over the past year. As seen in the chart below, ~66% of issued CRV is now locked up as veCRV for an average time period of time of 3.68 years. An increase in veCRV% is a bullish long-term indicator for CRV.

Looking at mid May, it would be reasonable to assume that a decreasing CRV price could have led to a spike in veCRV %. The logic being that, if protocol earnings are held equal, it would then be cheaper to buy CRV spot, lock it in governance and receive the aforementioned benefits. We should note that Curve is one of the few DeFi protocols to have significant earnings (i.e. protocol revenue). CRV stakers stand to benefit from this protocol revenue, in addition to boosted rewards for providing liquidity in the form of newly issued CRV.

However, as the chart below shows, the spike in veCRV % was not related to earnings or a deflated CRV price, but rather the launch of Convex. Despite Yearn having approximately an 8 month head start, Convex’s veCRV holdings quickly surpassed it. Convex and Yearn hold ~20% and ~9%, respectively, of the total veCRV supply. This effectively gives Convex greatly influence on which Curve pools receive boosted rewards (i.e. gauge weights), allowing Convex to generate greater yields for the particular pools which are beneficial to its depositors/users.

Convex’s impressive growth can be attributed to its economics. CRV depositors earn higher total yields via CVX rewards allowing it to divert 10% of the CRV rewards for Convex LP (stablecoin depositors) to cvxCRV holders. Combined with only charging 16% (no management fee) on LP returns, Convex clearly has made an attractive yield alternative to Yearn for stablecoin and CRV holders. For added context, at the time of writing, CRV APY hovers around 21% on Curve (veCRV), ~87% on Convex Finance (cvxCRV) and ~42% on Yearn Finance (yveCRV).

With that said, as indicated by Banteg, there is always more nuance under the hood for these strategies. For one, Yearn has optimized rebalancing and gauge weight more effectively than Convex, making Curve APY organically higher than Convex. Secondly, Yearn actually utilizes CVX for its vault strategies. Per this dashboard, Yearn has received 21% of all CVX minted rewards. The two protocols may be more mutualistic than people think.

Overall, while Yearn and Convex battle it out for the veCRV market share, Curve is the ultimate winner. This is because an increase in sustained sources of demand for veCRV translates to net less CRV selling.

As more CRV gets locked up in governance, it begs the question – when will the amount of new lock ups surpass the rate at which CRV is being released into the market? We have already seen instances of the average 7D CRV lock surpassing both LP rewards and Daily Total Unlocks in the post-Convex period. Daily LP rewards represent CRV issuance directed towards stablepool LPs, while Daily Total Unlock includes both CRV issuance and all vesting supply.

By the end of August, if the post-Convex veCRV lock rate sustains, Curve will effectively be locking up more CRV per day than is entering circulation. Even in the pre-Convex period, Curve had a healthy lock rate that would eventually fall in line with LP reward issuance by the end of August 2021 and total issuance by August 2022. The emergence of Convex on the scene has clearly accelerated this development.

We can’t assess the future of Curve without mentioning Uniswap V3. In the chart above, we aggregated stable swap volume for UniV3 and Curve. While it varies on any given day, Uniswap V3 has been able to achieve ~40% of the market share between the two since mid May.

With that said, Curve is fighting back. Curve introduced a new volatile-asset AMM function (non-stables), allowing for more diverse tripools (USDT:wBTC:ETH). It will be interesting to see how much market share these pools can extract from the extended DEX market.

As of writing, Curve’s wBTC/ETH/USDT pool 1D volume sits at ~$46M. Uniswap v3′ ETH/USDC, wBTC/USDC, and wBTC/ETH, aggregate 1D volume is ~$236M. This is by no means a perfect comparison, but a quick method to compare the respective DEXs.