Curve Finance veCRV Token Admin Fees

CRV vote locking on the Curve DAO produces veCRV (voting escrow CRV) which allows voting on proposals and can boost ROI up to 2.5x. But vote locking presents opportunity cost as well as smart contract risk. As a result, vote lockers (veCRV holders) have proposed an admin fee to balance compensation.

Proposal: Should an admin fee be introduced to Curve Finance?

According to the abstract, “Curve has the option to introduce an admin fee of up to 50% of the trading fee.” This fee will flow from Curve transactions directly to the holders of veCRV. There is already a 0.02% trading fee which rewards liquidity providers with CRV.

The stated motivation of this proposal is to prevent “incentive misalignment” between these two tokens. CRV holders have the advantage of liquidity but veCRV holders have made a long term commitment to the Curve protocol. This proposal is meant to balance the two by rewarding veCRV holders with more CRV.

At the present rate of trading volume, a 0.02% fee would distribute ‘over $4m per year’ to veCRV holders.

Proposal: How should the admin fee be distributed to veCRV holders?

CIP#7 builds on the above proposal for an admin fee buy suggesting two options:

Option 1: Buy CRV on the open market and veCRV holders would receive CRV

Option 2: The fees should be directed to a Curve pool and veCRV holders would claim LP tokens

It was also suggested those fees could be claimed when a veCRV casts their vote which would add incentives to participate in governance proposals

Below are the current results of voting on these proposals:

Voting ends September 2nd and September 5th respectively.

So it seems the DAO will buy and distribute CRV as a 50% admin fee to all veCRV holders. This adds to the already high incentives for participating in the Curve protocol. With these two proposals implemented, not only will more users choose to lock their supply but the DAO will be actively buying up CRV on the market.