The Curve.fi Amin Fee Dilemma
More than $788K in admin fees have been generated by Curve.fi since September 17th but governance has yet to determine exactly how that will be distributed to token holders.
With the conclusion of CIP#28 voting today, the Curve community has chosen to distribute stablecoins or LP tokens instead of CRV, ETH, or wBTC. CRV was originally chosen because buying tokens off of the market would naturally increase the price of CRV. The distribution of CRV to those with a stake would likely lead to more CRV locked which would further increase the price of the token by decreasing supply. But after consideration, this strategy presented two issues:
- The price of the CRV token has trended steadily downward as liquidity providers routinely take profits. You may earn a high ROI in theory but CRV could lose a significant amount of value by the time you claim it.
- Front-running may occur if people buy CRV in advance then dump as the DAO is buying up CRV for distribution. This may increase the price of CRV in the short term, but it decreases the ROI after distribution.
Conversely, distributing a stablecoin or LP token would solve the above two concerns with LP tokens providing at least one added benefit.
LP tokens represent a share of the entire liquidity pool. Compound.finance, for example, will provide you with cUSDC when you deposit USDC. Instead of paying interest over time in the form of USDC, you will find the interest accrued when you redeem your cUSDC LP token because you own the same share of a pool that is now larger.
The Next Step
Soon voting will be live to choose which stablecoin or LP token will be used to distribute the admin fee.
LP tokens and stable coins likely to be 3CRV/yCRV/USDC/DAI
- 3CRV — the LP token for Curve’s 3Pool
- yCRV — the LP token for Curve/Yearn’s Y Pool
- USDC — US Dollar stablecoin created by Coinbase
- DAI — US Dollar stablecoin created by Maker DAO
By claiming LP tokens, users will be just one transaction away from providing liquidity back to Curve to start earning CRV. If CRV were claimed, a user would have to convert CRV to a stablecoin like DAI, then stake the DAI to receive an LP token such as 3CRV or yCRV. So in this scenario, claiming LP tokens would save the user two transactions.
This ‘revote’ is seen as controversial to some community members, as we had already voted to receive CRV with CIP#18.
This revote is bullshit. We had a solution that is a good neutral solution all veCRV can be Reasonably satisfied with, and now it’s going to be a political shit show with a few whales advocating for one stablecoin over another
— comment from CIP#28 discussion
Two thoughts on this complaint:
- As Charlie explains below, we have some time while contracts for admin fee distribution is being developed.
- It is the right of the DAO to change course and vote again, just like it was the right of the community to vote in the first place.
This next signal vote will likely be the final vote before distribution is implemented in a few weeks. By then, the total amount distributed may even exceed $1M.
This is sure to be noticed by the greater DeFi community which is still trying to determine the value of the CRV token. With admin fee distribution in place, token holders will be able to say that “1 vote-locked CRV token (veCRV) generates $x per year”. This will go far in demonstrating the inherent value of the token as yield for veCRV is generated by a real-world service with a significant amount of volume.
Furthermore, successful implementation of the admin fee will demonstrate that the Curve DAO is capable of finding new ways to generate revenue for stakeholders.
As volume grows through integration with other decentralized financial protocols and more investors enter the space, we could see a huge influx of volume on Curve and a corresponding increase in admin fees. All of this combined leaves me very optimistic.
Stay tuned for more Curve updates.