The central theses
- Three of DeFi’s leading projects are controversial after Curve Finance proposed removing CRV rewards from Alchemix’s pool in the log.
- The proposal argues that Alchemix is already generating income from Curve Finance through Yearn Finance’s vaults.
- Alchemix recently launched its newest alETH product, Saddle, a Curve Finance fork.
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Some of DeFi’s best-known protocols discuss the implications of their earnings strategies. Discussions will focus on Alchemix, Yearn Finance and Curve Finance.
DeFi projects in conflict
A group of DeFi’s leading protocols got into conflict when Alchemix, Yearn Finance (Yearn), and Curve Finance (Curve) discuss Alchemix and Yearn’s yield farming strategies, which build on Curve’s liquidity pools.
To understand why this conflict occurs, it is necessary to explain how these DeFi protocols interact with each other. Curve is a decentralized exchange that specializes in stablecoin pools and pools between equivalent assets.
Curve promotes the provision of liquidity by distributing CRV tokens in addition to the fees of the liquidity providers. One of Curve’s premier liquidity providers is Yearn. As outlined in Crypto Briefing’s Project Spotlight feature on the minutes, Yearn allocates funds received from individual users into curve pools (among other strategies) and sells a portion of the CRV rewards to provide users with better returns than they would normally get on curve.
Alchemix is a DeFi protocol based on Yearn’s flagship vault feature. In Alchemix, users block a certain amount of DAI and can borrow up to 50% of the deposit in alUSD, Alchemix’s stablecoin. The locked DAI will be used to collect income through Yearn’s vaults to repay the original loan. Alchemix’s alUSD also has its own curve pool, which is funded with CRV rewards.
On Tuesday, the Curve team made a proposal to remove CRV rewards from the alUSD pool, arguing that Curve rewards are distributed twice with alUSD. First, users earn CRV through Alchemix’s core mechanism to lock DAI in Yearns Pools (which farm and sell CRV tokens themselves). Second, users can wager alUSD on Curve to earn additional CRV rewards. When Alchemix sells CRV rewards or uses a protocol like Yearn that sells them automatically, other Curve liquidity providers suffer from the resulting inflation. This creates a “double sale problem” for CRV holders.
The timing of Curve’s proposal is significant. Alchemix recently announced that it would use Saddle, a fork of Curve, instead of Curve itself for its new alETH product. This decision may have acted as a catalyst for Curve’s proposal against Alchemix. When Alchemix announced that Saddle deposits were live, Curve replied that it was “99% certain” that Saddle’s code was in violation of a license under the Curves contracts. Like Uniswap V3, Curve has licensed its code to protect against copycat projects.
Incidentally, 99% are certain that the way Saddle reimplemented the code (translation from one language to another line by line, if nothing has changed) is against the license of the Curve contracts. just say
– Curve Finance (@CurveFinance) June 15, 2021
Yearn developer Banteg announced that “Yearn [would] vote against “Curve’s proposal to remove CRV rewards from the Alchemix pool. They argued that the alUSD pool offers some of the highest returns and fees on Curve, and therefore removing the incentives could hurt the protocol in the long run. While Curve’s governance proposal has not yet received any votes, the ongoing debate is heating up.
Disclaimer: The author of this feature held ETH and other cryptocurrencies at the time of writing. Andre Cronje, the founder of Yearn Finance, is a shareholder in Crypto Briefing.
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