Curve DAO has been a notable part of the DAO development in crypto as it rose as one of the first DAOs in the crypto space.
It was launched with a decentralised finance platform called Curve Finance, where the DAO itself helps govern the platform in a decentralised manner.
In this article, we will discuss what the Curve DAO is and how it governs the whole Curve Finance Ecosystem.
What is Curve DAO?
Curve DAO stands as a decentralised autonomous organisation (DAO) that governs Curve Finance, a prominent DeFi exchange specialising in stablecoins and other crypto assets.
Curve DAO’s Landing Page / Source: Curve Official Website
Established in 2020, Curve DAO grants its community the power to influence the protocol’s trajectory through a well-designed incentive structure and a dedicated governance token, CRV.
CRV serves a dual purpose within the Curve DAO ecosystem. It functions as a utility token, enabling holders to access various features and benefits on the platform.
More importantly, CRV empowers holders to participate in shaping Curve DAO’s future. By locking their CRV tokens into veCRV, users gain voting rights.
These votes hold significant weight when it comes to distributing CRV rewards amongst Curve’s liquidity pools.
CRV holders act as stakeholders, dictating which pools receive a larger share of CRV rewards. This mechanism incentivizes users to contribute to the platform’s health by strategically allocating liquidity to pools deemed most beneficial by the community.
How Does the DAO Work?
The inner workings of Curve DAO hinge on a clever blend of token economics and community governance. CRV, the DAO’s lifeblood, fuels the entire system.
By locking their CRV tokens into veCRV, users transform them into a governance token. The amount of veCRV a user holds determines their voting weight. Those with more veCRV have a greater say in crucial decisions.
One of the most significant ways CRV holders influence Curve DAO is through gauge weight votes. These votes dictate how CRV rewards are distributed amongst Curve’s liquidity pools. Essentially, the community decides which pools deserve a larger share of CRV based on their perceived importance to the overall DeFi ecosystem.
Pools that foster stablecoin peg stability or attract significant trading volume are likely to receive more votes and, consequently, a larger portion of CRV rewards.
This ingenious system empowers the Curve DAO community to actively shape the DeFi landscape by incentivizing liquidity in pools that contribute most to its stability and growth.
Token Ecosystem
Curve DAO, the governing body behind the prominent DeFi stablecoin exchange Curve Finance, relies on a dynamic duo – CRV and veCRV tokens. Let’s explore how these tokens function individually and how they work together to empower the Curve DAO ecosystem.
CRV: The Foundation of Governance
CRV serves as the base utility token of Curve DAO. It unlocks various functionalities within the protocol:
- Utility Token:
Users can pay fees with CRV, participate in liquidity mining programs, and earn rewards.
- Governance Token:
The true power of CRV lies in its ability to influence Curve DAO. By locking their CRV tokens, users gain voting rights on crucial proposals that shape the protocol’s future.
These proposals might involve adjusting fees, adding new liquidity pools, or modifying reward structures.
veCRV: Locking Power for Amplified Governance
veCRV, the locked version of CRV, plays a critical role in Curve DAO’s governance process. Here’s why veCRV holds more weight than CRV:
- Locked for Influence:
Users lock their CRV tokens for a predetermined period (ranging from a week to four years) to convert them into veCRV. This locking mechanism demonstrates their commitment to the protocol’s long-term success.
- Boosted Voting Power:
veCRV grants significantly greater voting weight compared to CRV. The longer the lock duration, the more veCRV a user receives, and consequently, the stronger their voting power becomes.
The Symbiotic Relationship and Gauge Weight Votes
CRV and veCRV function harmoniously to empower the Curve DAO community, particularly through the gauge weight vote mechanism:
- Earning veCRV:
Users earn veCRV by locking their CRV tokens, incentivizing long-term holding and fostering community ownership.
- Steering the Protocol:
veCRV holders have a significant say in how CRV rewards are distributed amongst Curve’s liquidity pools through gauge weight votes.
Curve utilises gauges to track liquidity in each pool. By voting on the weight assigned to each gauge, veCRV holders essentially decide which pools receive a larger share of the distributed CRV.
This allows the community to prioritise pools that contribute most to the DeFi ecosystem’s stability, such as those fostering stablecoin peg stability or attracting significant trading volume.
- Balancing Act:
The locking mechanism introduces an interesting dynamic. While locking CRV into veCRV grants greater voting power for gauge weight votes, it also reduces liquidity for users in the short term. This discourages purely short-term speculation and encourages users to align their interests with the long-term health of the protocol.
In conclusion, CRV and veCRV tokens create a powerful incentive system within Curve DAO. CRV provides basic governance rights, while veCRV amplifies those rights for users who demonstrate long-term commitment.
This collaboration, particularly through the gauge weight vote mechanism, empowers the Curve DAO community to shape the future of the leading stablecoin exchange platform in the DeFi landscape.
Token Economics of CRV
CRV is the main token of the ecosystem as it is easier to acquire CRV rather than veCRV. However, both can be utilised to earn profit in the Curve Finance platform, but only CRV is used globally as traders and investor prefers to trade and invest in it rather than veCRV.
CRV itself was launched in 2020 and reached its highest price at around $15. Sadly, the token has been trending down due to a lack of incentives to trade it.
Users mostly used CRV to stake or lock it for profit, but since many new DeFi platforms give higher yields, CRV seems to have lost its dominance and its buying volume.
However, this does not necessarily mean that the token is not interesting anymore, as some big projects are still attached to it in terms of liquidity and treasury management.
CRV Token Economics / Source: Coingecko
The token economics itself does not impact the token anymore as most of it is already circulating in the market.
Around 90% of the token supply is already unlocked from its vesting period with currently around 60% circulating in the market, 30% of them are locked in the Curve Finance platform as well as other DeFi protocols.
The team receives only less than 40% of the token, which is good considering that most of it is held by the public.
However, this information does not matter anymore as the allocation for the team has already been distributed and sold with only little to no more waiting to be unlocked.
CRV itself has not shown any prominent development yet, which is why it isn’t necessarily the right token to invest in.
However, if you are looking for a platform that is safe and can give you passive rewards, Curve Finance might be a good one to look at.
Conclusion
Overall the DAO is pretty similar to most regular older DAOs as there is not much innovation around it. However, it is worth noting that it is one of the little DAOs that uses the dual token mechanism on its DAO, which is a unique mechanism to be implemented.
Although it is not as innovative as other newer DAOs, we can’t knock how Curve DAO has paved the way for developments of DAO in the crypto space as it is one of the first DAOs to ever operate and have longevity in the market.
