The latest salvo in the multibillion-dollar “Curve Wars” might be the most daring yet, and the protocol’s response has revealed deep ideological fi
The latest salvo in the multibillion-dollar “Curve Wars” might be the most daring yet, and the protocol’s response has revealed deep ideological fissures in the decentralized finance (DeFi) community.
Curve.Finance is currently the largest DeFi protocol with $20.8 billion in total value locked (TVL) per CoinGecko. The protocol holds a vital place in the DeFi ecosystem due to its CRV token rewards emissions – a key source of income for multiple other protocols and one of the foundational pillars of a rapidly-growing $270 billion ecosystem.
On Wednesday night a young project – memecoin-flavored Mochi Inu – executed a series of transactions that tilted CRV rewards in its favor by using a token-locking mechanism in Convex Finance, a yield farming protocol built on top of Curve.
This jockeying for CRV emission rewards is common practice among protocols, and often referred to as the “Curve Wars.”
Read More: How Yield Farming on Curve Is Quietly Conquering DeFi
In a Twitter thread Wednesday morning, Mochi formally announced themselves as a new player in the Curve Wars, writing that “Curve is the backbone of DeFi, and Convex is the kingmaker of Curve.”
1/ $MOCHI Inu Token launch and Announcing the Arrival of https://t.co/JWB7j4y10Z to the Curve Wars:
🧵🧵🧵— Mochi Inu (@MochiDeFi) November 11, 2021
Shortly after, however, the Curve Emergency DAO, a nine-person group using a multisignature scheme with limited governance powers over CRV reward emissions, cut off Mochi’s rewards, and in a governance forum post, semi-anonymous Curve contributor “Charlie” wrote that Mochi’s overnight rise was a “clear governance attack.”
In an interview with CoinDesk semi-anonymous Mochi founder AZ, also often referred to as Azeem, said that the Emergency DAO’s security concerns were “reasonable” and that he hopes to address them in the coming weeks.
Nonetheless, the decision from the DAO has prompted significant community debate, as some have argued that the protocol should not single out any one user and that blacklisting another protocol runs against DeFi’s open, permissionless ethos.
In an interview with CoinDesk, Charlie said that the decision to cut off Mochi’s CRV rewards wasn’t made lightly, but that the situation was unique.
“I hate this ‘I need protection’ meme we’ve seen from Gensler,” he said, referring to SEC Chairman Gary Gensler. “Curve definitely doesn’t want to be gatekeepers or protectors but we gotta draw the line somewhere when it comes to bad behaviour. Mochi crossed it 7 times over last night.”
Exploitative or exploit?
Regardless of whether Mochi’s maneuvering was an attack or a clever abuse of various DeFi protocols’ functions, the events Tuesday night are a remarkable display of the interconnected nature of the DeFi ecosystem, spanning multiple protocols and functions.
Curve is a decentralized exchange tool primarily designed for swapping like-assets, such as different stablecoins or ETH and its staked derivatives such as stETH. Curve’s liquidity providers are rewarded with CRV, the protocol’s governance token.
At the core of Mochi’s “governance attack” is veCRV – voting escrow Curve, a locked version of CRV that grants holders the ability to vote on “boosting” CRV rewards to certain liquidity pools. Throughout 2021, various protocols have vied to accumulate CRV and lock it as veCRV in order to boost rewards to pools that will benefit them. As a result, locked Curve is a popular metric to track:
#TheLockening🔒Nov. 2-7, 2021
Convex veCRV: 136.58m ( ⬆️🔒2.83m)
608k $CRV 🔄 veCRV today (41.85% of daily emissions)
91.31% of circulating CRV🔒as veCRV
Convex vote-locked CVX: 19.9m (⬆️🔒1.1m)
56.87% of $CVX circ. supply🔒into Convex gov.🗳️#DeFi🌕
— DefiMoon 🦇🔊 (@DefiMoon) November 8, 2021
Mochi, a platform similar to asset-backed stablecoin issuers Spell and MakerDAO, heavily incentivized deposits to a Curve pool that included USDC, USDT, DAI and Mochi’s native stablecoin USDM leading into Tuesday night’s events, ultimately attracting over 170.2 million in liquidity at its peak, per Azeem.
Another key cog in the events is Convex Finance. Convex is a protocol designed to maximize CRV rewards, and the protocol is currently the largest veCRV holder with 136.58m tokens – over a third of CRV’s circulating supply. Users who lock Convex’s CVX token have the right to vote proportionally on how the protocol’s tokens are used for boosting emissions.
On Tuesday night, all of the above protocols and mechanics were on display. A Mochi team member swapped $46 million in USDM for DAI using the Mochi Curve pool, swapped the DAI for ETH, and used a large portion of that ETH to purchase massive quantities of CVX, which they then locked.
This would have allowed them to vote on additional CRV rewards for the Mochi pool, which in turn would have attracted additional liquidity, allowing them to swap even more USDM for stablecoins to…
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