Redacted - the Curve War Story
In this article, I’ll start by focusing on the Curve Wars to explain what Redacted Cartel is. You can take Redacted Cartel as a Bribe extension platform in the Curve War. It is a Bribes Marketplace used to trade voting rights, and then to attract higher liquidity for external protocols.
The Curve Wars
So, what are the Curve Wars?
The essence of the Curve War is that different pools fight for liquidity in Curve. The higher the liquidity is, the better it is for the project. For example, if Terra's UST plans ecosystem ecological expansion, improving liquidity is definitely the first step, and having a larger TVL pool in Curve is one of the most important indicators of future success. So UST, FRAX and other projects will frantically want their coins to have higher liquidity in Curve's pools.
The simplest way to provide higher liquidity is to provide it yourself, but obviously the cost is very high. For example, UST needs not only a large number of UST, but also a large number of other stable coins such as USDC/USDT to form a pool. So in fact, the best way to solve this problem is to attract others to provide liquidity. The way each protocol attracts liquidity and the resulting conflicts between them
creates leads to the so called Curve Wars.
Money always goes to the place with the highest returns. Curve's mechanism decides that whoever owns the CRV voting rights can determine the rewards of different pools in Curve. So a more straightforward definition of the Curve War would be to say it’s simply the competition for CRV voting rights. There are two ways to obtain CRV voting rights: one is to directly buy more CRV; the other is to 'bribe' others to vote for you, while you just buy CRV voting rights.
The cost of purchasing CRV directly is much higher though, so external projects are more inclined to choose the 'bribe' method and buy the CRV voting rights, since it’s more cost- effective than owning the CRV itself.
This is what puts the ‘war’ in Curve Wars, as it’s the fight for different projects to purchase CRV voting rights.
Interestingly, the projects involved in the Curve War seem to revolve around Convex rather than Curve itself. Why?
Well, the voting rights of the CRV are primarily controlled by Convex, simple as that. In fact, Convex controls such a large proportion of CRV, that it also controls its voting rights and reward receiving rights. While other protocols care only about voting rights.
It's like the manager gives most of the power to the secretary. Even though the bribers are essentially bribing the manager, as the power has actually been transferred to the secretary, the target of bribery becomes the secretary at this time.
Before the manager handed it over to this specific secretary, there were actually many secretaries fighting for power, but only one won. And Convex is the secretary who won. As for the reason why Convex was able to win, that's another story.
So far, you should be able to understand that:
- For higher liquidity, different protocols need to compete for voting rights on Curve to attract others to provide liquidity, because it is cheaper than offering it yourself
- The way to compete for voting rights has shifted from buying CRV directly to 'bribing' CRV holders and buying only voting rights, because it is also cheaper
- Since a very large portion of CRV is already controlled by Convex, the main battleground for this so called 'war' is in fact Convex
But stay with me, Convex is not the end of this story.
Since the Curve Wars essentially evolved into the Convex Wars, the 'Curve voting rights' owned by Convex have been transferred to Convex's own token: CVX. Thus, users who stake CVX tokens on Convex are able to vote. As a result, which pools the CRV owned by Convex should vote for is now decided by the stakers of CVX.
But there are other problems with voting: a user does not actually know which pool to vote for, or which pool has the highest return, or the process of voting + claiming rewards becomes too complicated. In order to solve such problems and help users maximize their voting income, a new so-called 'voting aggregator' has emerged.
So, ladies and gentlemen, please give a warm welcome to Redacted Cartel. Because Redacted Cartel‘a ambition is to be just such a voting aggregator.
Since there are many concepts at play here, let's do another little recap …
- The pools on the Curve compete for liquidity
- Convex acts as Curve's pool aggregator, controlling a large number of CRV voting rights
- Convex's native token CVX is thus able to command CRV
- The Curve War evolved into a Convex War
- The voting process on Convex is not user friendly, so the role of voting aggregator comes into play
- Redacted Cartel is one such aggregator, but Convex is also just one platform. Redacted plans to support other, similar (ve-assets) projects to help more projects and users looking for voting optimization
In order to obtain the voting rights of Convex, Redacted Cartel needs to have a large number of CVX or CRV (CRV can be directly staked to Convex), just like the way Convex controls Curve. If Redacted Cartel wants to support voting on other protocols, it also needs a large number of governance tokens for that protocol. How to obtain such a large number of these tokens has become the core problem to solve, as only a large number can have an impact on how the project is governed.
The way Redacted Cartel uses is to fork Bonding mechanism of OlympusDAO. Users buy Redacted Cartel's native token BTRFLY at a discount, the same process as OHM's. The tokens currently accepted by the Bonding process include TOKE, ETH, FXS, CVX, CRV, and BTRFLY-OHM LP. Obviously, the supported tokens also indicate which protocols Redacted Cartel's bribe aggregator will support in the future.
Let's summarize the above and look back at what Redacted is.
Redacted is a fork of OHM and its native token is $BTRFLY. It combines the two models of Convex and OHM where Redacted is more of a Ve-asset targeting protocol, and it will play a major role in the Convex War and bribing going forward.
To put it in another way, DeFi 2.0 is a liquidity service solution — Liquidity as a Service, (LaaS), then Redacted and similar projects are voting service solutions — Vote as a Service (VaaS).
Redacted's Treasury currently holds about $114 million worth of assets.
Among them, CVX and CRV account for more than half, and the number of $CVX exceeds 1 million. As a comparison, Frax and Terra are currently the two largest holders of $CVX, holding a total of about 3.65 million $CVX, with Redacted ranking third. So from this perspective, Redacted has been able to have a clear impact on the results of Convex.
After acquiring Votemak (Tokemak's voting platform), Redacted will integrate and re-launch a bribe trading market called Hidden Hand. Hidden Hand will be the core host of VaaS and help Redacted expand, supporting other protocols besides Convex.
How does Hidden Hand work?
- Users stake voting assets to Hidden Hand
- Hidden Hand sells voting rights to external protocols in need. In Return, Hidden Hand Receives a bribe bonus
- Hidden Hand redistributes rewards to Redacted’s Treasury, then to BTRFLY holders
Source: Redacted Cartel
Hidden Hand is responsible for the voting process and maximizing the voting rewards, which is the second step mentioned above. At the same time, the holder of BTRFLY can obtain the power to govern Hidden Hand after staking BTRFLY.
If all of this still sounds pretty complicated, let’s come back to our manager-secretary analogy from before to show the relationship between Curve, Convex and Redacted…
Using the previous secretary example to continue the explanation, Secretary 1 gained the trust of the manager through his/her own ability, and thus gained the power of the manager. Secretary 2 then gained the trust of Secretary 1 because he/she solved some of the problems, and thus obtained power from Secretary 1. Secretary 3......
In addition, Redacted also plans to introduce Pirex. Pirex can be understood as a derivative trading market for voting rights. If you think that the price of a bribe will become higher in the future (which means voting rights will become more expensive), you can buy voting rights in advance and sell them after the price increases down the line, and vice versa.
Source: @RedactedCartel Tweet 8th April 2022
A few things that should be covered but haven't been
This article is an attempt to explain what Redacted is in a relatively simple way. I hope it helps you understand the relationship between Redacted and the Curve Wars. Nevertheless, there are still a lot of things that haven't been discussed in this article.
For example, Curve itself has a bribe marketplace where users can vote directly on Curve's different pools.
Take Votium, which is a bribe marketplace built on Convex and is currently the main Convex voting marketplace. After users stake CVX with Convex, they get vlCVX, which can be used to vote. If users do not want to vote by themselves, they can delegate vlCVX to Votium, leaving Votium to solve these problems in a one-stop-shop kind of way. From this perspective, Votium and Redacted can be seen as competitors.
Votium votes are biweekly. In the most recent poll, the bribe budget spent by external protocols reached a total of $21.37m. The average price of a single vote (which is the price of buying a vlCVX two-week vote) reached 0.56 dollars. Among them, Frax and Terra spent the most, at $7.76m and $5.07m respectively.
The above should help you understand Redacted from the perspective of Curve, but there's another angle, from the perspective of OHM. If you are familiar with FloorDAO, which is also a fork of OHM you’ll see the difference is that the underlying income of FloorDAO is from market making of NFTs. Redacted is also a fork of OHM, while the underlying income of the protocol is the bribe money spent by external projects.
The argument that the essence of the Curve War is a competition for higher liquidity is from the perspective of external protocols. The purpose of ordinary customer engagement with Convex is definitely to have higher returns than staking directly on Curve.
In addition, the income of Curve is not only determined by the number of votes, but also by the TVL of the pool itself. The higher the TVL of the pool is, the higher the reward can be.
4pool, which Terra proposed to launch some time ago, is next in line after 3pool, and may be the main battleground for liquidity in the future. It is not hard to spend a lot of money to seize part of 3pool's liquidity or even surpass it, which is why I wonder if DAI will make a counterattack, taking out the money to buy voting rights and give 3pool rewards.
Do Kwon tweeted several hours before this article was written that once Terra is bridged to bitcoin, Curve may not be used in the future, which may be a big negative for Curve and Convex.
Will the bribe marketplace be a big thing? If so, how will the competitive landscape of these projects change in the future? From Curve to Redacted, and even to the next protocol based on Redacted, is there any value in keeping up with these unlimited matryoshka dolls, one inside another inside another?
We don't know, yet. In crypto, never under-estimate anything, but don’t over estimate them either.
A few symbols of interest based on the above discussion
- $CRV - Curve's native token
- $veCRV - Token users receive after staking $CRV in Curve
- $CVX - Convex native token
- $cvxCRV - Token users receive this after staking $CRV in Convex. Actually, Convex stakes $CRV in Curve, receiving $veCRV and keeping it, and issues $cvxCRV to users as a voucher.
- $vlCVX - the token received after staking $CVX on Convex
- $BTRFLY - Redacted's native Token
- $xBTRFLY - Token received after staking $BTRFLY
- $wxBTRFLY - wrapped version of $xBTRFLY
- $pBTRFLY - pBTRFLY holders can purchase a BTRFLY by collateralizing their pBTRFLY with 1/30,000 gOHM. It is given out to core-contributors/supporters.
- $glBTRFLY - glBTRFLY holders get to access metagovernance votes of the underlying CVX or other assets within the treasury.
- $blBTRFLY - blBTRFLY holders get access to the fees from Hidden Hand and yield farming rewards from the treasury.
- 3pool - The most famous pool on Curve: USDT/USDC/DAI
- 4pool - USDC/USDT/UST/FRAX, but not launched yet
Thanks also to contributors Ellie, Adam and Sean to this article.