👻Aave: Add Support for CVX
Summary
This is a proposal brought forth by the Llama community, that proposes Aave add support for the Convex token ($CVX) to be used as collateral on Aave.
Discussion: https://governance.aave.com/t/arc-add-support-for-cvx-convex-finance-token/7319/2
About Convex
https://www.convexfinance.com/
Convex Finance allows users of Curve.fi to deposit their veCRV tokens and earn yield on them in the form of trading fees, $CVX liquidity mining rewards, and Boosted $CRV rewards without staking their $CRV or CRV LP on Curve.fi. Convex is considered by the broader web3 ecosystem as a major 'player' in the 'Curve wars' (Read: https://rekt.news/curve-wars/), . Their initial value proposition came from essentially grouping two different Curve yield strategies into one, with the addition of the $CVX token. In exchange for the depositors voting power on Curve. At first glance, this may seem like an attempt to gain power within the Curve protocol, and the idea of one DAO holding so much power may seem a bit frightening. Upon deeper reading of the Convex protocol's model, it becomes clear that Convex is attempting to solve a problem within many DAO's which is governance participation.
Below is a quote taken from the proposal which provides a brief summary of Convex.
Convex allows Curve.fi liquidity providers to earn trading fees, CVX liquidity mining and boosted $CRV rewards without having to lock and use their boosting power with veCRV.. Adding support for $CVX will in turn provide future opportunities as Convex will also support other protocols in time. ie: FXS CVX is the governance token of the Convex protocol. By locking $CRV for life on Convex, each user gives his veCRV voting power to vlCVX holders (CVX lockers). Every vlCVX holders can vote on Convex governance proposals but also Curve governance proposals and gauges weights (5.05 veCRV/vlCVX). In the future, each vlCVX holders will control voting power on other tokens like FXS (users already can lock for life FXS for cvxFXS but vlCVX holders cannot vote on Frax governance proposals and gauges weights).
Full breakdown on Convex can be found here: https://albaronventures.com/convex-finance/
What is $CVX, and how is it used?
$CVX is the governance token for Convex, which can be locked in Convex in order to participate in governance of the protocol.
$CVX's value is derived from the massive stake of $CRV locked in the protocol and governed by Convex (thus, indirectly governed by $CVX). At the time of writing, $CVX holds the governance power for over $550,000,000 worth of $CRV locked in Convex.
$CVX Use cases include:
Staking on Convex finance to earn a portion of Curve LP's $CRV Earnings.
$CVX can be used to vote on how Convex allocates it's veCRV towards curve.fi gauge weight votes. (veCRV is staked on curve in order to vote on how much each pool earns in CRV rewards. Convex having a massive amount of veCRV locked allows them to have a large say in the gauge weight votes on the Curve protocol, and those that lock their $CVX are able to have a say in the way that Convex votes on Curve.fi.).
More: https://docs.convexfinance.com/convexfinance/general-information/understanding-cvx
Risks:
Rationale:
The rationale given by the Llama community is that adding Convex to Aave will be a great match due to:
Speculation that $CVX demand will follow $CRV demand.
High demand from Aave users borrowing $CVX to stake on Convex and influence Curve and Convex's scheduled inflation distribution.
Demand from $CVX holders to borrow assets using their $CVX as collateral.
As stated above, the benefits for Aave users include access to $CVX, as well as the ability to borrow against $CVX owned, and potentially increased yields for $CRV depositors on Aave.
This proposal does not directly effect Rabbithole users, and does present a sort of contradiction to Rabbithole's core values in the optics of Convex extracting value for governance gain. However, given the recent struggles of many protocols to consistently attract governance participation, Convex offers a solution. Curve wars are a tough topic to tackle with many layers to dissect, and many different viewpoints to acknowledge. One thing that can be agreed upon when it comes to the Curve wars is the inevitability. That being said, it may be most beneficial for protocols to develop a strategic advantage while they still have an opportunity to benefit.
The relevance of this proposal is largely contingent on whether or not a previous proposal by the Llama Community passes (See previous proposal discussion here: https://governance.aave.com/t/arc-consolidate-aave-v1-v2-amm-reserve-factors-purchase-cvx-and-deploy-to-earn-yield/6797 - Status: Passed Snapshot, awaiting on-chain vote.).
Note: For the sake of transparency, I previously had recommended that the Rabbithole MGP vote against the proposal to commit a large portion of the Reserve Factors to this strategy. The reasoning for that recommendation was because it proposed new risks to the protocol that seemed unwarranted at that time. With this new proposal, it appears that there is multiple layers involved in this strategy that do in fact justify the added risk. Additionally, it was extremely difficult to find a value-based justification on Rabbithole's behalf on the Curve wars, but it has since come to light that this could in fact be beneficial for everyday users voice in governance (i.e. Minnows would have a larger voice within Convex's governance as opposed to directly within Curve's governance that is full of very large whales). This proposal has provided me with additional clarity in regard to the power of metagovernance, and how Convex can in fact be beneficial to the smaller contributors of Defi protocols.
If the previous proposal to commit Aave's reserve factors passes on-chain, Aave DAO would then commit to purchasing 70,000 $CVX. This would be used to have proposal creation power within Convex. If this passes, Aave users would in fact gain a vested interest in Convex, and at that point, supporting $CVX would be in Aave user's best interest. If both of these votes pass, then Aave users will be able to borrow $CVX and participate in Convex governance on Aave's behalf, which could open up massive opportunities for Aave to participate in the 'Curve wars'. If the proposals pass, Aave users could see a direct benefit from increased yields on $CRV and $CVX deposits.
Links:
Convex: https://www.convexfinance.com/ $CVX Coingecko: https://www.coingecko.com/en/coins/convex-finance Convex Whitepaper: https://raw.githubusercontent.com/Convex-Dev/design/main/papers/convex-whitepaper.pdf Convex Docs: https://docs.convexfinance.com/convexfinance/ Convex Audit: https://github.com/mixbytes/audits_public/tree/master/Convex%20Platform $CVX Token: https://etherscan.io/token/0x4e3FBD56CD56c3e72c1403e103b45Db9da5B9D2B Understanding $CVX: https://docs.convexfinance.com/convexfinance/general-information/understanding-cvx Aave Discussion: https://governance.aave.com/t/listing-proposal-add-cvx-convex-finance-token/7290
Recommendation:
I recommend that the Rabbithole MGP vote 'Yes' on this proposal for Aave to support $CVX. At first glance, it may look as if Convex is taking advantage of a 'loophole' within Curve's governance, but I see this model being advantageous to Curve's governance in the long-run as it fractionalizes the participation in a sense. This could prove to benefit protocols attracting new users to governance within these protocols. If passed, Aave would gain the advantage of being the first major lending protocol to support $CVX, and Aave users would be able to borrow against their $CVX holdings. Additionally, this could prove to be a major strategic opportunity for Aave's DAO, as they will gain a large stake in the Convex governance process, thus a large stake in Curve's governance. After extensive reading into the workings of this strategy it appears to be congruent with Rabbithole's values of being positive sum, as well as Rabbitholes value of Minnows > Whales.
Open Questions:
How much do we believe 1.) borrowing markets for CVX on Aave improve protocol's sustainability? 2.) Llama directing additional liquidity to aave convex pools improves sustainability? (these pools seem small now but might grow in importance over time)
Feedback: Discord Chat: rathermercurial#2096 It may be helpful to put all of our heads together about this issue to develop a working model for approaching the Curve Wars and other external Metagovernance issues. It won't just be an issue for the Aave / Compound specialists for long, and we'll need the context to have informed discussions about this issue as a group.
Execution status: Executed
Vote: Yes
Community Vote
13 Y
0 N
Pod Vote
18 Y
0 N
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