The total locked DeFi value is still increasing and another protocol is leading the load, but this time it could be different: Curve.fi has added more than $ 226 million to the total value locked in its DeFi smart contracts since Friday, and has become the 5th most popular DeFi protocol by total value locked.
The recent wave comes from the launch of the YFI management token, a behind-the-scenes component of Curve that increases returns for liquidity providers using the platform. It’s another example of governance token distribution that adds fuel to the DeFi frenzy.
But is the staggering complexity really good for the industry in the long run?
The rapid rise
Curve.fi launched in January 2020 and facilitates affordable swaps between different stablecoins, as well as Wrapped Bitcoin and Synthetix sBTC. Curve also allocates unused pooled liquidity to other DeFi protocols such as Compound and yEarn.finance that provide ongoing interest income on liquidity deposits.
yEarn itself automatically divides unused liquidity between DeFi protocols Aave, dYdX and Compound to generate returns, averaging around 10% annually. Liquidity providers contributing to Curve will receive the YFI governance token for a limited period of time, while Curve will eventually release its own governance token.
Before the release of the YFI management token, Curve had less than $ 100 million in assets locked into the protocol – it had more than $ 300 million locked at the time of writing.
As reported by The Defiantdemand for YFI exploded for two main reasons. First, the YFI distribution model generously rewards liquidity providers, with no premium or allocation reserved for yEarn developers, giving the community unprecedented control over the platform’s future. Second, complex routing of liquidity and earned governance tokens across multiple DeFi products generates annualized returns of more than 1,000% for those with the required knowledge and willingness to accept the risks. In particular, the model provides little incentive structures for yEarn developers, the continued success and functionality of which depend on the project.
No intrinsic value
YEarn developer from the start Andre Cronje has emphasized that the YFI token has no intrinsic economic value, and the board was divided because Cronje and other yEarn developers are ‘lazy and don’t want to do it’. yEarn contracts have also not yet been audited, although they are based on previously audited Synthetix contracts.
The YFI release has given Curve a welcome exposure, allowing the protocol to do its bit to keep the overall value locked and keep the DeFi party going. But instead of a broad pool of contributed assets that provide liquidity and a governance mechanism with clear incentives for both users and developers, much of the yEarn and associated Curve activity is focused on maximizing the returns of distributed governance schemes and highly complex financial liquidations whose value for the wider DeFi ecosystem is difficult to pin down.
Curve has earned its place among popular early DeFi protocols. But it has become the focus of an unfinished story with many potential outcomes – not all of which is good.