What’s Curve?
Curve is a decentralized exchange like Uniswap or Sushiswap, but with an important caveat: they have their own brand of special swapping mathematics that makes it an exceptionally efficient platform, which is called the “StableSwap Invariant”. For transactions between stable pairs (or closely correlated assets), Curve can dramatically reduce the price slippage and enable much more efficient trades. This made Curve the go-to platform for doing swaps between stablecoins.
What is ve?
The ve prefix stands for vested. ve, or vote escrowing, is a staking/governance methodology pioneered by Curve Finance with veCRV. ve has also been adopted with great success by Frax (veFXS), SpiritSwap (inSPIRIT), Pickle Finance (DILL), and many more.
Curve currently has 50% of its circulating supply locked into veCRV:
Frax also currently has 50% of its circulating supply locked in veFXS:
https://dune.com/0xouija/0xOuija
veCRV is non-transferable, and offers governance, boosting/bribing, and fees.
One of the most important aspects of this is veCRV’s interaction with gauges. These gauge weights are the percentage of CRV emissions that are rewarded to specific liquidity pools. On a weekly basis, governance participants can vote on these gauge weights with veCRV. The gauges that get the most votes get the most rewards.
Curve governance is valuable because protocols can vote for their own pools to give the highest amount of CRV rewards for liquidity providers. The core concept of veCRV is incentivizing liquidity to your protocol’s asset(s). This has led to the Curve Wars (and growing value of CRV) that Convex (current crown holder), Abracadabra, REDACTED Cartel, Llama Airforce Union, Yearn, and many others are currently in the trenches battling out for gauge weight supremacy.
The Liquidity Problem
DeFi protocols need liquidity otherwise they can’t scale. Liquidity providers are here to make money so they provide their capital to protocols that earn them the highest yield. The yield that liquidity providers make from fees isn’t enough, so usually, projects incentivize liquidity by rewarding them with their native token. This comes with its own set of issues like sell pressure and the inflation of token supply. Protocols also must compete with other protocols in offering a higher yield than their competitors, which further increases sell pressure (and inflation).
Even with Curve there are inefficiencies. One such is the Curve DAO tokens price (CRV). As CRV falls in price, the emissions become less lucrative, thus it’s also less lucrative to bribe the gauges. The whole purpose is to direct the Curve rewards, so if the Curve rewards aren’t valuable, neither is the weight of the gauges. Also, as fees are on a race to the bottom with competition from Uniswap V3 and Sushiswap Trident of who can offer the cheapest swaps- fees are not enough to incentivize veCRV lockup. The third inefficiency is fractured liquidity between networks. Each Curve pool is isolated on a per-network basis.
As DeFi gets bigger, the fight for liquidity will only get more fierce. And more efficient methods of liquidity provision will reign supreme.
Enter veTAP
You can vest TAP to create veTAP. The amount of veTAP received is linear in duration, meaning, if you lock for the maximum of 4 years, 1 TAP = 1 veTAP. If you lock for 1 year, 1 TAP = 1/4 veTAP, all the way down to a minimum of 1 week, where 1 TAP = 1/208 veTAP. Your amount of veTAP gradually decreases as your escrowed tokens approach their lock expiry.
With veTAP, you earn a share of protocol revenue, receive governance, boosted yield, and gauge bribing.
Users can participate in creating “factory markets”. These factory markets allow anyone holding veTAP to create a token market (one token / one collateral) in a few clicks. Factory markets can become official markets if:
- Marketcap of token and collateral is at least $3m
- The fortnightly volume of the market is over $3m
- Market liquidity is over $500k
- Tokens are audited (whitelisted auditors only)
Tapioca, like Curve, will also employ gauges. Users (and protocols) will be able to bribe these gauges in order to increase TAP emissions to their preferred market.
Participate in Snapshot governance, or “TIPs” (Tapioca Improvement Proposals). Voting will be done on a signaling tool. Votes will be completely free, and your vote will be counted according to your voting weight at the moment of the proposal creation.
Receive 95% of Tapioca’s protocol revenue in the form of TAP. All fees collected throughout the week are used to place a market purchase of TAP tokens, which are then distributed to veTAP stakers. Gelato Network is used in order to offer a hub & spoke model in which Tapioca gives the same pro-rata share of veTAP fees across all of the LayerZero networks Tapioca will be live on. Gelato aggregates this information on how much TAP is staked on each network and then relays it back to Tapioca’s source chain, where then a contract is triggered that starts the distribution of fees.
Protocol revenue includes:
- Liquidation fee (3-12%)
- Bid Execution in Liquidation Auction Queue (1%)
- Flash Loan (0.03%)
- Borrowing Fee (0.5%)
- Interest Fee (0.5%)
An estimate of overall revenue would be a comparison to Abracadabra, which generates $2.2m in fees per week:
ve token liquidity
When locking TAP for veTAP, users are locking 80% TAP & 20% ETH Balancer Pool Tokens (BPT). veTAP stakers will also receive the LP rewards in addition to protocol revenue. veTAP will then contribute long-term liquidity to the TAP token and keep its supply liquid for trading. Other ve token models have suffered from a lack of liquidity, which results in high slippage for traders.
PLP (Protocol-to-Protocol Liquidity Provision)
Another chief innovation of veTAP is PLP. veTAP can also be used to direct Tapioca’s unused liquidity anywhere they wish (within the whitelist). Instead of fighting over incentivizing liquidity, veTAP holders can fight over the liquidity itself. This opens an entirely new paradigm to veTAP. With LayerZero, Tapioca can direct liquidity to protocols on any of the 7 (currently supported) networks.