The founding narrative of the blockchain ecosystem has been opening up financial services to all people without reliance on a centralized entity. This was the main impetus around Bitcoin and Ethereum. To further facilitate this, DeFi (Decentralized Finance) platforms were launched to replicate the expected functionality of traditional financial tools. DeFi provides a new financial ecosystem that is decentralized, global, transparent, resistant to censorship, without intermediaries, and easily accessible.
As demand for censorship-resistant mediums of exchange increases, platforms like Uniswap and Sushi are starting to rival their centralized counterparts in terms of volume traded. With this monumental shift in volume, the industry has already faced numerous growing pains, including but not limited to the issue of slippage when a user facilitates trade on a DEX. Unlike a centralized exchange, a decentralized exchange relies on anonymous users to create liquidity for various markets. Low liquidity and large transaction volume can result in higher fees for the end-user. To combat this problem, new ways of transacting have been created for certain assets.
One such platform is Curve, which created an Automated Market Maker(AMM) that reduces slippage and fees by only accommodating assets that behave similarly (stablecoins, wrapped tokens, etc.) and using a bonding curve formula to facilitate swaps.
A Decentralized Autonomous Organization (DAO) was formed and controlled by the veCRV governance token to ensure that this protocol was properly governed. To participate in voting and earn rewards, CRV has to be locked for 1, 2, 3, or 4 years at a time. This mechanic results in a mass amount of the token supply being locked up. Users who want the benefits of locking without carrying a locked position choose to use platforms like Yearn or Convex Finance, allowing those protocols to lock their CRV receiving wrapped versions of CRV in exchange with secondary markets so users can trade the positions openly.
As the value of Curve’s voting rights increased, something known as the Curve Liquidity Wars started between Yearn, Convex, and Stake DAO. While these platforms fought for voting rights, use cases for interest-bearing tokens became a quick afterthought. This is where Curvance comes in, furthering the development of this locking cycle and allowing users to gain even more utility for their wrapped tokens without the need to take from other protocols.