Curve: The Lockening

Curve is an automated market maker on the Ethereum blockchain, designed with three core innovations:
(1) Efficient AMM execution for stablecoin pairs
(2) Supplemental fee income for liquidity providers with low slippage, low fees, based on a new pricing algorithm.
(3) Rewards distributed to users for supplying liquidity to the Curve protocol by receiving the CRV governance token.
One of the common issues in the Curve ecosystem is the inflation of CRV tokens. CRV tokens are primarily used for governance of the Curve ecosystem emissions, as a result, there is a lack of utility for individuals primarily motivated by profit-seeking activities. Locking mechanisms exist that allow for the staking of CRV for veCRV to earn more platform fees and voting rights. While this reduces short-term inflation for the ecosystem, it creates a new problem for the user who now has a locked, illiquid position for up to 4 years.
Yearn Finance, realizing this as an issue for most users, created the yveCRV vault. This vault would allow Yearn to lock CRV tokens on behalf of the user indefinitely, giving the user a wrapped version of their CRV (yveCRV), which necessitated the creation of secondary liquidity markets, so users could trade these tokens freely. With the innovations from Yearn garnering billions of dollars in total value locked (TVL) and a large voting share in the Curve DAO, it was only a matter of time before competitors started popping up.
Convex launched its platform with one goal in mind: to capture and retain voting rights for the Curve DAO. Convex founded the cvxCRV pool, which offered the same benefit as Yearn’s yveCRV but with a boosted reward feature to increase the end user’s APR. The community praised this improvement by giving Convex a staggering $6.6 Billion in TVL after just three months of being live.
Between users locking CRV for more yield and protocols locking for more voting rights in the DAO, the rate of locking has started to outpace overall CRV emissions. At the time of writing, Curve now has 51.62% of all tokens locked (106.69% excluding voting escrow) for an average of 3.54 years. As CRV becomes more sought after and less available, more capital will be locked than ever before. The lockening is creating opportunities to expand DeFi in ways previously unseen.