August 26, 2024: Incentive Season ☃️💸
We were promised $CRV emission cuts, how did we get incentives paying 2:1?
Thanks to The Llamas for an amazing takeover week!
We’ve not even resumed our usual logorrhea yet, and people are already asking when the Llama Takeover will be back. Soon™️
But first, we have to announce the opening of incentive season!
What, praytell, is incentive season? The explanation comes directly from the tooltip at the Llama Airforce site:
Don’t panic too much about Llama Airforce’s use of the vernacular term “bribers,” which is often euphemized as “incentive providers” if you think TradFi people or Elizabeth Warren might be reading.
The important thing to note is that there’s actually good discounts available for DeFi protocols at the moment. Each dollar spent on incentivizing pools returns almost $2 in $CRV
Veteran protocols like Alchemix know how to play this game quite well. Observe as they take advantage of this fleeting opportunity:
We don’t often like to hype the FREE MONEY HACK this opens up, because it seems like the sort of phrase which rightly should get our account flagged. But one reason that opportunities like this are short-lived is because they could theoretically be used to print free money for yourself. How?
Imagine you have created a DeFi protocol (easier said than done, but we’re imagining).
Create a liquidity pool on Curve and be the primary (or only) LP in this pool
Print your governance token to direct birbs/incentives to this pool
Pocket $2 for every $1 you mint.
Lather, rinse repeat…
Just keep doing this on loop and you can print free money!
“But wait! There’s no such thing as free money!”
— Sweet summer child
Oh sweet summer child, this is depths of DeFi Winter — of course there’s free money, because nobody is available to arbitrage it.
DeFi Summer featured way more eyeballs scrutinizing our sector, so “free money opportunities” got swallowed up quickly. In the depths of DeFi Winter, the scavenging hordes have fled for more fertile hunting grounds. With nobody still around, these “free money hacks” have a much longer half-life. We discussed it prior:
Now, we use the term “free money hack” slightly in jest… the existence of such loopholes are not so easy to exploit. The legwork involved in launching a credible DeFi protocol that passes the scrutiny of Curve governance is substantial. Further, Curve has an active emergency DAO that would quickly halt emissions to your protocol if you were actually siphoning off an existentially threatening amount of $CRV.
Instead, there are too few surviving DeFi protocols to chase the free money. Nobody is launching new DeFi protocols into this market because they don’t see any opportunity. It’s a symptom of where we are in the market cycle.
It’s not DeFi Summer, at least not yet. The $CRV incentive efficiency can serve as an indicator of sorts. If it peaks at 2:1, there’s so little interest in DeFi that protocols are unwilling or unable to snatch the free money.
If it was a peak speculative frenzy, there would be 20 protocols all hoping to find a discount on incentives and the incentive-to-emissions ratio would drop below $1.
You’d see scammers emerging trying to grasp as much free $CRV as they could before they got shut down by the Emergency DAO, as happened previously with Mochi.
You’d even see some enterprising entrepreneur screenshotting the Llama Airforce stats in a pitch deck and raising a multi-million dollar seed round from VCs to attack inefficient incentive markets.
As it stands, DeFi has become such a vulgar word that Ethereum founder Vitalik is trying to distance himself from our sector.
The cold shoulder is arguably warranted — the excesses of DeFi from a few years back were an embarrassment for our industry.
Moreover, even if you happen to agree “greed is good,” it’s not the most popular stance to take in public. Weaponized finance may be America’s most potent export, but eloquent jingoists prefer to highlight the export of fuzzier values like “freedom” or “innovation.”
Mayhaps first we have to find other use cases to bring onchain, so DeFi has a fresh supply corpses to scavenge in order to properly thrive. Lessons in that…?
