Congrats to Convex for a major milestone: gaining 51% control of veCRV!
If youโve been following the charts, presumably the milestone was an inevitable one. Even technical analyzers and their infinite capacity to draw wrong lines on charts couldnโt possibly get this one wrong:
In addition to @bantegโs Dune charts, the most stylish way to track the wars for Curve (and additional protocols) is @krayzfiโs great DeFi Wars Dashboard.
What does Convex supremacy mean for the casual investor? Would you say it's time to crack each other's heads open and feast on the goo inside? Depends largely on your palate.
Anybody can poke around the blockchain to see how the sausage is made. Our new overlord is technically the whitelisted CVX address, which controls the majority of voting on CRV. This contract is itself controlled by its owner
, which currently points to the Convex Gnosis Safe.
Viewing the activity of the Gnosis Safe shows what day-to-day ownership of Curve truly entails.
What you find looking it over is that the Convex multisig activity is fairly pedestrian. Late last year Curve enabled fractional voting, so Convexโs voting weight can be cast in proportion to vlCVX lockersโ whims, rather than a winner-take-all block. As you can see from diving into these transactions, the results of these fractional Convex votes are manually signed off by the multisig and sent to Curve.
Often times DAOs have trouble convincing co-signers to execute even routine transactions. Such multisigs are forced to lower their threshold for action to a minority, like 2/5, simply to operate. We instead see the Convex multisig routinely getting a majority to sign off on multiple transactions per week. Thank you team for your diligence and attention to detail!
The Convex multisig currently operates in a way that is vaguely analogous to how the US Electoral College certifies the results of elections in 50 states. In theory the electors could go rogue in sufficient quantities as to overturn the will of the electorate, but in practice the closest this has come was probably the Compromise of 1877 thatโs no longer a favorite topic among talking heads.
That said, DeFi is more systemically important to my day-to-day entertainment and wellbeing than decaying American democratic instutitions. Letโs assign a higher level of scrutiny to flywheel governance. What are the odds that Convex goes rogue?
While I donโt believe the DAO is technically capable of neutering wallet-locked veCRV, an evil Convex could theoretically call the revokeAddress function for competitors on the CRV whitelist contract, stripping StakeDAO, Yearn and the newer whitelists of their powers.
Such an attempt to seize power would be unlikely to survive the distributed voting power of vlCVX.
Here weโre supposing the largest holder (c2tp.eth) is executing a power play, but only with ~8% of the overall voting power. The majority of Convex holders would need to be persuaded to kneecap Convexโs competitors. If 51% of CVX voters approved of this action, this would represent a momentous power play, but undeniably it would also just be democracy in action.
Letโs reinterpret the question โ what are the risks the multisig moves to ignore the results of a vote and proceeds to strip its competitors regardless. We saw the multisig theoretically could pass whatever results it likes, so letโs consider the attack vector.
The final check here is the Gnosis multisigners themselves. Get three of five to flip, and Convex could theoretically move to neutralize its competitors against the will of its voters.
What complicates Convexโs nefarious plans it is that, among the multisigners, the majority are not affiliated with Convex. If the goateed replacement of nega-C2tP and moustache-twirling mirror universe Winthorpe wished to seize control, theyโd first need to flip one of the three remaining signers.
What are the risks of the remaining three flipping?
As a Curve founder, itโs extremely difficult to imagine Charlie voting to destroy Curve โ maybe he and Mich just got into a huge spat and Charlie decides to burn it all down out of spite?
Sam of Frax Finance has accumulated a massive amount of interest over Curve. Moving to essentially burn down the Curve ecosystem would only be undermining his own power.
Last line of defense is Tommy of Votium. Voting against the will of the people would presumably kill Votium in the process (why would anybody bribe vlCVX holders in the scenario the multisig is ignoring them?) Votium is getting 2-4% of activity on the platform as maintenance fees. Even in the bear, this is something like $100K every two weeks. We hope some portion of that goes to Tommy - we want Tommy well fed and properly incentivized.
Itโs tough to imagine a multisig better aligned toward protecting the interests of its community.
Needless to say, this hypothetical plan doesnโt even make sense for the two Convex signers to execute in the first place. Curve DAO votes take a full week to execute. If Curve users observed Convex threatening its competition in such a heavy-handed manner, weโd quite likely see a massive exodus of capital to flee inevitable collapse, destroying the entirety of DeFi in the process.
The Convex multisig has a variety of rights, but no access to user deposits. So while a governance attack might take other forms, itโs tough to brainstorm a plausible attack. Iโll leave it to the evil masterminds in the comments to imagine an assault on Curve that doesnโt cause the entire flywheel to get destroyed in the process.
Maybe an outside user wants to bribe three multi-signers with money to kill off Curve? Short term money doesnโt appear to be the teamโs motivating factor. Remember, Convex previously had the opportunity to directly rug user funds, and declined to do so.
By all indications, the 5 multisigners are here to build for the long-term.
Perhaps a more severe risk is that regulators deploy a coordinated a wrench attack against 3/5 signers to shut things down? Or a sudden outbreak of nuclear war vaporizes 3/5 of the signers? Weโre into the territory of things that donโt exactly keep me awake at night.
All of these hypotheticals could be mitigated if needed. Convex could move to add more multisigners. They could require a higher quorum. It may be possible to rearchitect their backend to allow results of votes to pass through directly without requiring the multisig to manually sign off (I havenโt looked into the complexities of this, but it looks to be nontrivial at first glance). If anybody truly fears a Convex attack, you might advocate for such governance changes.
If youโre looking for good Convex FUD, youโre better off looking to the next unlock period. The best time for Convex devs to have rugged us was before March 4, when they instead opted to force mass migration to a safer contract:
This was a bygone era when one $CVX would cost you 20 US Tokens, and Luna Classic wasnโt yet a gleam in Do Kwonโs eye. The 16 weeks + 4 days window means we are scheduled for a mass unlocking around June 28.
A lot has clearly happened in this interval. With markets being slammed, what percent of the DAO-owned CVX is on life support and contemplating dumping?
We know at least FEI (not listed on DAOCVX?) is actively considering an OTC dump at this time. The fate of Terraโs CVX stash is also unclear.
Fortunately, a health check on the remaining slices of the pie suggest the remaining players are building the bera and would benefit from continued ownership of $CVX:
Frax 17.4%: 2pool + Whitelist
Badger 12.2%: bveCVX
Redacted 8.3%: pxCVX
Wonderland 7.6%: magicCRV
Olympus 5.8%: OHM-ETH v2 pool
KP3R 5.5%: Fixed Forex
JPEGโd 5.4%: PUSd
That right there is the majority of DAO owned CVX, and we could keep going.
Of course, we still have another month to go, which is about ten years in crypto. Still, the historical $CVX unlock periods have generally been free of drama, and Iโm betting this one is also undramatic (not financial advice).
Overall, itโs awesome to see protocols shipping their way through the downturn. Beyond bullish on the activity around the flywheel ecosystem. The sort of activity you see here is what separates Curve and Convex from other protocols trying to set up a veToken model.
Revenue is a must. Earning revenue, even reduced revenue in the downturn, and youโve got a resilient tokenomics.
Still, any attempt to come to a fair market valuation of $CVX comes up quite silly.
Weโre in an era where multiple DeFi protocols are trading at irrationally low valuations, often with market caps below their active treasury holdings.
We can advance two hypotheses for this phenomenon.
Markets are irrational: DeFi assets are priced incorrectly.
Markets are rational: DeFi assets are worth zero (collapse) or negative (liability)
If one expects regulators to criminalize holding DeFi tokens, you can see where holding what were thought to be assets becomes a net negative. I assign a rather low probability to this event, but perhaps other traders have different risk assessment? Perhaps the current depressed valuation represents the superposition of all these possible outcomes?
Such questions are above our pay grade, so weโll leave the philosophizing to the day traders and the furniture.