March 3, 2022: The Solidly Wars 💥🎖
More $SOLID than $CRV? Prefer $SEX over $CVX?
War! War never changes.
I first came across the Solidly Wars while running my routine searches for myriad filthy unprintable keywords combined with the word “SEX.” As is turns out $SEX (Solidex) is to $SOLID (Solidly) as $CVX is to $CRV, so my attention if nothing else got aroused.
About Solidly ($SOLID)
First check, is this for real? A quick glance at DeFi Llama suggests it’s got something to it. $1.8 locked in Solidly, and $1.7 locked in Solidex, about double Curve’s haul on Fantom. Probably something!
What immediately stands out to me is just how sneaky close the two TVL values are to each other. We’d suspect this could be a case of double counting, where a dollar locked in Solidly then Solidex gets tallied twice, though it happens to be the same dollar. In fact, we have the similar questions about Curve and Convex TVL accounting, so we’re not crying shenanigans. Just note if you see impressive figures like “200B locked in DeFi” you may want to mentally round down somewhat.
Before we dive in, let’s disclaim our biases up front: A lot of people explicitly cite Solidly as being competitive with Curve. I’m a Curve maximalist, and therefore I’m hardly a neutral source on this subject. It’s still in my interests to be objective, because I’d love to be early to something bigger than Curve, ergo anybody may find this article useful despite these biases.
What exactly is Solidly? It’s heavily an Andre project (real Andre, not the fake one floating around).
When Andre’s around a project, you know it will at very least be interesting! He’s been building amazing products in and around DeFi for years, and this project feels like his attempt at assembling a Franken-AMM from all his favorite projects. Hence it has some parts of OHM, some parts of Curve, a little bit of Uniswap, all patched together into a hideous monster.
It’s also got Dani, which nowadays is an immediate red flag. He’s demonstrated atrocious judgement in the past, and may well be under investigation by the weenus inspectors of Washington DC. Yet imagine a universe where he’s just focused on community, which he’s extraordinarily good at, and largely excised from the strategic components. Then imagine Andre focused on building, not needing to worry about marketing. You might have something like a super team!
How exactly does Solidly work? Well, the mechanics are complicated as you may imagine. I’ve most of my adult lifetime covering Curve, and I am starting to just figure that out. Solidly is, if anything, even more complex.
Much of the mechanics are based on Curve, including boosting, token emissions, and locking. The interface borrows heavily from Uniswap, as does the fact most pools are volatile assets in the vein of Uniswap v2. They then try to layer on some Olympus DAO (3, 3) game theory, where emissions are tied to the percent of the supply locked.
It’s perhaps too early to get a good grasp on whether this has produced major behavioral changes among the typical user.
We do know that the emissions schedule is heavily front-loaded, even more so than expected due to a bug.
This means that the $SOLID coins mostly get distributed in the very first two weeks. In other words, the “Solidly Wars” will potentially be decided on the basis of a few early skirmishes, the war ending as quick as it began.
Like all wars, the hot war was particularly ugly. Some players managed to accumulate extra through through $MOCHI style shenanigans.
Due to some bugs during this period, a few votes also got misdirected, further imbalancing a handful of participants.
So we could imagine some co-belligerents in the war being upset that the crucial determinative weeks were unduly influenced by some such shenanigans and exiting fully, but hey… all’s fair in $SEX and war. We’d argue that whoever managed to win the game as it actually transpired remain winners and deserve their spoils.
About Solidex ($SEX)
The simultaneous development of $SEX is another notable layer. Solidex ($SEX) is likened to be the Convex to Solidly’s Curve. At this point, I find the mechanics here a bit questionable.
To some degree, Convex emerged after Curve had been functional for about a year as a way to improve Curve based on observations of its actual real world mechanics. Much of Curve was architected to fit well into the world of DeFi as it existed in the early days of DeFi summer. After a year, the landscape changed significantly, and some of the early Curve mechanics were improved by updating for newer conditions.
One such example was the illiquidity of veCRV. The strict nerfing of locked $CRV was very much intentional and served an important purpose in the successful launch of $CRV. Yet as DeFi evolved, degens complained more and more about this restrictive lockup period. Convex emerged in part to satisfy these concerns, allowing for greater flexibility through the mechanics of wrapped $cvxCRV. (For its part, Solidly addresses this by issuing an ERC-721 instead of non-transferrable ERC-20 to represent liquidity positions.)
So elegantly was Convex designed that it addressed most user’s complaints about Curve without becoming parasitic, itself quickly growing to become one of the largest protocols in DeFi. It’s an amazing success story that Curve’s perceived flaws didn’t hurt the protocol, but instead birthed a second multi-billion dollar protocol.
Launching Solidex so early is therefore a bit of a confusing move to me. Had Solidex launched after a few more months of battle testing to understand where the rough edges could be smoothed, the opportunity would strike me as more substantial. Or better yet, if the mechanics Solidex is addressing are so well known, why not just bake it directly into the Solidly protocol itself? What is gained by cleaving this into two protocols at the outset? If the Solidly/Solidex symbiosis proves to not to develop as intended, it seems inevitable a third protocol may one day launch to address any such issues.
Where Convex also proves exciting to me is its capability of expanding its mechanics beyond Curve, as it absorbs FRAX and potentially other ve-based tokens. It’s not clear Solidex has such ambitions beyond Solidly. We aren’t necessarily going to discount the value prop of Solidex just for having a narrow focus though, as we do strongly believe the most successful projects are those that launch with a very narrow focus. However, rather than being part of a larger vision, it looks to be a case of “launch something that smells like Convex and see where it goes.”
So this is about the extent of what I’ve been able to decipher in about a day of digging into the two protocols. What’s my overall evaluation? A bit split.
Bear Case
On the down side, the core of Solidly relies too heavily on the constant product formula for volatile priced assets. I’ve never been a fan of this formula, it has some real structural limitations that will always hold back the user experience for both liquidity providers and casual traders.
To be fair, Uniswap has ridden this formula to great success so far, so you can’t fault the Solidly team for sticking with what is most familiar and popular. However, I also don’t think it’s an accident Uniswap themselves understand these issues with the constant product formula and distanced themselves from this approach for their v3.
I also tend to believe the Curve v2 pools are already proving the superior solution for volatile asset pools. During extreme market conditions (ie sudden dumps, high gas), when users arguably most need a reliable AMM, only Curve v2 pools have proven to be so resilient. This is only at about a half dozen boosted pools, imagine when we get to a hundred.
Again, the existence of constant product pools isn’t a necessarily an indictment against Solidly — the idea of having both volatile and stable pools for a launch mechanic is a satisfactory choice that negates the need for a v3. Further, launching complex v2 style pools could overly complicate the launch. Solidly can always move to more complex solutions in the future if their protocol proves durable.
Mostly, I just feel it’s important to rigorously examine these mechanics in any thorough evaluation, because once the wars dry up, much of the valuation of the Solidly token is pegged to the trading fees generated by the protocol.
Another bearish trend is that few other Curve competitors have had much luck stealing much market share from Curve with a close copy. Think of the sad fate of competitors like Swerve or Saddle. It may surely be possible to knock out Curve someday, but I expect it will come from something that looks nothing like Curve.
The bear case against Solidly is further laid out here in this must watch video by @TaikiMaeda2
Other flywheel maxis are unsurprisingly bearish on the Solidly Wars.
Bull Case
In Solidly’s defense, it’s actually rather heartening to see the comprehensiveness and thoughtfulness with which they mimicked Curve and worked to improve the mechanics. For most developers, copying the vast sprawling Rube Goldberg machine that is the Curve + Convex would be too complex. Andre as a developer has impressively done so in a matter of weeks. Certainly a bullish sign when you think what could come next.
I’d also expect that Solidly defeats Curve on Fantom (indeed by TVL it has already done so), and possibly even some other L2s. I get the impression Curve cares most about L1, and the launches on L2s are more for exposure than for excellence. With its intense attention to the Fantom ecosystem, including offering $GEIST rewards, it appears to me as though Solidly will have a strong home base on Fantom.
As a strategic matter, getting top market share on all L2s then pushing onto L1 is quite a reasonable path to success, since there is real opportunity to corner these markets that may well grow quite large. The nascent state of DeFi on sidechains is real low hanging fruit, and Solidly could pick these off on their way to success.
Also worth noting that a number of the traders closely following Solidly remain extremely bullish on the launch.
The Verdict
If you’re looking for a binary “Solidly will kill Curve” or “Solidly will die,” I’d suggest interpreting complex events as simple binaries betrays a simple mind. Since I won’t proffer financial advice, I’ll instead provide a book recommendation in the form of Vlatko Vedral’s Decoding Reality, where Chapter 6 describes how Edward Thorp maximized financial gains just as one would maximize the Shannon entropy of a communication channel through the log of inverse probability.
In shorter terms, what are the expected gains of these scenarios and the associated probability? Maybe there’s a 10% probability that Solidly kills Curve, a 90% chance Curve kills Solidly. If I were a trader, I might allocate my portfolio proportionally, about 9x more $CRV than $SOLID. But I’m not a trader, so I won’t, and I’m not a financial advisor, so nor should you. The important thing is getting a sense of how navigating a world of probabilities can give you an advantage versus absolutists.
Another way to think of this is that a bet on Curve is an indirect bet on $SOLID. Curve was allocated 5% of the $SOLID airdrop, and while I don’t know what they’re doing with it, it means Curve stands to benefit indirectly from the event Solidly stomps Curve.
By my actions, my revealed preference is assigning a low probability to Solidly defeating Curve. I do personally put it at maybe a 10% chance. I also think that the DeFi space is stronger with more AMMs, so I’m excited by the rise of Solidly. I’ll certainly be keeping an eye on the protocol, and will certainly consider obtaining a small position if the price continues to drop.
I could only really scratch the surface of the protocol in this article here. If you are interested in learning more, I highly recommend the threads by @JackNiewold, who has covered the launch in extreme detail.
Whether you’re fighting in wars in the real world or the virtual world, make sure to stay safe!