May 10, 2021: Like a Duck to Water 🌊🦆
Successful Test Flight Opens Curve to High Leverage Stable Farming
In a bit of a Kitty Hawk moment, Curve provided a demonstration that most of the world didn’t notice, but may soon open up the skies. In this case, it took the form of a one word tweet that would confuse many people, but blow the minds of those who got it.
Some people understood immediately and were stunned.
But many people needed a bit more explanation.
Let’s inspect the transaction and break down what happened.
Two moves happened here.
The key player is 0x844. 0x844 interacted with the contract 0x0e1, subtracting a new-ish token and receiving another token.
What do we know about 0x844? We know they are not a significant player in Curve’s race to 10 Billies. They only have $2 in Curve’s 3pool at the moment, earning them a paltry $0.000048 USD / day.
Thanks to some simple blockchain forensics, we also know 0x844 deposited into the 3pool just two days ago.
When they aped in, they deposited a full $3. As we saw above they are down to $2… so we observe a dollar has gone missing. Curve pools aren’t known for leaking money, so where did the dollar go?
This dollar moved in in the span of 0x844’s next four transactions.
The first two moves by 0x844 were to interact with a contract sitting at 0x4bf, known to its friends as “Curve.fi 3CRV Gauge Deposit: Unit.xyz Collateral.” It was published 44 days ago with no activity since.
The interactions allowed 0x4bf to transfer a dollar worth of 0x844’s stake in 3pool.
This is where things start to get interesting. Usually when you stake your money into a Curve gauge it just sits there earning you money. You usually can’t do much with it except to sit and watch your money pile up.
In this case, the 3pool stake became liquid. When 0x844 staked into 3pool they received a receipt. They then traded $1 worth of this receipt with 0x4bf for 1 3CRV-Gauge-Unit.
So we’ve interacted with the 3CRV token, but we’ve not done anything useful yet. Let’s now look at the final set of transactions. The next pair of transactions in 0x844’s demo involve taking this 3CRV Gauge token and interacting with contracts within the Unit Protocol ecosystem.
If you are not familiar, Unit Protocol provides a permissionless lending protocol that allows you to stake assets and mint USDP. They support a several popular DeFi tokens, 124 as of publication, including your classic Curve token.
So let’s review the situation. Our friend 0x844 has a dollar sitting in 3pool earning fees. They took this dollar position and gave it to the duck, who gave them $0.25 back in USDP.
No need to explain. End of article!
OK, we’ll keep explaining. Now that 0x844 has cash in hand, they could, for example, redeposit money back into Curve’s USDP pool. USDP pool is quite a popular Curve destination, earning up to 60% $CRV with a maximum boost.
Presuming everything functions properly, 0x844 can then farm $CRV tokens from USDP pool. When they get bored, they can then pay back their loan at Unit Protocol and retrieve their original position in 3pool, which also should have appreciated in value over this period as well. They’ve stretched their initial position a lot further, into what the kids like to call High Leverage Stable Farming.
Users in tax-happy regimes may also find this concept interesting from the regulatory point of view. Lending within cryptocurrency is a bit too new for law to be firm, but in boomer banking taking out a loan is not traditionally taxed unless the recipient defaults. In other words, the minting of $0.25 by 0x844 above is arguably a tax free event, (although not the additional $CRV earned from farming, which would be taxable upon receipt).
However, your tax authority may have different opinion, so definitely don’t trust randos on the internet just because they’re gorgeous. We happen to be on the far left side of the IQ curve, so we’d definitely suggest you find a smart person who’s qualified to offer tax and/or financial advice before you try anything fancy.
Also while we’re slapping disclaimers everywhere, “leverage” is one of those concepts that occasionally causes entire economies to implode, so be extra careful. If something backfires, you may end up losing your original position through Unit Protocol’s austere liquidation mechanism.
At any rate, you still have some time to get your ducks in a row, so to speak. These proof of concept contracts are capped at $100 so nobody’s getting rich yet. The gas costs alone far exceeded this, and it would really only be economically practical with large whale positions. It’s also unclear the exact borrowing rate, and this rate may cut into any potential upside. It’s also not clear if this is only for users who are staked or if you can also borrow against positions in reward gauges
Nonetheless, all Curve stakers should start planning what they may want to do with their staked positions if opportunities start to open up. The USDP demo from above may well be just one of several possible opportunities.
In the past few weeks the AP Wine token has also made noise for allowing you to trade unrealized yield, thereby speculating on the future of various DeFi protocols. They also announced a familiar Curve-like form of locking and vote escrow for their token.
Wilbur and Orville Wright did not get a ton of attention for their flight at Kitty Hawk, but afterwards humanity would take flight. Following Curve’s successful demonstrations, let’s see if DeFi also soars to great new heights.
For more info, check our live market data at https://curvemarketcap.com/ or our subscribe to our daily newsletter at https://curve.substack.com/. Nothing in our newsletter can be construed as financial or tax advice — consult a professional. Author is a $CRV maximalist and has a position in USDP pool.