Disclosure: Delphi Ventures and members of our team hold YFI.
In our recent research report on Yearn and Curve, we focused heavily on Curve’s liquidity gauge system and the impact it has on Yearn’s Vaults. As a quick refresher, Curve currently releases 753,263 newly issued CRV each day to liquidity providers. How this amount gets distributed amongst the various pools is dependent on that period’s gauge weights. For example, if the Y Pool was weighted at 80%, and the other pools split the remaining 20%, then Y Pool liquidity providers would earn 602,610 of that day’s CRV reward. As you can imagine, controlling the gauge weights dictates where, and to whom, a lot of value will flow. This is the driving factor for why staking CRV can be so attractive for large liquidity providers, because you get to vote, every week, on how many rewards you’ll receive for that period. There are other incentives too. If you’re a liquidity provider who stakes CRV, you also earn a reward boost up to a max of 2.5x on the liquidity you’ve added, in addition to 50% of trading fees (i.e. the 0.02% Admin Fee taken on each trade).
With the Vault’s now staking 10% of the CRV profits they’re earning, and locking them up for 4 years, they see increased influence over deciding gauge weights and a reward boost on the liquidity they’re providing. They aren’t the only ones staking though. In our report from last week, we noted th