Most recent update: [March 3, 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or CRV, made available on the VirgoCX Platform, including an opinion that CRV is not itself a security and/or derivative.
What Is Curve Finance (CRV)?
Curve is a well-known automated market maker (AMM) platform that provides a very efficient means to exchange tokens while keeping cheap fees and little slippage by only accepting liquidity pools made up of assets that behave similarly. Curve incentivizes their involvement by integrating with other DeFi protocols and offering rewards in the form of CRV tokens and interest, while this strategy results in lower fees for the liquidity providers who provide the pools with tokens.
How Does It Work?
Instead of trading between buyers and sellers, automated market makers use liquidity pools to allow digital assets to be traded automatically. A liquidity pool is essentially a shared fund of tokens. Tokens are supplied by users to liquidity pools, and the prices of the tokens in the pool are set by a mathematical formula. Liquidity pools can be optimized for various reasons by modifying the formula. By giving tokens to an AMM's liquidity pool, anyone with an internet connection and some ERC-20 tokens can become a liquidity provider. For giving tokens to the liquidity pool, liquidity providers typically earn a fee (paid by traders who engage with the liquidity pool).
Who Is the Founder of Curve Finance?
The Curve Finance project is the brainchild of Michael Egorov, an award-winning Russian physicist. Egorov first started testing and playing around with various DeFi protocols in 2018, before launching Curve Finance in January 2020.
Egorov was also the former co-founder and CTO of NuCypher, a company focused on providing privacy infrastructure for the decentralized web, which was also a Y-Combinator backed business back in 2016. Prior to that, Egorov worked as a Senior Software Engineer at LinkedIn and has a PhD in Physics from the Swinburne University of Technology.
He is both a physicist and scientist and has worked in areas close to the complex fields of quantum computing and cryptography.
What Is the History of Curve Finance and the CRV Token?
The Curve Finance protocol started as a prototype in October 2019, which was then debugged in November 2019, and the first user interface was built in December 2019. It was based on a whitepaper by Michael Egorov and was built around stablecoin liquidity in order to provide reliable yield without having to own or hold onto more volatile crypto assets. There are over 33 different liquidity pools on the platform today. The protocol initially did not have its own platform token. The CRV token was launched in August 2020 by an anonymous user who unilaterally deployed the open source CRV token and Curve DAO smart contracts on the Ethereum main net.
What Makes Curve Finance Unique and What Gives It Value?
Curve focuses primarily on stablecoins. The founder, Egorov, has mentioned that a primary differentiator of Curve is that it’s known for its market making algorithm, which is so advanced that it can provide hundreds to thousands of times higher market depth for the same total value locked compared to other platforms, when it comes to stablecoins. This is beneficial to both the liquidity providers and the traders.
CRV derives value and utility in many way:
1. The CRV token serves as a reward that can be staked or traded on exchanges for providing liquidity to the pools on the platform.
2. It is also a governance token that has a time weighted voting and value accrual mechanism. This gives the CRV token three main use cases: staking, boosting, and voting.
a. The CRV token can be staked (locked) for a period of time, at which point, you will receive veCRV for staking your tokens. The longer you lockup your tokens, the more veCRV you will receive, where veCRV stands for vote escrowed CRV. The locked or stake tokens allow you to receive trading fees directly from the Curve protocol. This decision was made by the DAO and was a community-led proposal to introduce a 50% admin fee on all trading fees, which would be collected and used to buy the 3CRV token. The 3CRV token is a liquidity provider (LP) token for the Tripool on the Curve platform. These tokens are then distributed to veCRV token holders.
b. Vote locking CRV tokens allows you to earn voting power to participate in the DAO and earn a power up or boost of up to 2.5X on the liquidity you provide to the Curve ecosystem. This incentivizes liquidity providers to hold, accumulate, and lockup CRVB tokens as it gives them the ability to boost the rewards earned. Reliable and comparatively safe high yields are hard to find as DeFi matures, so being able to boost your yield up to 2.5X is definitely attractive to market participants.
c. Voting is enabled merely by vote locking veCRV tokens. Once these are locked, you can start voting on various DAO proposal and pool parameters.
3. Composability maximizes incentives for liquidity providers. For example, if DAI is lent out on the Compound platform as a liquidity provider, you will receive a liquidity token called cDAI, which will automatically earn and accumulate interest. Holding the cDAI means you have the right to withdraw DAI from the Compound platform, plus interest for the time you were an LP. Curve takes this to the next level with interoperability. Curve users are able to use the cDAI from the Compound platform, and lend those tokens in a liquidity pool on Curve, adding a 2nd layer as a liquidity provider. This second layer of utility allows an LP to earn greater yield on the same amount of investment. This exemplifies the composability of DeFi, as Curve integrates with others in the DeFi space like Yearn Finance, Synthetix, and Compound.
What Are the CRV Token Supply and Lock Up Values?
The total circulating supply is approximately 412.5 million CRV tokens, whereas the total supply is 3.03 billion CRV tokens. This is distributed in the following manner: 62% to community liquidity providers, 30% to shareholders (team and investors) with a 2-4 year vesting period, 3% to employees with 2 years vesting, and 5% to the community reserve.
The average lockup period is 3.68 years. The total CRV locked is approximately 266 million CRV tokens, which represents almost 40% of all the total circulating supply of CRV.
What Are the Risks?
The main risk in using Curve is the risk of suffering impermanent loss (IL). An impermanent loss is essentially a loss that can occur by depositing crypto into an AMM protocol rather than holding the asset in the wallet. That being said, as it pertains to Curve and the CRV token, the risk here is minimal from a divergence perspective as Curve focuses primarily on stablecoins, while other AMM protocols allow for other altcoins to be traded where this IL problem may be more prevalent. You can learn more about this type of risk here.
There is also the risk of stablecoins in the Curve liquidity pool losing their peg and permanently staying below par. This is unlikely but still a risk as it means there is a systemic failure in the stablecoin mechanics.
Prior to listing Curve on the VirgoCX Platform, VirgoCX performed due diligence on Curve and determined that Curve is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Curve and/or its primary development team;
- The supply, demand, maturity and liquidity of Curve; and
- Legal and regulatory risks associated with Curve.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.