The Butterfly Wars - Another Twist In The Curve Wars
Welcome Anon! Today we are diving into the interesting protocol that are playing 4D chess. This might get brain wrenching at times but considering the information asymmetry in this space, you’ll be in better stead after reading this.
The Curve Wars have been a hot topic in the past few months. The fantastic tokenomics by the Curve ecosystem has made it a very attractive ecosystem with arguably the best tokenomics in DeFi. There have been a few twists in its tale since its infancy. Now, it is about to get spicy once again(if you’re not familiar with the Curve Wars, it has been covered here). Protocols have been eyeing the wars and with Convex Finance already controlling a large part of the supply, other players have been conjuring plans on how they can influence proceedings.
The Curve Wars are fundamental because it improves liquidity in pools which means that more buy and sell volume are required to move the price. This ensures price stability.
With Dopex strategically planning to influence the Curve Wars, new opportunities have opened up. This is where Redacted Cartel comes in. However, in order for you to understand how Redacted Cartel will influence the Curve Wars to their advantage, you need to understand what it is.
What is Redacted Cartel?
Redacted is an OHM fork (I know you’re thinking “so another one” but stay with me) that was designed with capital efficiency in mind to be a sub-dao of OlympusDAO. It forked OHM with a focus on governance tokens. However, I am doing Redacted a disservice by simply calling it an OHM fork (and we know how OHM fork szn ended) so let's get to business.
Redacted Cartel can be deemed as partners to Olympus DAO considering both protocols own roughly 10% of each other's protocol. Redacted was created with the Curve Wars in mind and being able to penetrate it. It is not fighting for market share with OHM considering OHM seeks risk-free value to back its treasury. Instead, Redacted wants to find different avenues with volatile assets without putting OHM at risk. They are utilizing OHM’s functionality in relation to bonding and staking in order to achieve this.
Basically, people can bond assets such as CRV, CVX, TOKE, and FXS for discounted BTRFLY which is the native token of the protocol. This process is called metamorphosis(they are butterflies after all). The assets that the protocol acquires generate yield that benefits the people who stake BTRFLY. However, in order to provide you with a full understanding, we need to walk through the tokenomics.
The token of the protocol is called BTRFLY and is a meta governance token that is backed by the tokens mentioned above. However, what is the meaning of a meta governance token? Essentially, they want to take governance positions in multiple protocols and influence the voting to their benefit. Similar to how you can be a part of multiple boards in tradFi. The BTRFLY token can be acquired through bonding or buying it directly on a DEX (Decentralized Exchange). Considering this protocol is a rebasing protocol in a similar mold to OHM, users can stake their tokens to take advantage of the rebase (while avoiding being diluted) and compound the returns.
When the token is staked you receive xBTRFLY as a receipt of your rebasing tokens and is essentially a derivative of BTRFLY that also works as a governance token giving holders the ability to vote on proposals and changes related to Redacted. There is no locking up period for the token and it can be unstaked at any time. Also in a similar manner to OHM which has the token gOHM, Redacted has wxBTRFLY which is the cross-chain wrapped version of xBTRFLY that can be used as collateral in other protocols without relinquishing your rebasing rewards.
Lastly, in regards to the tokens, we have pBTRFLY as well. It is a token for core contributors and is an alternative to the typical vesting that takes place for contributors of protocols. It uses supply-based vesting that is dependent on the amount of BTRFLY in circulation to not put sell pressure on the BTRFLY token to the detriment of holders.
The approach Redacted takes in relation to using their treasury is what distinguishes them from other OHM forks and will make them a significant player in the Curve Wars. They openly state how they will make productive use of the assets required to purchase BTRFLY.
Starting with CRV because it is the key lynchpin in the Curve Wars. 65% of the tokens that the protocol receives through bonding are routed into Convex as cvxCRV enabling Redacted Cartel to yield an APR of 43% that goes back into the protocol. While 15% goes to a liquidity pool consisting of cvxCRV/CRV LP and the remaining 20% to the treasury. This is done with the intention of influencing the Curve Wars in their favor and having a considerable position dictating the gauges.
This brings us to Convex which is a Mafia protocol that is the dominant force in the Curve Wars. Convex has aggressively acquired veCRV through cvxCRV which means that they are in large control of the voting power that is related to the gauges on Curve. What does this have to do with Redacted? Well, Redacted has taken it one step further and has been acquiring CVX aggressively through their bonds. As you can see in the graphic, 75% of the earned CVX is rerouted into Convex and locked up to acquire the voting power of the protocol.
This had led to Redacted being the 2nd largest voter of CVX after implementing this strategy successfully. Being the 2nd largest voter of CVX puts Redacted in a prime position to acquire value from the Curve Wars. Considering how Convex controls more than 50% of the veCRV supply and controls the gauges, the third layer of control is being established. The astonishing part is that this has been accomplished in a little bit over 2 months. Imagine what can happen in an extended time frame.
At the turn of the year, Redacted made a strategic move that will pay dividends in the long run. They acquired Votemak which is the bribe facilitator of Tokemak(based on Votium by Convex). I won’t dive deep into Tokemak since that would force me to dive into the TOKE wars which is a different animal on its own but a light overview won’t hurt.
Tokemak is a liquidity-as-a-service protocol that operates on the Ethereum network. The protocol solves the liquidity issue in DeFi as many Decentralized Exchanges suffer from a lack of sustainable liquidity from different protocols. They achieve this by allowing users to provide liquidity and then control where that liquidity gets directed. This works by letting users deposit single-sided assets into “Token reactors” or “Genesis pools” that allow them to earn yield in the form of the native token TOKE. Meanwhile, the liquidity directors that stake TOKE are able to direct this liquidity to get paired from the genesis pools and subsequently direct it to a decentralized exchange. This allows users to simply stake their tokens instead of having to LP, thus not having to worry about impermanent loss.
By doing this, the protocol can acquire fees that go to their treasury and leads to further growth of the protocol. However, that brings us to the question, what is Votemak that Redacted has acquired? Votemak lets protocols bribe the TOKE holders to vote for their reactors via smart contracts. The voting involves TOKE holders voting for protocols that will get a reactor, which will be valuable for every DeFi protocol due to how valuable liquidity is in this industry. Receiving a reactor means that they get paid emissions in TOKE when the reactor is live. This incentivizes protocols to bribe TOKE holders while the Tokemak protocol takes a fee of 4% from each bribe.
Meanwhile, Redacted is also acquiring TOKE through bonds which might put them in a position where they are in larger control of the protocol further down the line. This would enable them to use this product freely without paying any bribes. Added value capture for the cartel that duly lives up to its name.
Recently, the protocol passed a proposal that will be reducing their rebases gradually to 1000%. Redacted has had an incredible high APY in similarity to other OHM forks exceeding 20,000% APY.
In the world of DeFi, tokenomics plays a major part in the sustainable future of the protocol. A large number of DeFi protocols do not have sustainable tokenomics. Redacted Cartel is taking action to make sure their tokenomics are sustainable through a change in staking emissions. Having an extremely large APY puts pressure on the token's value and is to the detriment of the users of the protocol. It has forced participants to stake since they would get diluted otherwise. While the users won’t be rewarded with as many tokens as previously, it gives room for the ecosystem to grow more organically while the treasury is being used in an efficient manner. More about this proposal can be found here.
Considering the acquisition of Votemak and the importance of bribes, Redacted is launching their own bribe marketplace called “The Hidden Hand” enabled by this same acquisition. It will be a marketplace that enables any token to create a bribe marketplace for the protocol, providing added value capture. Redacted will benefit from this by taking a 4% fee of every bribe that goes right back to the protocol. Half of the revenue will be sent to the treasury and the other half to the lockers of the BTRFLY token, which brings us to the next point.
Curve has made the locked tokens popular because it inhibits mercenaries from dumping on other people. However, there needs to be a clear incentive to do it considering many protocols won’t survive and there are also protocols that have ridiculous locking demands without having proved themselves worthy of them.
Redacted will provide two different ways to lock the BTRFLY token. Two new versions of the BTRFLY token will be accessible: blBTRFLY and glBTRFLY. The first one that is bLBTRFLY stands for bribe-locked BTRFLY and will receive the inflow of bribes generated by the Hidden hand marketplace. It is made for retail investors that wants to capture the added value through the fees generate through bribes.
The other token is glBTRFLY which stands for governance-locked BTRFLY that focuses on DAOs that want to utilize the BTRFLY token for their own benefit. These benefits include taking advantage of BTRFLY’s voting power in other protocols such as Convex to drive emissions from gauges to their own protocol, starting a Tokemak reactor, and creating a Bonding program through Olympus Pro. This will be a cross-chain effort that will take place on Ethereum, Arbitrum, and Fantom. In other words, the cartel keeps plowing away to get a stronghold of the most attractive parts of DeFi.
The Butterfly Wars
Time to bring it all together. Observing all the moves the cartel is making, they always seem to have something up their sleeve. Redacted recently passed a proposal that will most likely affect the Curve Wars directly. It involves another protocol as well which is the Decentralized Options Exchange called Dopex, which resides on Arbitrum. I have already mentioned in my previous article how Dopex will impact the Curve wars by routing fees to their ecosystem. Well, Redacted identified this as a major opportunity to influence the proceedings in their favor.
Considering Dopex will offer Interest Rate Options Pools, that allow betting and hedging on underlying interest rates of a Curve pool. Essentially, if you expect that a certain pool will receive a lot of votes that will boost its interest rate, you can buy a call option on that pool. If the pool APR is at the strike price or above then you would profit. If you think it will be stable instead, you can sell call options at the same strike price and profit from the premium if the APR remains below that.
So what does this have to do with Redacted Cartel? The protocol will list DPX bonds that will allow users to deposit DPX in return for BTRFLY at discount. Add to the fact that Dopex has a supply cap of 500,000 tokens, this would lead to a large number of that supply being taken out of the market. Making it even more scarce. This will enable the protocol to hold DPX and impact the activity on DPX Interest Rate Pools. Thus, strengthening the position of Redacted during the Curve Wars. Considering Dopex will heavily impact the Curve Wars through their Interest Rate Pools, Redacted Cartel will consequently do the same to Dopex.
Considering Redacted’s goal is to be a meta governance token, I call this 4D Chess. When you add all the different aspects together that Redacted has accomplished there is only one way this turns out. This will lead to other protocols purchasing BTRFLY aggressively to have a heavy influence on the proceedings of the Interest Rate Pools and the brewing war. Curve Wars turned Dopex Wars turned Butterfly Wars. It does have a nice cling to it and I don’t doubt that there will be other twists in the tale before it is over. Float like a butterfly, sting like a bee. ████████ might hit you before you know it.
I want to clarify that even though I am a finance professional, this is not financial advice, and this article is only meant to bring light to the current market situation. I advise everybody to do their own research, I only want to help you to find what you are looking for. If you enjoyed this piece, feel free to share it and subscribe.