Written by: Luke, Mars Finance

What is the most dazzling track in this round of bull market? Meme is undoubtedly the best. The crypto industry is in an era of attention economy, where high popularity, high exposure, high attention and high returns are closely linked. In such an atmosphere, the winner takes all, and FOMO (fear of missing out) has become the core driving force behind the market surge. The so-called "value investment" in Web3 seems to no longer be the focus.

However, behind this turbulent market, Curve (CRV) has quietly ushered in a breakthrough performance: the weekly line has been up for 5 consecutive weeks, and the price has soared from 0.2 to 0.9. This trend is not accidental, it is a direct reflection of the market's recognition and trust in Curve, the core infrastructure of DeFi. Just as all eyes are focused on the more popular meme, the unique potential and opportunities represented by Curve have emerged.

The surge in CRV is not only a direct reflection of market sentiment, but also has multiple complex and profound driving factors behind it. From the continuous inflow of institutional funds, to the innovation of Curve ecosystem in liquidity pools and AMM, to the sharp increase in demand for stablecoins, all these factors are intertwined to form a powerful driving force, making CRV a leader in the DeFi ecosystem.

Wall Street Entry

On November 30, Curve officially announced that it has partnered with blockchain network Elixir to expand BlackRock Tokenized Money Market Fund (BUIDL)’s access to decentralized finance (DeFi). Users will soon be able to use BlackRock BUIDL to mint Elixer’s yield stablecoin deUSD.

Financial giants such as BlackRock have chosen to bet on the Ethereum ecosystem through the BUIDL fund and have deployed DeFi infrastructure such as Curve. As the core infrastructure of stablecoins, Curve plays an important role in DeFi. With the gradual entry of traditional financial institutions, DeFi will usher in a new revival.

The negative news for founders has been exhausted, and inflation has decreased

Looking back at Curve’s history, one of the biggest hidden dangers of the protocol is the huge loan position of its founder Michael Egorov, who once became the focus of market attention for lending stablecoins with collateralized CRV tokens. However, these positions were completely liquidated in June this year, and during the liquidation process at that time, the founder of Curve had to sell some CRV tokens at a low price.

However, the market's "bad news" often means a new buying point. With the liquidation of these loan positions, Curve also ushered in the market's repricing, and the price of CRV gradually recovered. In addition, the inflation rate of the Curve protocol has been continuously decreasing, currently at 6.3%. With 42.4% of CRV tokens locked, the actual CRV inflation rate in the market has dropped to about 3%, which means that the market supply is tight, further driving the price recovery.

The author's opinion (NFA): In a bull market, CRV below 1U is always worth owning. With Curve's strong performance, we can also see that CVX (Convex Finance), as part of the Curve ecosystem, is also rising steadily. It has attracted the attention of a large number of investors by providing higher liquidity incentives and stronger returns.

How does CVX provide investors with a "leverage effect" behind the price trend of Curve (CRV)? At the same time, Frax's stablecoin system is also constantly evolving. Will FXS, as its core token, stand out in the next market? In this article, we will delve into the potential of CVX and FXS and understand how they dance with Curve.

CVX: The next explosion point of leveraged CRV

The unique design of the Curve platform relies on veCRV (locked CRV tokens). Users can only vote and govern Curve's liquidity pool rewards by locking CRV and obtaining veCRV. In other words, veCRV represents Curve's "control" and determines the reward distribution and annualized yield (APY) of each pool. However, the threshold for directly staking CRV on Curve and obtaining veCRV is high because users must lock CRV for many years, which discourages many potential participants.

In this case, Convex provides users with a more convenient option through a simplified operation process. Users only need to stake CRV on the Convex platform to obtain cvxCRV tokens, which not only represent the user's voting rights (instead of veCRV), but also benefit from the income generated by the Curve platform, and enjoy the additional incentives provided by Convex (including CVX tokens) without having to lock up CRV. Convex pools all staked CRV into a pool of funds and performs gradient mismatching through different lock-up strategies to ensure stable income distribution.

Once a user chooses to stake CRV through Convex and obtain cvxCRV, they will lose the right to vote on Curve governance directly because cvxCRV cannot be reverse converted into CRV.

Historically, we can see that when Curve's price rises, CVX's price not only follows closely, but even exceeds CRV's price in some stages. For example, during the last bull market cycle, when Curve's market value grew steadily, CVX's price also showed greater volatility and a faster rate of increase.

Internal Logic: The Impact of CRV’s Surge on CVX

Increased attractiveness of returns: As the price of CRV rises, the rewards on Curve become more attractive, attracting more liquidity providers to the Curve ecosystem. As a "one-stop platform" for staking CRV and liquidity mining, Convex benefits from this, especially the increase in demand for CVX tokens.

TVL increase: The increase in CRV price means more funds flow into Curve and Convex platforms, which drives TVL (total value locked) to grow significantly. This further increases the demand and market value of CVX.

Governance power appreciation: The surge in CRV’s price means that the governance power of holding CRV has become more valuable. As a governance platform, Convex strengthens its dominance in the Curve ecosystem by acquiring more CRV and veCRV.

Improved market sentiment: The surge in CRV prices is usually accompanied by an increase in the popularity of the DeFi market, which further increases the attention and demand for Convex and CVX in the market.

Currently, with CRV crossing the $0.88 mark, the market is starting to take notice of CVX’s potential. According to data calculation, when the CRV price stood at $0.88, the underlying value of each CVX had exceeded $7.2, while the current price of CVX was only $5.4, which means that the current market price of CVX is far lower than its actual value. This divergence shows that the market has not fully reflected the true value of CVX, and there is huge potential for upside. At the data level, with the surge in CRV, Convex protocol TVL and active addresses both achieved a 50% increase within a month. This also provides investors with a clear chain of logic: if CRV’s growth prospects are clear, then CVX, as its “leveraged version” token, should have more significant upside potential. As the market gradually recognizes the value of CVX, it is expected that the price of CVX will usher in a sharp rebound in the future.

FXS: The key driving force and future potential of Frax ecosystem

As a backbone force in the DeFi ecosystem, Frax Finance (Frax) has introduced the concept of algorithmic stablecoins. This design breaks through the limitations of the traditional stablecoin model and makes it unique in the DeFi market. As the core token of the Frax ecosystem, FXS is not only a governance tool for the protocol, but also a key link for the value transfer of the entire Frax ecosystem. Its unique innovative design and system architecture make it an important component that cannot be ignored in the synergy with platforms such as Curve and Convex.

Frax protocol once became an important player in the field of decentralized stablecoins alongside Terra (UST), when the Terra (UST) algorithmic stablecoin was popular. At that time, Frax, as an important promoter in the Curve War, worked with Terra to create 4pool (UST-FRAX-USDC-USDT), planning to use this pool to subvert the traditional 3pool (USDT-USDC-DAI) and push UST and FRAX to the dominant position of stablecoins. However, with the collapse of UST in May 2022, Frax's original grand vision came to an abrupt end, which also caused Frax's popularity to drop significantly, entering a relatively low-key and tepid state. At present, the market performance of Frax and its core token FXS is still in a stable period, and has not experienced a surge like Curve (CRV). Despite this, Frax's long-term potential cannot be ignored, especially as Curve continues to strengthen, Frax may usher in a new breakthrough.

Frax captures CRV value

In Frax v2 ​​and v3 strategies, CRV and CVX have become key governance and incentive tools. Frax obtains governance votes and liquidity rewards by participating in Curve's liquidity provision and locking up CRV and CVX tokens. This approach effectively enhances Frax's capital utilization efficiency while further capturing Curve's ecological value.

Specifically, as an important liquidity provider of the Frax protocol, the expansion of Curve's platform directly promoted the capital efficiency and collateralization rate of Frax. Frax further enhanced the stability and capital efficiency of FRAX by linking its assets to the Curve liquidity pool through the AMO strategy (algorithmic market making controller). The AMO strategy provides an automated adjustment mechanism for the Frax protocol, ensuring the benign interaction between assets and the market, and all these improvements are ultimately reflected in the market demand for FXS. When Curve's performance continues to improve, the capital structure of the Frax protocol will also be strengthened, thereby driving the market demand for FXS and forming a virtuous circle.

Flywheel and Troika

The relationship between Frax and Curve and Convex is a complementary synergy. Curve provides strong liquidity support to Frax through its efficient AMM (Automated Market Maker) and liquidity pool, while Frax's stablecoin provides a more stable underlying asset for Curve and Convex's liquidity pool. In this partnership, Frax's stablecoin not only provides trading depth for Curve and Convex, but also provides decentralized stability for other protocols in the DeFi market. In this process, FXS has become the core driver of liquidity and capital in the Frax ecosystem. It interacts with Curve and Convex in many ways to promote the development of the entire ecosystem.

Internal Logic: The Impact of CRV’s Surge on FXS

Effect of AMO Strategy: As the price of CRV rises, the Frax protocol can automatically adjust the structure of the capital pool through the AMO strategy to obtain more benefits. These additional benefits not only strengthen the capital pool of FRAX and increase the collateralization rate, but also bring room for appreciation of FXS tokens. Since Frax has accumulated a large number of Curve (CRV) and Convex (CVX) tokens in its v2 version stage and obtained a considerable amount of governance votes through lock-up, the Frax protocol can control a large number of CRV and CVX rewards on the chain, which provides an additional source of income for sFRAX holders.

The capital effect driven by the AMO strategy has led to more liquidity flowing into the Frax ecosystem, further boosting the demand for FXS. It can be imagined that AMO is like an intelligent regulator, accurately controlling the supply and demand balance of the market to ensure smooth capital flow and maximized benefits.

Changes in protocol governance weight: As the Frax protocol capital pool continues to expand, the governance weight of FXS holders in the protocol also increases. This means that FXS holders are not only beneficiaries of capital, but can also exert greater influence on the future development direction of the protocol. With the further success of the AMO strategy, the governance potential of the Frax ecosystem is strengthened, and the intrinsic value of the FXS token has also increased, becoming a very attractive investment target.

Improved liquidity and higher yields: With the combined capital effects of Curve and Frax, the liquidity of the Frax protocol has been greatly improved. This has made Frax's various products and tokens (including FXS) increasingly attractive in the market. In particular, sFRAX and other derivatives in cooperation with Curve can provide more competitive yields, thereby attracting more liquidity into the Frax ecosystem and driving demand for FXS.

Whether through enhancing capital efficiency or improving governance and liquidity, these logics have been partially confirmed. Since the outbreak of CRV, Frax TVL has increased by about 50%. All signs show that the project is moving towards a brighter future.

Conclusion

I think that in this bull market full of variables, the interaction between CRV, CVX and FXS will surely write a unique and profound story. Just as the tide pushes each reef, the rise of Curve, the "leverage effect" of CVX and the stable expansion of Frax have all set off waves in their respective fields. The market is chasing short-term bubbles and hot spots, but the real value is quietly accumulating inadvertently.