The crisis of trust between the Curve team and the community has given Swerve, who advocates fair token distribution and community governance, an opportunity to surpass it. However, the liquidity advantage may only be temporary. The real test is whether it can bring convincing products in the future.
Recommended Reading: ” Selected Good Articles from Chain News｜Understanding the DeFi “Fork Movement” that is in full swing “
Written by: Ryan Watkins, Messari Research Analyst Compiler: Leo Young
If there is any indication in the market in the past few days, it is that everyone has begun to feel disillusioned with the recent wave of DeFi forks . Recent popular DeFi forks such as SWRV, CREAM and SUSHI have fallen by 30% compared to the past seven days, and some have fallen as much as 80%. It can be said to be a big deal.
So is the fork reasonable?
Many DeFi forks are nothing new, they are money-staking games, not real competition, and some are reasonable. Swerve is one of them, and this article will elaborate on it.
What is Swerve’s fork?
Swerve announced the forked stablecoin automatic market maker (AMM) exchange platform Curve on September 3. The launch of Swerve originated from Curve’s August issue of governance token disputes. Until the issuance of tokens, Curve has been favored by the DeFi community, but due to poor management of token issuance, pre-mining has been criticized and the reputation of the project has declined. Moreover, in order to dilute Year’s 50% voting rights in Curve DAO, the founder of Curve locked a large number of CRV tokens in DAO, so that his voting rights reached 79%, and its reputation has plummeted. At the same time, due to the continued slow decline in the price of ultra-high inflation CRV tokens, the valuation is still as high as billions of dollars based on the fully diluted circulation.
In short, the trust between the community and the Curve team has gone from bad to worse .
The launch of SushiSwap inspired community leaders to fork and advocate fair token distribution and community governance. An anonymous team tried to solve the current Curve problem and forked. The publicity is as follows:
We will launch the Curve fork project Swerve, which is 100% community owned.
The project has no pre-deployment contracts, no controversial pre-mining, no founders controlling majority governance voting, no suspicious team votes, no 30% team “shares”, no token distribution plans for decades…none.
Source: Swerve
The main differences of Swerve are:
- Fairer and transparent distribution of SWRV tokens. All tokens are rewarded to the liquidity provider (LP), not reserved for the founding team, advisors and venture capital institutions
- Optimize the issuance plan. Two weeks before the agreement goes live, a large amount of rewards will be given in advance, then the reward will drop and the distribution curve will slow down
Swerve was launched on September 4th, and users can use stablecoins to provide liquidity for Swerve, and receive SWRV token rewards for “income farming”. With high rewards and a convincing story, Swerve has accumulated USD 8 million in stablecoin liquidity in two weeks, far surpassing Curve.
The liquidity war?
Since the launch of Swerve, Curve’s total liquidity has not dropped significantly. This means that Swerve’s liquidity is mainly new funds, not liquidity derived from Curve.
Then this raises the question: Swerve liquidity funds are chasing stable currency high returns? Or is it optimistic about the fork protocol and waiting for opportunities to hoard governance tokens? After all, the reward has been greatly reduced since the 19th, and the distribution of 9 million tokens in two weeks has become 9 million tokens distributed in one year. The market has been volatile in the past two weeks, and holding cash in Swerve to earn three times the return is very attractive.
Source: Swerve
The liquidity change after the reward decline is uncertain, and SushiSwap can be used as a reference case to analyze the problem of liquidity retention after the reward decline.
With the decline of SushiSwap’s high rewards, SushiSwap’s liquidity dropped by 58% from a maximum of US$1.4 billion to US$610 million. Although it is just a piece of data, it can be used as a reference to analyze the trend of future liquidity after the decline in Swerve rewards.
Liquidity sensitivity and relative value
Total locked up volume (TVL) is not a perfect basic valuation indicator. But the clear goal of AMM is to establish and use a balance sheet as effectively as possible, increase large transactions, and reduce slippage, so TVL can at least be used to evaluate utility.
In this way, the total liquidity of Swerve’s USD stablecoin fund pool is 28% higher than that of Cureve’s all USD stablecoin fund pool. This means that traders can get the best exchange quotations for USD stablecoins on Swerve, and the trading experience here is better. According to the total market capital index, the transaction price of SWRV is greatly discounted. This indicates that the market either suspects that Swerve’s liquidity will decline with the reward, or the market simply underestimates the value of SWRV.
As mentioned above, the retained liquidity after the decline of the SWRV reward can better evaluate the risk and return of SWRV and CRV transactions. Evaluate the liquidity of Swerve after the decline in the liquidity of SushiSwap, and compare it with Curve one year later, the market capitalization/total value locked ratio (Year+1 Market Capitalization / Total Value Locked ratio), to roughly judge the current liquidity value of Swerve , Can be used as a reference basis for valuation.
Swerve vs. Curve
For AMM, liquidity is not all. In such an early field, the continuous evolution of the agreement is most important. Simply copying the code of a successful agreement can only copy the function, but it is difficult to copy the development route.
At present, Swerve has not completely differentiated from Curve, and the liquidity advantage is likely to be only temporary. Swerve forked Curve for good reasons, and the community is enthusiastic. In addition to retaining liquidity after the reward drops, the real test is whether it can bring convincing products in the future.
Forking is easy, but construction is difficult.
