To understand the stablecoin war and more specifically the Curve war currently in place, we need only go back to January 2022, when the personalities behind the $DAI and $UST stablecoins were attacking.
On January 4, the founder of Maker DAO ($DAI) accused the Terra ecosystem and especially the operation of UST of being a huge ponzi scheme. Do Kwon, founder of Terraform Labs, the company responsible for the Terra ecosystem (Luna), quickly responded by announcing the establishment of UST as a sovereign stablecoin while eradicating DAI.
An open war on Curve Finance
Curve Finance is simply the leading AMM (Auto Market Maker) in the market allowing for almost no slippage and extremely low fees. Curve also has the largest TVL in the DeFi world with over $21 billion.
Learn more about AMMs: What is an Auto Market Maker (AMM)?
Curve has quickly become an essential DEX for stablecoins looking to grow and sustain themselves.
These protocols can then decide to provide liquidity on the platform themselves, but they can also use Curve’s $CRV reward system.
Indeed, by staking $CRV / $CVX tokens, major players can direct CRV rewards to the liquidity pools of their choice.
This causes a money war where protocols like Terra and Frax compete with each other trying to attract as much liquidity as possible to their respective pools. To do so, they do not hesitate to bribe other $CRV / $CVX stakers in exchange for increased CRV rewards on their pool and thus an incentive for the masses to provide their liquidity.
At the moment, the main stablecoin pool is called 3pool and consists of the $USDT, $USDC and $DAI tokens despite the fact that none of them pay to attract liquidity.
Indeed, the smaller ones, such as $UST and $FRAX, join the 3pool to benefit from its liquidity and guarantee their stability. Thus, when Terra or Frax use their $CRV / $CVX voting power, they directly encourage the liquidity of $USDT, $USDC and $DAI tokens.
A partnership to rule Curve
This system is about to undergo a huge change: an unprecedented alliance between $UST, $FRAX, $USDT and $USDC tokens is expected to emerge thanks to the partnership between rivals Terra (with the help of Redacted) and Frax.
This alliance will give birth to the 4pool, composed of the 4 stablecoins, leaving $DAI aside. As you can see, the 2 partner protocols will then be able to effectively use their respective voting power to direct CRV rewards to their new pool in order to attract the maximum amount of liquidity possible.
The Curve war is over, all the shows are going to the 4pool.”
“The goal is to starve the 3pool.”
In effect, by owning the majority of the $CVX tokens, the alliance takes control of the direction of the rewards that drive liquidity.
The stability of the $UST and $FRAX stablecoins will be greatly improved, while the smaller tokens should logically join the 4pool.
The demand for $DAI liquidity is expected to suffer heavy losses, representing large risks to the protocol, all to the benefit of $UST and $FRAX tokens.
Simply put: the largest holders of $CRV / $CVX tokens (often DAOs) join forces to redirect $CRV rewards into a single stablecoin pool attracting as much liquidity as possible. With the help of several DAOs as well as Redacted, Terra and Frax simply control Curve, the number one DEX.
Do Kwan and Terra‘s goal remains clear: in addition to being extremely prolific for the Terra ecosystem, this is also a personal attack, aiming to drain the 3pool of liquidity and put an end to the $DAI, a decentralized stablecoin.
source : Terra