May 16, 2022
CRV - 16 May 2022 - Dopex Community Token AnalysisCommunity-Analysis-Series
CRV - May 16 2022
The Dopex Community Analyst series is a series of strategies, ideas, opinion pieces and educational resource written by independent contributors from the Dopex community. Every month many knowledgeable community analysts share a short analyses of a coin of their choice and share these with Dopex. The goal of these articles is to empower the community and help Dopex increase SSOV volume & deposits. With these articles we hope to provide users with additional information that will help them in making an informed choice of strategy using our products.
Without further ado let’s jump into our next article.
CRV TOKEN ANALYSIS
Curve is a top automated market maker, focused mostly on Ethereum mainnet (but does have a multichain presence). It began with only “non-volatile” pools (stablecoin and similar-asset swaps) but has now moved into “volatile” factory pools. Users can either utilize the swap features or provide liquidity in order to earn incentivized yield and swap fees.
Token Price: $2.24
Circulating Supply: 391,958,099
Total Supply: 1,734,724,919
Max Supply: 3,303,030,299
Market Cap: $882,440,126
Largest Liquidity Pool: ~$4,000,000 (CRV-WETH SLP)
Data from 4/29, CoinGecko
Curve has, in this author’s opinion, the second best tokenomics in defi (after Dopex). There are currently 1,074,593,322 CRV released, with 475,582,174 vote-locked and 599,011,149 in circulation (data from 4/29, dao.curve.fi). The emissions are rather high, with 1,454,794 currently emitted daily.
Most defi participants are CRV bulls; its price action often being referred to as “the most bullish chart in defi.” While it definitely behaves like an altcoin, the large market cap and large volume both keep the token price swings somewhat predictable. The CRV token can be vote-locked for up to four years as non-transferrable veCRV in order to gain voting rights for emissions gauges and boost rewards. These voting rights are either used by protocols to direct emissions to their own pools and boost their own yields (yielding even more CRV) or delegated to other protocols in return for bribes. It could reasonably be assumed that most participants are locking their CRV for four years (in perpetuity, as veCRV decreases as remaining lock time decreases). These flywheel tokenomics have gone on to create the “Curve Wars,” where time now becomes a factor as protocols race to lock up CRV to secure the future emissions of their pools. The high emissions would normally be a problem for most protocols, but the success of the Curve Wars has brought about significant buy pressure to counteract what sell pressure exists.
This author is bullish CRV short-, mid-, and long-term but in different ways. Due to the current macroeconomic conditions, a dollar-cost-average approach is probably best.
The most obvious strategy using Dopex products would be a protective put, establishing a CRV position which is then “insured” against a drop in price by buying an equal number of out-of-the-money puts. This is effective due to the relatively high yield (~40%) that can be earned through single-sided staking of cvxCRV. Here we will be exploring something slightly different: borrowing against CRV with stablecoins, then using the Dopex SSOV-P products to establish a hedged limit order on CRV.
This strategy is to be used when a buy opportunity for CRV arises, but the short term price action could be bearish, so we want to buy CRV but also place a limit order in case it continues to decrease in price. We will purchase CRV in two parcels: once to initiate the strategy, and then another at a chosen lower price. Stablecoins will be borrowed against the first CRV purchase and deposited into the SSOV-P at a strike price equal to our desired limit order. This strategy is ideally used on a money market protocol where you already have a diversified collateral deposit, as this will allow you to borrow much more closely to your maximum LTV without getting liquidated. This author uses a base of ETH with a small amount borrowed against it with which to buffer all altcoin collateral.
Due to the strong presence Curve and the CRV token has throughout the crypto space, there actually exists many lending and borrowing opportunities for the CRV token (at this stage in defi evolution finding a money market protocol that supports your favorite altcoin can be a crapshoot). Some examples include AAVE (Ethereum mainnet and Fantom), Geist Finance (Fantom), and Hundred Finance (Fantom). I would suggest AAVE due to the yield that can be gained on lending your CRV tokens, roughly 5% on mainnet and 3% on Fantom. Dopex supports zapping into SSOV-P with 2CRV, USDC, and USDT. Both USDC and USDT have fairly “stable” net variable APY (including incentives) around 2.5% for borrowing, so either of those can be used. AAVE has a maximum LTV of 55% with liquidation at 65% for CRV. 33% LTV will be used for this strategy. If you want to decrease liquidation risk or increase your LTV for a riskier borrow, Hundred Finance should be used as the money market protocol due to their 75% LTV liquidation on CRV.
For sake of example here, we will deposit 10,000 CRV tokens in AAVE. At time of writing, this amount is worth $22,400. $7,392 USDC is borrowed from AAVE (33% LTV) using the CRV as collateral. Once the USDC is bridged to Arbitrum, deposit it into the SSOV-P at the strike price of the limit order you are “placing” (at settlement, if put options expire ITM, you take the USDC and purchase CRV). You are now earning a small yield on your original CRV purchase, a yield on the borrowed USDC, and have a limit order in place for your second deployment of capital into CRV.
If CRV goes up in price, you will have earned a small yield on your CRV (when accounting for interest on USDC), yield on your USDC deposited in the SSOV-P from farming, yield from option premiums, and appreciation on the CRV token itself if you choose to take some profit. You can take the USDC and buy some more CRV, then deposit it back into AAVE to “leverage up.” You can repay the loan, remove your CRV from AAVE, then deposit it into a protocol for long-term yield farming. You can also sell some or all of your CRV for a gain.
If CRV stays the same in price, or goes down but not enough for puts to expire in-the-money, you will still earn all of the above yields besides price appreciation and have the same options going forward.
If CRV goes down in price enough for puts to expire in-the-money, you will still earn all of the above yields but your USDC at settlement will be less, equal to the current price of the CRV your limit order would have purchased. It may seem strange at first, but as long as you take this collateral and purchase CRV (or wait to purchase if you expect it to continue to drop in value), you will end up with the same end result as if you had placed that limit order through an exchange, just with additional yield on the USDC from farming as well as option premiums.
This author owns CRV.
Views expressed in this article are the author’s own and not reflective of the position or professional views from Dopex.io.
Dopex reimburses analyst contributors with a small payout to partially compensate the time spent on research and writing. For questions feel free to jump into our discord (discord.gg/dopex) and chat with the team or analyst contributors directly.
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