History of Bribing: Curve and the Evolution of Solidly

Pearl Exchange
5 min readMay 31, 2023

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Liquidity is the lifeblood of any protocol. Without enough of it, specifically early in development, even great products may never get off the ground. The last several years have seen an incredible evolution in the theory, concepts and technology used by protocols to build liquidity in DeFi. Let’s take a quick spin through the history of liquidity incentives as a set-up to what we’re building with Pearl.

GOVERNANCE REWARDS TOKENS

In June 2020, Compound Finance set the yield farming wheels in motion with their launch of the COMP token. This “governance token” gave holders new voting powers over proposed changes to the platform. Demand for the token, driven by its innovative distribution mechanics, kicked off the craze around governance tokens and thrust Compound into the category lead of the early DeFi movement.

SushiSwap’s MasterChef contract, deployed in DeFi Summer (2020), introduced the concept of LP token staking to earn inflationary governance tokens. It remains one of the most widely forked contracts in all of DeFi to this day. For the first time, liquidity providers could access a stream of rewards separate from simply swap fees. Unfortunately, there was little incentive for LPs to keep rewards in these tokens. So they were often quickly dumped, sending the price crashing towards zero and leaving liquidity providers without much benefit to keep their liquidity staked. Capital was pulled and they moved on. A sub-optimal outcome for the protocols relying on the stability of this liquidity.

LOCKED REWARDS TOKENS

The next big evolution was Curve Finance’s veCRV model, which incentivized users to lock their rewards tokens for an extended period of time, reducing sell pressure and maintaining value for LPS. In return for locking, they’d receive control over the flow of protocol emissions. Using the protocol’s gauges, they’d use veCRV to vote to send rewards to the pools of their choice. More locked tokens = more voting power, with incentives for new emissions to be quickly locked up to earn more influence. CRV lockers also received an additional boost on protocol emissions that they’d earned based on their total locked Curve.

Within the Curve model, two additional behaviors started to develop:

  1. Vote aggregation: Convex was created on top of Curve to solve the user dilemma of locking rewards capital for extended periods of time. Convex allowed users to deposit CRV, receiving liquid Convex tokens back in addition to future CRV rewards. Convex then max locked the CRV, eventually accumulating the majority voting power on Curve. Convex offered users many of the veCRV benefits without the commitment and allowed them to benefit from the protocol’s vast supply in other ways i.e. pool boosts.
  2. Bribing: Crypto is capitalist above anything else and money talks. Protocols who wanted to ensure that their liquidity pools received enough CRV emissions to build an APR high enough to attract liquidity realized they could simply bribe CRV voters, essentially paying for emissions. Locked rewards tokens now provided holders a powerful new revenue stream while protocols could, to some extent, control the fate of their liquidity simply by bribing enough voters to juice APRs.

LIQUIDITY LAYERS

And lastly we have the ve(3,3) or Solidly model, the original liquidity layer built by Andre Cronje on Fantom. The Solidly model mixed the best of the Curve model — token locking as the gatekeeper to gauge voting power and bribes — with the Olympus DAO 3,3 concept. In the 3,3 model, the optimal outcome is for all users to stake their tokens vs selling, opting instead for increasing protocol rewards — bribes and trading fees in this case — and reducing sell pressure. ve(3,3) dex also introduced locked tokens as an NFT. If an exit was necessary, holders could now sell their token NFT in any marketplace, finding liquidity for their position without impacting the token’s price. This solution improved on the veCRV model as “centralized” protocol like Convex was no longer needed for exit liquidity on locked tokens, lessening the risks of massive governance accumulation by other protocols.

For the first time, rewards, bribing and voting were fully connected, integrated into the protocol design with the other key features of swapping and liquidity provision. This “protocol for protocols” gave project teams all the tools they needed to build deep liquidity for their token. Cold start issues could be easily overcome simply by swapping tokens for votes, votes yielding high APRs and a reason for users to provide liquidity.

While bribing isn’t the only way for protocols to leverage these “liquidity layer” DEXs — farming protocol owned liquidity to accumulate voting power is also a powerful strategy — we’ve built Pearl thinking about how bribing can solve other outstanding issues protocols face building liquidity in the Solidly model.

STICKY BRIBES = STICKY LIQUIDITY

Capital in DeFi remains extremely mercenary. We’ve built blockchain systems that make it exceptionally easy to move large sums of money quickly, between one high yield opportunity and another. As APRs change from epoch to epoch, liquidity providers move their money to the higher yield pools. Liquidity is only as sticky as the APRs. And the easiest way for APRs to fall is a decline in the reward token price. Maintaining token value is key to maintaining liquidity.

What if sticky bribes, that were projected to consistently increase over time, were the key to maintaining token value and thus sticky liquidity? What if we ran the flywheel in reverse, building a bribe-driven economy powered by a real yield stablecoin? Pearl could skim that native yield and redirect the money straight to voters as an autobribe. And by leveraging that stablecoin in as many tokens pairs as possible, increases to protocol TVL drive an increased net yield from the stablecoin which leads to larger and larger bribes for voters.

The Pearl token price is now insulated from sell pressure given the reasonable projection of increasing bribes from epoch to epoch. Tokens are reliably locked, price remains high and pool ARPs are protected from the declines that drive capital flight.

It’s a new experiment in the history of liquidity incentives, one we believe solves many of the outstanding issues for liquidity providers and protocol teams.

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Pearl Exchange

The premier liquidity layer on Polygon and first DEX to focus on tokenized real world assets.