Hey fellow flywheelooors!
I’d been having a discussion about this stuff with Sharlyn for a while now and I am a huge fan of changing some of the parameters of the system. I know this has already gone to vote & passed as of now, but I still wanted to weigh in with the conclusions I’d found myself at after some pretty deep thinking about this whole system.
To start, CLever is all about one thing: convert future CVX yields into CVX.
How does this happen? This is the absolute core piece of the system! - The Furnace
Of course there are other ways that one can convert, primarily by pulling out the clevCVX & dumping it on the Curve pool. People are so in love with this system & yearning for future yields now that they’re willing to take up to around a 20% discount to do so (curve pool usually doesn’t stay lower than -20% for clevCVX). But, the most important thing is that this dumped clevCVX is still sitting out there, bogging down the system. The abcCVX concentrator system brought a wave of relief, but only temporarily.
The issue is the burn rate of the furnace is too slow! That is why people are selling the clevCVX at a discount instead of buying discounted & staking to the furnace.
At the present moment, there are ~674k clevCVX in the furnace with a daily rate of 1676 converted. The daily burn rate is 0.26% which means it will take 385 days (1.05 years) to convert all of the currently staked clevCVX to CVX. For the furnace, the LP pool discount IS the yield - the discount is 20.13% making the return on buying clevCVX 19.17% annualized, denominated in CVX.
Right now, you can obtain a better yield on your CVX doing almost anything other than buying clevCVX with it and staking that to the furnace.
What would drive up the pool parity? Increase the yield you can get on you clevCVX!
Look at it like this: How do you generate yield with clevCVX?
A few options:
- create a borrowing market and be able to lend/borrow against it
- create a single sided staking pool to suck up liquidity from the curve pool
- increase the burn rate
Creating a single sided staking pool needs to have a reason to stake into it, which if that is to be paid in CLEV, would be a constant drag on CLEV price & eventually become useless - you can always mint more clevCVX & you’d have to be paid >19.17% APY to stake into there. This route would hurt the protocol by creating artificial demand (temporarily) for clevCVX & also burn through the treasury of CLEV while also destroying the value of it through yield farming.
Increase Furnace Burn Rate
This is the most important thing to do for the protocol. In the current state with it taking 384 days and the yield on that being 19.17%, it isn’t a very attractive use of one’s CVX.
If the burn rate were doubled to 0.52% per day and therefore the time to clear the furnace deposits halved to 192 days, that would effectively double the yield someone would be able to achieve by simply buying clevCVX & staking it to the furnace. Then you’re buying future CVX for -20%, and with a 6 month burn time, you can do that arbitrage twice per year (not counting ongoing harvesting & repurchasing). Getting ~40% annually on you CVX would rocket this opportunity from the worst yield on CVX to the best yield on CVX. So, people would end up buying cheap clevCVX & bringing the pool balance back closer toward even.
clevCVX will never (consistently) be at parity in the pool - nor should it be. The opprtunities to arbitrage profits are too numerous for such a close peg. In fact, the discount on the pool will likely become greater if the yield on CVX increases, since it will become lucrative to sell at that deeper discount & collect leveraged yields.
Instead, if the furnace burn rate goes up & the line clears faster, it will draw in additional CVX deposits so people can take advantage of leverage & also be supported by the rapid conversion. I suspect that the amount of CVX on the platform will be directly correlated to the burn rate of clevCVX → CVX, therefore, increasing the rate of conversion will dramatically increase TVL & cause significant increases in fee generation for veCLEV lockers.
In fact, the price deviation on clevCVX is actually a positive. It demonstrates the high demand for the product & it also creates multiple various arbitrage opportunities (abcCVX, furnace, locking, looping, leverage, staking, etcetc).
Where can we get the extra CVX to feed the burn?!
- The most important thing to worry about is creating a successful protocol where users have a high barrier to exit. As a veCLEV holder, I want to maximize my revenue and see this protocol win bigly. BUT, just as in the early days of being an equity holder in a company, we should be the lowest priority for receiving excess cashflow. The easiest source to take away yields from is veCLEV - it doesn’t hurt the protocol at all, it just hurts our cashflow. BUT with the increased burn rate, we would see a massive increase in TVL, which would likely end up being a greater amount of yield generated for veCLEV.
- Reduce the efforts/capital that have been focused on yield generation for curve pools - those are way less relevant unless they’re getting captured by the protocol and instead focus all possible revenue on increasing the furnace burn rate.
- During this time of reduced fees for veCLEV, the treasury should be accumulating assets that can generate yields in excess of just being a passthrough of revenue streams. It could then start contributing those yields to wherever is needed to bolster growth.
- I would hesitate to take a larger fee from the CVX depositors as that is the core user for the entire system.
- Utilization of various fee components to be utilized as Convex bribes is a positive - but only doing this when the return on $1 is better than directly paying out to users. If $1 in bribes generates >$1 in yield, bribe with it, otherwise, distribute it. This will actually positively influence the entire flywheel by increasing the revenue & yield on CVX. This reallocation of yields to bribes & such was something I’d dug into a bunch & there are definitely places where taking the farmed tokens & utilizing it elsewhere actually increases the yields for everyone in the protocol! Though, I’d hesitate to recommend utilizing them for aspects that are designed to increase the yield on the clevCVX pool - unless those yields are then re-captured and used to increase the Furnace’s daily CVX conversion.
- I’m not sure if there’s any way to do this now, but I strongly advocate following Balancer’s lead on the ve-token: use the LP token as a the deposit to the voting escrow. Then, no need to incentivize clev-eth pool & all those yields generated would be protocol owned yields that could be utilized to support various components of the ecosystem during initial growth and stabilization phases.
- Continue to utilize CLEV incentives as a yield for farming, but retain all the other yields & use those to generate extra yields for supporting the furnace - don’t just directly pass them from the farming to the furnace as that isn’t sustainable. Then, as the yields that are being generated by protocol controlled assets are no longer needed directly for supporting activity/growth, those become additional payouts to the lockers of the governance token. Either paying out the yields directly or redistributing the protocol controlled assets to lockers over time to massively increase the yield veCLEV earns.
- Stop (or at least significantly reduce) spending CLEV on yield farmers who can dump it on the pool
Request For Information
Do we have any graphs or data that shows how much revenue is generated by the protocol & from what sources (in which tokens those yields are generated)? Also, where all that revenue eventually flows to? It’d be super helpful to be able to trace through those yield feeds and see exactly which could be optimized to improve the overall functioning of the protocol! Or at least a flow chart of roughly what is harvested from where & where it then ends up… I know it’d be tough to display all these things on a Dune dashboard, so even just seeing the overall numbers without the exact pathways would be powerful in refining efficiencies!
