- Reserve Protocol is acquiring more voting power to drive liquidity for its stablecoins
- The $20 million investment is the stablecoin platform’s largest so far.
Stablecoin issuer Reserve has made a power play worth $20 million in the Curve Wars, the ongoing competition between DeFi protocols to snatch up shares of the enormous liquidity in the Curve Finance ecosystem.
The company’s “largest investment” to date will see Reserve buy Curve, Convex Finance and StakeDAO’s governance tokens, Thomas Mattimore, head of protocol at Reserve, told DL News.
“Our investment is to help advance our stake in the Curve war game,” Mattimore said.
“Yield farmers are some of the most active users in DeFi, and Curve is one of the ways to connect with them most easily.”
California-headquartered Reserve is the company behind the Reserve Protocol, which allows users to mint asset-backed stablecoins called RTokens that are pegged to the US dollar.
Reserve claimed its eUSD RToken has grossed $5.7 billion in transaction volume in Latin America via the protocol’s RPay app since its 2020 launch. Other RTokens include dollar-pegged stablecoin High Yield USD and ETHPlus, an Ether staking index.
Investors backing the venture include PayPal co-founder Peter Thiel, and OpenAI co-founder and CEO Sam Altman. Coinbase Ventures and crypto conglomerate Digital Currency Group have also injected capital into the firm.
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However, just like other stablecoin issuers, Reserve must ensure the liquidity of its assets.
“Without liquidity, the RToken financial system would be much less efficient, grow slower and would be more prone to shocks,” Mattimore said.
That is where this latest investment comes in. By holding more governance tokens, Reserve aims to improve RTokens’ liquidity.
Ensuring liquidity is a major concern for stablecoins. Stablecoin issuers like Reserve attract liquidity by offering optimised yield to liquidity providers on major decentralised exchanges like Curve and Balancer.
They do so by acquiring the voting power necessary to directly incentivise rewards to their stablecoin pools on these exchanges. They get that power by buying governance tokens. These protocols also rely on yield optimisers that can improve the base rewards on offer for liquidity providers. It is the competition over the Curve governance tokens that has coined the term Curve Wars.
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Reserve is already among the top 10 major holders of CVX, the governance token of Convex Finance. However, its 970,000 CVX governance tokens are dwarfed by the likes of Frax, which owns over 3.6 million of the token, according to DAO CVX Tracker.
Still, this ownership enables Reserve to optimise the rewards earned by users of the decentralised stablecoin exchange.
Convex is built on top of Curve and holders of CVX are able to boost rewards to their chosen pools on Curve. StakeDAO is a DeFi yield optimiser that offers liquid locking — a solution that allows users to earn more yield on Curve and Convex tokens without compromising voting power or liquidity.
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By buying more DAO governance tokens, Reserve Protocol will be able to direct more incentives to their RToken pools on exchanges like Curve. This will incentivise liquidity providers to supply funds to RToken Curve pools to earn these rewards.
Reserve Protocol has also invested in sdCRV, a liquid derivative of Curve’s governance token offered by StakeDAO, according to Mattimore.
Disclaimer: The two co-founders of DL News were previously core contributors to the Curve protocol.
Updated on June 20 with further comments from Reserve.
To share tips or information about stablecoins please contact the author at osato@dlnews.com.
