Original title: Liquidity Wars 3.0 where Bribes Become Markets
Original author: arndxt, cryptocurrency analyst
Original translation: Block unicorn
I believe we will witness yield wars again. If you've been in decentralized finance (DeFi) long enough, you know that Total Value Locked (TVL) is just a vanity metric until it isn't.
In a highly competitive, modular world of automated market makers (AMM), perpetual contracts, and lending protocols, the only thing that truly matters is who can control liquidity routing. It’s not about who owns the protocol, or even who issues the most rewards. It’s about who can persuade liquidity providers (LP) to deposit funds and ensure that TVL remains sticky. This is the starting point of the bribery economy.
What was once informal ticket-buying behavior (Curve wars, Convex, etc.) has now professionalized, becoming a mature liquidity coordination market equipped with order books, dashboards, incentive routing layers, and, in some cases, even gamified participation mechanisms. This is becoming one of the strategically most important layers in the entire DeFi stack.
Changes: From issuance to meta-incentives
In 2021-2022, protocols guided liquidity in traditional ways:
1. Deploy the capital pool
2. Issuance tokens
3. Hoping that profit-driven LPs will remain after yields decline
But this model is fundamentally flawed; it is passive. Every new protocol competes with an invisible cost: the opportunity cost of existing capital flows.
I. The origins of yield wars: The rise of Curve and voting markets
The concept of yield wars began to take shape during the Curve wars of 2021.
The unique design of Curve Finance
Curve introduced voting escrow (ve) token economics, allowing users to lock $CRV (Curve's native token) for up to 4 years in exchange for veCRV, thus obtaining:
· Enhanced rewards for Curve pools
· Governance rights to vote on weightings (which pools can issue)
This creates a meta-game around issuance:
· Protocols want to obtain liquidity on Curve.
· The only way to gain liquidity is to attract votes to their pools.
· Thus, they began bribing veCRV holders to vote in their favor.
Then there is Convex Finance
· Convex abstracted the locking of veCRV and obtained aggregated voting power from users.
· It has become the 'Kingmaker of Curve,' having a huge influence over the flow of $CRV issuance.
· Projects began bribing holders of Convex/veCRV through platforms like Votium.
Lesson 1: Who controls the weight controls liquidity.
II. Meta-incentives and bribery markets
The first bribery economy
Initially, it was merely about manually influencing issuance, but it later evolved into a mature market where:
· Votium has become an off-market bribery platform for $CRV issuance.
· Redacted Cartel, Warden, and Hidden Hand emerged, extending this to other protocols like Balancer, Frax, etc.
· Protocols no longer just pay issuance fees; they are also strategically allocating incentives to optimize capital efficiency.
Expansion beyond Curve
· Balancer adopted a voting escrow mechanism with $veBAL.
· Frax, TokemakXYZ, etc., integrated similar systems.
· Incentive routing platforms like Aura Finance and Llama Airforce further add complexity, turning issuance into a capital coordination game.
Lesson 2: Yields are no longer about annual percentage yield (APY), but about programmable meta-incentives.
III. How yield wars are fought
Here’s how protocols are competing in this meta-game:
· Liquidity aggregation: aggregating influence through wrappers like Convex (e.g., Balancer's AuraFinance).
· Bribery activities: reserving budgets for ongoing voting bribes to attract the needed issuance.
· Game theory and token economics: Locking tokens to create long-term consistency (e.g., ve model).
· Community incentives: gamified voting through NFTs, lotteries, or additional airdrops.
Today, protocols like turtleclubhouse and roycoprotocol guide this liquidity: they do not issue blindly but auction incentive mechanisms to liquidity providers (LP) based on demand signals.
Essentially: 'You bring liquidity, and we will route incentives to where they matter most.' This unlocks secondary effects: protocols no longer need to forcibly acquire liquidity; instead, they coordinate it.
Turtle Club
One of the lesser-known but extremely effective bribery markets. Their capital pools are often embedded in partnerships, with a Total Value Locked (TVL) of over $580 million, employing dual-token issuance, weighted bribery, and surprisingly sticky liquidity provider (LP) bases.
Their model emphasizes fair value redistribution, meaning issuance is guided by votes and real-time capital velocity metrics. It’s a smarter flywheel: LPs are rewarded based on the effectiveness of their capital rather than just its size. This time, efficiency is finally incentivized.
Royco
Within a month, its TVL skyrocketed to $2.6 billion, a month-on-month increase of 267,000%.
While some of this is 'point-driven' capital, what's important is the infrastructure behind it:
· Royco is an order book for liquidity preference.
· Protocols cannot simply provide rewards and hope. They issue requests, then LPs decide to commit funds, ultimately coordinating into a market.
This narrative is not just about the meaning of yield games:
· These markets are becoming the meta-governance layer of DeFi.
· HiddenHandFi has cumulatively sent over $35 million in bribes to major protocols like VelodromeFi and Balancer.
· Royco and Turtle Club are now shaping the efficacy of issuance.
Mechanisms of liquidity coordination markets
1. Bribery as a market signal
Projects like Turtle Club allow LPs to see where incentives are flowing, make decisions based on real-time metrics, and be rewarded based on capital efficiency rather than just capital size.
2. Liquidity requests (RfL) as order books
Projects like Royco allow protocols to list liquidity demands like orders in the market, with LPs filling them based on expected returns.
This becomes a two-way coordination game rather than a one-way bribery.
Ultimately, if you determine the flow of liquidity, you influence who can survive in the next market cycle.
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