Napier Explained: The End Game for Curve Ecosystem
A liquidity hub for yield/point trading powered by Curve Finance with LSDFi and LRTFi integration.
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1. Introduction
2. Napier overview
3. Architecture
- Napier Minting System
- Napier AMM
4. Partnerships
5. Conclusion
1. Introduction
At this time we present new project related to the Curve ecosystem. We have already produced a comprehensive research on the development of the ecosystem around Curve - The Saga of Curve Finance 2: Curve Ecosystem as a Template for LSDFi. Then it became clear that the unique mechanics of Curve allowed us to create a huge and sustainable ecosystem with a large number of projects both within this huge mechanism and with a large number of projects that use Curve for its intended purpose - as a liquidity pool.
With the growth of LSDFi and LRTFi, the Curve ecosystem has continued to expand, capturing and introducing new protocols and liquidity. This titan remains steadfast against all odds, confidently outlasting its competitors. And Napier is just one representative of the new wave of projects that are working with the Curve-based ecosystem and adding new features and mechanisms to it.
2. Napier overview
The Napier is a liquidity center for income trading that was created as an extension of Curve Finance. Napier has chosen to build on the Curve pool to maximize capital efficiency for yield trading. Napier AMM optimizes fixed maturity assets and synchronizes seamlessly with Curve v2 for improved momentum. Overall, this protocol is similar to both Pendle and milti-compound curve pools.
Although the project talks about linking to DeFi protocols from 2020, it is a modern project as it uses LST and LRT mechanisms (and these are tightly integrated with Curve and Convex as these protocols are modifiable due to their cross-time design that has transcended time).
Napier will allow users to always choose best practices regardless of market conditions, such as:
- Fixed Rate: lock in the yield of a position, eliminating any uncertainty about future returns.
- Initial Income: Napier will allow users to receive expected income in advance, giving you immediate access to funds that would normally take months or years to accrue.
- Yield trading (points): Yield tokens (YT) represent the right to future returns, allowing users to trade and speculate on interest rate fluctuations (APR), which is similar to buying a token and gaining access to changes in its price. (more on this below)
- Liquidity provision: Napier's liquidity provision allows users to earn swap fees while retaining your right to accrue yield and all sorts of incentives.
Among the supported assets are wstETH (not reward-bearing), rETH and sfrxETH, which are the core and most liquid LST protocols. They are used in multi-asset liquidity pools (metapools, where one asset is traded to a pool with several other assets) to maintain the stability of LSTs and LRTs. The more different tokens of the same type in a metapool on one side, the lower the risk of unpegging due to the fact that the weighted average price is kept. An example of a metapool is tri-pool pairs (DAI, USDC and USDT), in the case of Napier we get TriPT-LSD. Proportion of the asset allocation in the TriPT-LSD pool same as Curve 3crv.
PT are tokens as in Pendle, fixed term tokens.
YTs allow investors to trade anticipated deposit returns without owning the asset itself. Upon expiration, YTs lose their value.
PTs allow holders to participate in the future value of the underlying asset after the YT expires. The owner of a PT can recover the underlying asset after the YT period expires.
YT LP tokens can be used to receive a portion of the commissions collected in the liquidity pool or to participate in other incentive programmes that Pendle (Napier) may offer
YTs have a limited life after which they lose value, whereas PTs continue to exist and represent the remaining value of the asset.
Thus, YTs and YT LPs are more suitable for active investors interested in speculating on yield or generating liquidity income. PTs are more suitable for investors interested in long-term ownership of the underlying asset. Therefore, it is PTs that are used for metapools.
3. Architecture
Napier Minting System
Napier Minting System is the first major part of Napier. It can take any income-generating token on Ethereum and create its fixed-income equivalent. The end result is that it allows users to split the "Target Asset" (a variable yielding asset) into two separate assets:
Primary Token (PT), which is the fixed income equivalent of that asset.
Yield Token (YT), which is the right to the variable yield generated by the Target Asset.
Any target asset has an underlying asset - the asset from which it generates income. For example, aDAI (Aave) earns DAI income from the DAI underlying, and rETH (Rocketpool) earns rETH income from the rETH underlying. In these cases, the underlying is DAI and rETH respectively. One base target value can be used to mint 1 PT and 1 YT - and these 1 PT and 1 YT can always be combined to get back 1 base value of the variable yielding target asset.
Napier AMM
The Napier AMM is the second part, which is used to facilitate yield trading between the base token (PT), yield token (YT) and the corresponding underlying asset - the base pool, as well as trading between the LP token of the base pool and the underlying - the time-dependent metapool. And it is precisely responsible for the functioning of the Tri-pool and metapools. In addition, Curve Factory pools can be used to facilitate PT and YT trades. In Napier Pool, different PTs can trade directly with the underlying assets, while different YTs can be traded via flash swaps.
Such, to understand Napier Pool, we can distinguish three main types of pools:
- Base Pool is the simplest pool created on Curve Finance for two or more fixed term assets like PT and YT. An example of a Napier base pool is ETH LSD 3Pool, which contains the tokens PT-stETH, PT-rETH and PT-frxETH.
- Napier MetaPool (Time-dependent Metapool): Napier pool is a time-dependent AMM directly connecting to Curve pools, using a nested AMM structure to facilitate yield trading between various PTs, YTs, and their underlying assets. Fixed-term assets with a maturity date have price changes dependent on time. Therefore, Napier Pool was set up to offset loss from time-value changes in base pool's LP tokens. Napier pool is created with pairs of underlying assets (ETH) and base pool's LP tokens, like ETH LSD 3Pool (PT-stETH, PT-rETH , PT-frxETH).
Thus, in simpler words, this type of pool is ideal for trading tokens that increase in value as they approach their maturity date (commonly referred to here as PT/YT), and allows you to calculate prices and marginal interest rates using the pool reserve ratio and time remaining to maturity as variables. It is also needed because when trading such tokens, it is necessary to recognise prices (fixed interest rates) over a wide range as soon as maturities begin. This requires a wide pool of liquidity similar to Uniswap v2.
- Curve MetaPool: MetaPool is a nested pool structure concept was proposed by Curve Finance, where one token can seemingly trade with another base pool. Thanks to the Napier Pool, pairing with the base pool's LP tokens enables listin g any fixed-term asset on Curve Finance, just like stablecoins (e.g. FRAX) or volatile assets (e.g. ETH).
For example, We could create, a pair of PT-swETH and base pool's LP tokens, like ETH LSD 3Pool (PT-stETH, PT-rETH , PT-frxETH). In this example, users could seamlessly trade PT-swETH (also YT-swETH) between the three tokens in ETH LSD 3Pool and underlying assets(ETH).
However, as the maturity date approaches and trading at a rate very close to 1:1, it becomes crucial to concentrate liquidity in a narrower range to maximise liquidity utilisation.
Furthermore, if you were to trade on other AMMs such as Uniswap or Curve, which do not include a time parameter, non-permanent losses would accumulate over time. This would make it difficult to protect liquidity providers' funds from arbitrage trading.
What this kind of structure ultimately gives users:
Capital Efficiency: each market supports only 2 assets: a Napier 3Pool bridge token and a unique token. This design concentrates liquidity in separate pools and provides a high degree of efficiency.
Isolated risk: in Napier, the impact of hacking, exploitation or manipulation of a revenue project is largely confined to the relevant market rather than the protocol.
All these mechanisms taken together make it possible to operate Fhlyweel. This is made possible in particular by the bootstrapping program Llama Race (more on this in the Partnerships section). Primarily within Point Casinos projects will rely on Point Casinos to create a pre-token flywheel. Point is the place to start of project. The more points user offer in Point Casinos, the more transaction opportunities projects will bring in additional Napier points. This means that projects that are already tokenized can use Point Casino to create a flywheel of points.
4. Partnerships
For bootstrapping, Napier launched the Llama Race program, a gamified points earning competition designed to highlight user contributions to the Napier and Curve ecosystems. The Llama Quest consists of five chapters reflecting Napier's journey to make Curve the home of LST/LRT again. And there are a large number of protocols connected into Llama Race:
In addition, Napier appears to have close ties to projects such as:
Prisma Finance - Prisma allows users to issue a stablecoin (acUSD) that is fully backed by LSTs. The distinguishing feature of this stablecoin, compared to those offered by other LSDfi protocols, is that it will be incentivized by Curve and Convex Finance. This creates an economic cycle where users can earn trading fees and rewards in CRV, CVX, and PRISMA with other complex mechanics, on top of their Ethereum staking rewards.
Curve - Curve is an AMM DEX and its main competitor is Uniswap. The most important difference is that Curve is positioned as a DEX for low-volatility assets - stablecoins and wrapped/synthetic assets (sBTC, renBTC or wBTC), and that's also why Curve has minimal slippage - because stablecoin prices are considered predictable. And that's why Curve's TVL has been higher or around Uniswap's TVL, even though Uniswap supports a multitude of assets and Curve mostly a limited number of assets - because the stability of Curve's platform attracts liquidity providers who are looking for a safe place for their stablecoins and wrapped assets where they will be spared the risks of Slippage and Impermanent Loss. You can read more about how Curve works in our separate article.
Convex - can be seen as a younger sibling that enables Curve users to access liquidity without limiting it. Convex will also integrate veNPR, which provides immediate liquidity to NPR holders and optimises Napier yields for LPs.
Yearn - Yearn remains an important part of the Curve ecosystem. Yearn is an automated DeFi yield aggregator platform that automatically calculates rewards for users. Without Yearn Finance, investors would need to manually shift their liquidity to the highest-yielding protocol.
Dinero (ex-Redacted cartel) - Redacted is a company that provides liquidity, management and cash flow on the network for DeFi protocols. They have created several products that participate in the Curve ecosystem - Redacted Protocol, Pirex, and Hidden Hand, among others. You can read more about these protocols in Part 2 of the research on Curve Finance.
Euler Finance - Euler Finance is a decentralised finance (DeFi) lending platform, its main advantage is the unauthorised listing of assets. It allows users to decide which tokens to list and create a lending marketplace, as long as the tokens have WETH trading pairs on Uniswap v3.
Frax Finance - at a basic level, Frax Finance is a decentralised cross-chain protocol that aims to create a scalable digital currency with flexible supply, algorithmically backed (AMO) and collateralised. It issues asset-pegged tokens such as FRAX, sFRAX and frxETH
Aave - is a decentralised non-custodial liquidity market protocol where users can participate as suppliers or borrowers. Suppliers provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralised (perpetually) or undercollateralised (one-block liquidity) fashion.
Napier is also been audited by MixBytes and Sherlock: https://docs.napier.finance/security/audits
5. Conclusion
Napier proposes the next stage in the evolution of the Curve ecosystem, which aims to make Curve the home for LST/LRT. The mechanics introduced by Napier have the potential to spark a new wave of Curve Wars that could potentially evolve into a full-fledged round of LSDFi Wars. Last year, we thoroughly analyzed the Curve ecosystem to understand the possible scenarios for LSDFi Wars, the progression of which was driven by various LSDFi projects at the time. Unfortunately, due to the characteristics of LST-backed CDP protocols and their relatively lower returns compared to those promised by restaking protocols, this narrative quickly faded.
Napier takes a different approach: instead of reinventing the wheel and trying to lure projects by offering simple bribes to participate in straightforward two-asset pools on Uniswap or Curve, Napier introduces much more complex mechanisms based on existing technologies. Continuously pulling new rabbits out of the hat during the Llama Race, these innovations are designed to strengthen Napier’s Flywheel. Which rabbit will the wizard pull out next?
Napier links:
Website |Twitter |Discord | Medium
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