Welcome back! Unsurprisingly, Incentives 101 is just the tip of the iceberg! That entire introduction could be summed up as "**Renting Liquidity**".

Now that you have sampled the wares and are ready for a deeper dive, let's jump right in!

**The Age Old Question: Rent or Buy?**
Once again, the unpopular answer is that it depends. As $CVX maxis, CVX5 is confident in its ecosystem. But, how would you know if it is a good fit for you without testing the waters?

Our suggestion is to rent liquidity, using Incentives 101 as a guide, for at least the first four epochs. After each epoch, you may touch base with us to discuss and realign short and long term objectives with respect to TVL goals.

If after 4 epochs, you are noticing trending growth and sustainability, then we can tentatively label this synergy as a "Product Market Fit" ("PMF"). **PMF is achieved once you can confidently tell us what APR is necessary to maintain a specific amount of TVL for your pool for one epoch**. Why only one epoch? After all, APR is a moving target, subject to the whims of competition (sUSDe) or external macro factors (the Fed). This game of liquidity will require some consistency of attention. There is no "set it and forget it"!

**Buy? Buy What?**
If the concept of "**Renting Liquidity**" is the contemplation and action of providing Voting Incentives and/or Direct Incentives to attract liquidity, then what is "Buying"? What are we buying?

For purposes of this ecosystem, "**Buying Liquidity**" refers to the purchase of $CVX and consequently locking the $CVX as vlCVX. Pursuant to Incentives 101, vlCVX has the power to direct the emissions of several key DeFi protocols, most notably, $CRV. Locking $CVX as vlCVX requires a minimum of 16 weeks.

Once you have found PMF, we encourage you to consider Buying Liquidity.

**Dollars and Cents: $vlCVX Ownership**
Once again, let us open the buycvxcorrect tool: https://buycvxcorrect.netlify.app/
As of 2024/03/29, one vlCVX direct $0.0357 worth of $CRV emissions per epoch. And over the course of 1 year, one vlCVX directs $0.9310 worth of $CRV emissions.

(screenshot taken as of 2024/03/29 | $CRV price ~$0.70)

Let's assume that after 4 epochs, your protocol has discovered that it can sustain $100k in incentives per epoch to maintain a 40mm pool.

$100k/($0.0357/14d/vlCVX) = 2,801,120.44 $CVX. Therefore, it would take roughly 2.8 million vlCVX to direct $100k worth of $CRV emissions at current prices. Purchasing 2.8 million $CVX is not a trivial amount of money.

**Yes, the $CRV Price Matters**
As you may have guessed, much of these calculations hinge on the price of $CRV.

As of this writing, $CRV price is ~$0.70. At $1 per $CRV, 1 vlCVX would direct $0.0509 in $CRV emissions per epoch. At $2, $0.1018. At $4, $0.2036. As the $CRV price increases, your ROI increases dramatically.

Therefore, while purchasing $CVX for your project or protocol's liquidity, one should also consider the purchase as an investment in $CRV (as well as CVX's other ecosystem projects which we will explore in Incentives 103).

This is the $CRV chart dated 2024/03/29:
You may draw your own conclusions whether we are closer to having formed a bottom or a top.

**So How much $CVX Should My Protocol/Project Buy?**
In our example above, 2.8 million $CVX is quite a tall order. But so is maintaining a $40mm liquidity pool. For most projects onboarding to Curve for the first time, such a large purchase is unnecessary.

Generally, **250k $CVX is a good starting point**. At $0.0357/14d/vlCVX, you would be directing $8,925 worth of $CRV emissions as incentives for your pool per epoch. Let's say your protocol has introduced a novel stablecoin and has paired it with USDC. Let's also assume the market has decided the APR for such a pool, after factoring all available Risk/Reward, is 20%. So to calculate the TVL that this $8,925 of $CRV per epoch would represent: (($8,925 per two weeks)*(26 weeks)) / (X TVL) = 20%. Solving for X would yield $1,160,250. Therefore, all things equal, the 250k of vlCVX should build a TVL of $1.16mm over time at 20% APR.

**$CVX Offers Flexibility**
It's true, locking $CVX as vlCVX requires a 16 week period. Therefore, your project should always consider the purchase of $CVX as a minimum 16 week commitment. Once that period has lapsed, you may choose to "relock" or "withdraw unlocked".

If you do not find PMF within our ecosystem, $CVX has a decent liquidity to marketcap ratio for you to exit, or CVX5 can possibly facilitate an OTC sale as well.

However, owning vlCVX in conjunction with Protocol Owned Liquidity ("POL") is a powerful combination.

**Protocol Owned Liquidity**
We now understand the concepts of Renting Liquidity and Buying Liquidity. There is a third option: **Owning Liquidity**.

Instead of providing incentives to attract liquidity from third parties, a protocol owns and controls the liquidity in the Curve pool, also known as, POL.

**One Word: "Rebates"**
In our example, 250k of $vlCVX directs $8,925 of $CRV emissions to your liquidity pool per epoch. But, what if that pool was POL? To make the example easier, let us assume that the pool was 100% POL and you were the sole beneficiary. That $8,925 of $CRV emissions would be 100% farmed by you and ready to be **recycled** (a "rebate")! You may use this rebate in a variety of ways. You may use the rebate as Voting Incentives to attract more liquidity in the next epoch. You may use the rebate to swap to a desired token to use as Direct Incentives as well. Or you may even decide to build a $CRV position in your treasury and later seek whitelist to lock as veCRV in the far future!

The protocol "Frax" can serve as a useful case study in the use of POL in conjunction with its sizeable $CVX holdings.

**Putting it All Together**
Renting Liquidity is fairly efficient and effective in building TVL. It is a great introduction to the Curve ecosystem.

Buying Liquidity in the form of purchasing $CVX is even more efficient over the long term, but will require more commitment and alignment with the Curve ecosystem.

Buying Liquidity in conjunction with POL is extremely efficient as you can continuously claim rebates by directing emissions to your own pool and consequently farm your own pool each epoch. The rebates offer a wide range of flexibility, whether you decide to use them as incentives or even keep them as treasury assets.

The top tier protocols (like Frax) employ the usage of all three: Renting Liquidity, Buying Liquidity, and Owning Liquidity. Mix and match and to find the right fit for your needs!

Next, we will move further out the risk curve as we explore Prisma and FX in Incentives 103!