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Simply Explained: Convex Finance (CVX)

Convex Finance is a DeFi protocol that allows liquidity providers on the Curve platform to earn a share of trading fees on Curve without staking liquidity there. Providers instead stake through Convex and earn boosted rewards. Convex Finance is a key player in the “Curve wars.”

The Curve Wars

The Curve finance platform is one of the most well-known in the DeFi space. For myself and many it was a gateway into earning through staking and farming. 

The Curve Wars refer to the multiple protocols that are competing for voting power on Curve. There are multiple key players in the running as of 2022, with Convex Finance leading the charge. As of January 2022 Convex have over 40% of all veCRV. However, the war still goes on. Let’s dive into Convex Finance to get a better idea of how they stack up to the competition in this battle.

In this game of war, victory and power lie in how many CRV (Curve native token) a provider has. This is because the CRV token is a governance token that gives holders voting power over key factors such which pool recieves what amount of CRV emissions, which can be very rewarding.

Whoever has control over the most CRV tokens controls the emissions and therefore wins the war (and earns a fortune).

The team and inception

The team behind Convex are a group of anonymous developers. Convex Finance is a prominent and successful project that has continuously delivered, which gives many investors confidence. To this point, the project has thrived, and it would seem the intention of the founding team is aligned with the success of investors. No rug pulls today.

Why is Convex Finance the leading army in the Curve Wars?

At the heart of their success is the thorough, well-thought-out incentive structure. It’s fully geared toward the accumulation of as many CRV as possible. They offer the most lucrative incentive plan possible to convince providers to use them. 

It does so in 2 ways: 1. CRV holders receive cvxCRV (explained in more detail below) for staking their CRV 2.Curve Liquidity Providers receive boosted rewards for staking their LP tokens with Convex.

The platform also issues veCRV (vote-escrowed CRV) for staked CRV that liquidity providers receive as a reward. These are time-locked CRV tokens with boosted voting power and rewards, which is well deserved due to the lock-up period of the underlying CRV. cvxCRV is tokenised form of veCRV and is a revenue earning token. 

With Curve, the more you stake, the greater your boost in rewards. However, It’s impossible for an individual to provide enough liquidity to earn the maximum boost. Enter Convex Finance. Convex pools the assets and liquidity of individual stakers to receive otherwise unattainable boosted rewards.  

The impact on an individual investor

When investors use Convex to partake, they get a share of trading fees, interest on their liquidity, boosted rewards and CVX tokens. They can stake their CRV tokens and receive cvxCRV. They then get veCRV rewards, Convex trading fees, CVX tokens, and airdrops. Talk about adding a multiplier to a multiplier.

The Tokenomics of Convex Finance (CVX)

Total supply of 100 million CVX with the following distributions:

  1. 50 million in the form of Curve LP rewards (pro-rata for CRV earned on Convex)
  2. 25 million for liquidity mining delivered over 4 years (this is part of the incentive program)
  3. 10 million to the team vested over 1 year
  4. 9.7 million vested for 1 year in the treasury
  5. 3.3 million for early investors vested over 1 year
  6. 2 million for various airdrop purposes

How Is the Convex Finance Network Security?

Unfortunately, in March 2022, a bug was discovered in one of the smart contracts which would have given particular users disproportionate rewards and forced the team to re-deploy the vote-locking contract. 

“There were no instances of [the bug] being used prior to deployment of the new vlCVX contract. However, since Convex Finance contracts are immutable and non-upgradeable, a new contract had to be deployed. The new vlCVX contract has implemented a fix for this potential bug going forward,” the team stated. 

This caused a pretty sizeable price drop in CVX and caused a lot of discomfort for investors.

What are your thoughts on Convex Finance? Do you provide liquidity to Curve? If so, what’s your preferred method of doing so? Comment below. 

 

Disclaimer: THIS IS NOT FINANCIAL OR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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