Convex Finance - Standing on the Shoulder of Curve

Convex Finance is a yield protocol based on Curve, a DEX for stablecoins. Convex mainly serves two types of users, $CRV holders, and Curve's LP holders.

Let's talk a bit about Curve first, before getting into Convex. The liquidity providers on Curve, namely LP holders, can earn 50% of the platform transaction fees. And by staking their LP, they can also get liquidity mining rewards ($CRV). Based on this, if they own $CRV, they could further stake their $CRV to boost their liquidity mining rewards at the same time. Boost is a reward multiplier that depends on the amount of $CRV staked and the length of the lockup time (up to 2.5x).

As you can see from the table below, the way to maximize rewards is to provide liquidity while staking $CRV. And now, Convex combines the power of $CRV holders and LP holders, so that both profit from it. That is, it lets $CRV holders add a boost to the positions of LP holders, and then the two share the boosted rewards.

Source: Curve Finance

Curve Liquidity Providers

When a Curve liquidity provider does not stake $CRV, he/she can only get 50% of the transaction fee (0.04%) and vanilla liquidity mining rewards. However, on Convex, they do not need to hold or lock $CRV to obtain:

• Curve Transaction Fee (50%)

• More $CRV liquidity mining rewards (90% of the total rewards after boosting)

• Convex native token ($CVX)

• Other liquidity mining rewards (SNX, PNT, BOR, LDO, etc.)

Transaction fees are distributed in the form of $3CRV, an LP token for the Curve 3pool liquidity pool.

Source: Convex Finance

$CRV Staker

What $CRV stakers can get if they do not provide any liquidity on Curve? Only 50% of the transaction fee and the governance right. But if they staked the token on Convex, they will get:

• Curve governance rights

• Partial $CRV liquidity mining rewards (10% of total Convex mining rewards)

• 50% transaction fee (in $3CRV)

• Convex native token ($CVX)

• Airdrop offered by Convex

  
  

Source: Convex Finance

Fees

For Curve liquidity providers, Convex has no deposit/redemption fees but does have a performance fee. The performance fee is approximately 17% of the $CRV reward earned by users and is distributed to $CRV stakers and $CVX stakers.

Tokenomics

$cvxCRV

On Curve, users stake $CRV to get $veCRV as a credential, and $cvxCRV is the credential for users to stake $CRV on Convex, namely the tokenized $veCRV. Holders of $cvxCRV ( namely $CRV stakers) can earn Curve platform fees, CVX rewards, and liquidity mining rewards.

$CVX

$CVX is Convex's native governance token, with a maximum supply of 100 million. Users can stake $CVX to obtain part of Convex's platform fee ($cvxCRV) and governance rights (including decision-making on the distribution of Curve gauge liquidity rewards).

According to TokenInsight’s observation, the TVL of the DeFi yield market reached $29.3b in 2021Q4 (including the top six protocols ranked by TVL), an increase of 266.25% compared to 2021Q1. In addition, Convex's share of TVL has continued to rise since its launch in May 2021, and reached 65.6% of the total TVL of the top six revenue protocols in 2021Q4, 3.4 times that of Yearn.

At present, Convex has not been deployed on chains other than Ethereum (of course there is no good "Curve" on these chains), so there is still some room for development.

As of February 26, 2022, Convex Finance's market cap is approximately $919 million, and its fully diluted market cap is $1.7 billion. The price of $CVX is $17.67. In addition, $CVX's circulating supply is 51,996,285.37, of which 40,467,353 are staked (around 77.82%).

The chart below shows the token price and $CRV and $3CRV revenue Convex Finance earned since its launch. It can be seen that its token price shows a similar trend to the protocol revenue.

Token Information: Convex Finance

Related Reading: Curve Finance: DEX Designed for Stablecoins