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Last updated: Nov 22, 2022
Convex Finance is a decentralized yield-aggregating platform built for the DeFi exchange Curve.io. It allows Curve liquidity providers to boost profits without locking their CRV (Curve tokens).
The platform was launched in May 2021 and has since gained popularity among Curve LP liquidity providers, who can make extra earnings by staking on Convex. In contrast to Curve, Convex Finance has a simpler interface and does not require direct asset lock. Also, there are no withdrawal fees. Convex Finance plays an important role in the Curve Finance ecosystem, which is currently one of the largest decentralized exchanges.
Designed for liquidity providers on Curve Finance, Convex Finance is directly linked to the Curve exchange. Curve allows users to increase their revenue from liquidity provision by boosting (freezing) CRV tokens received as liquidity provision fees. CRV holders should lock their tokens if they want to increase the yield of the pool by 1.5-2.5%. Longer locking period brings higher yields. Most people either don't have enough CRV to get maximum benefits, or they don't want to lock those tokens for a long time. This is where Convex Finance comes to the rescue.
Convex is currently the largest holder of locked CRVs. As a separate entity, Convex receives the maximum benefits of locked CRV tokens, allowing its users to freely enjoy these benefits. Additional rewards are fairly distributed among all the platform users who have staked Curve LP liquidity provider tokens (e.g., cCRV or tCRV) on Convex Finance. This way, users can receive any payouts that Curve provides, as well as additional CRV and CVX (Convex management token).
Also, in order to simultaneously earn a portion of Curve's commissions and receive an additional reward from the boosting, CRV holders deposit their CRV tokens into the staking pool at Convex Finance, where the tokens are permanently locked in. But in return, the user receives cvxCRV tokens, which give their holders a right to a portion of Curve's transaction fees. The user must deposit the cvxCRV token into the staking pool at Convex Finance to start receiving Curve transaction fees.
For connecting to Convex Finance, wallets like MetaMask, CoinbaseWallet, or WalletConnect can be used. Choose a wallet and confirm the connection to the Ethereum network. Addresses will be automatically bound to the Convex protocol.
After that, navigate to the Stake section on the Convex Finance app to see a list of available staking pools. Each pool has the information about the number of earned tokens to be claimed (Claimed), the variable annual percentage rate (vAPR), the size of the deposit, and the total size of the pool (TVL). The vAPR rate is variable as it depends on the pool’s trading activity, the price of the assets and the rate of rewards.
To make a deposit and stake your tokens, click on the pool and enter the deposit amount. You will have to approve the transaction when you are using the platform for the first time. After that, click on “Deposit & Stake” to deposit your tokens in the pool. Income will accrue daily, and tokens can be withdrawn at any time.
On the same Stake page, at the top, there is an interface for converting CRV to cvxCRV tokens and for staking CRV and cvxCRV. APR is affected by the yield from CRV, CVX, and 3CRV tokens staking. Note, that the conversion of cvxCRV tokens is irreversible — they cannot be exchanged back to CRV tokens. To convert tokens, enter the amount of available CRVs. After that, click on “Approve” and then on the “Deposit & Stake” button to confirm the transaction and conversion.
The accrued income for Curve LP positions, staked CRV, staked CVX, vote-locked CVX, and DEX LP rewards all can be withdrawn in the Claim section. To withdraw your rewards, go to Claim and select the relevant tab.
The section named “Lock CVX” displays CVX staking interface, which is similar to the CRV to cvxCRV conversion interface. To lock CVX, enter the deposit amount and confirm the lock.
Convex Finance fees include a 17% commission on all CRV revenue generated by Curve LP's. A portion of 10% goes to cvxCRV stakers, 5% goes to CVX stakers (including vote-locked CVX), 1% goes exclusively to vote-locked CVX, and 1% goes to the harvest caller.
CVX token holders can participate in Convex Finance staking to earn a share of Curve LP’s CRV revenue. Staking CVX will receive their portion of the fees as cvxCRV (tokenized veCRV), so as CRV can be kept in the system building boost. However, users have the option to exchange their cvxCRV through the cvxCRV/CRV liquidity pool.
Also, by staking CVX tokens, users gain a right to vote on how Convex Finance allocates its veCRV towards Curve.fi gauge weight votes.
The native Convex Finance token CVX is used for various purposes, including voting and staking.
Staking CVX will earn a share of the platform's fees as well as give a voting right to the user. In order to vote on proposals or participate in gauge weight voting, you must lock your CVX tokens for a minimum of 16 weeks.
CVX tokens are minted in proportion to CRV tokens claimed by Curve LP's on Convex. The CVX/CRV ratio decreases for every 100K CVX.
The total CVX supply is 100 million CVX. The token distribution is as follows: 50% are distributed as Curve LP rewards, 10% was allocated to the Convex team, 25% will be distributed over four years during liquidity mining, 9.7% belongs to treasury and will be used for incentives or community activities, 1% was paid to veCRV holders. Another 1% was paid to veCRV holders who voted to whitelist Convex, and 3.3% was allocated to investors. All the investors’ funds were used for pre-seed boost and then were permanently locked (with no cvxCRV minting).
The Convex Finance team is anonymous.
On March 4, Convex’s contract for vote-locked CVX (vlCVX) was redeployed to address the potential bug that could have led to a rug pull. This bug could make it possible for users to claim more rewards than they had earned. Thanks to Popcorn, DeFi yield-generating platform, that discovered the issue, the bug was successfully disclosed before anyone could exploit it.
Convex Finance partnered with Frax Finance, which has placed some of their treasury funds in the FRAX pool on Convex Finance. Frax has also committed to retain earned cvxCRV and CVX rewards over the long term and work to align incentives for both protocols.
Other partners of Convex, BadgerDao and OlympusDao, deployed new vaults specifically designed for Convex Finance.
Convex Finance has not published any public roadmap yet. However, given the development of the DeFi ecosystem and especially the Curve protocol, which is a crucial part of the cryptocurrency ecosystem, it is safe to assume that Convex will continue to integrate with leading decentralized finance protocols. This is proven by the recent integration of the FRAX protocol.
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