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Phemex Crypto Blog: Learn the latest news, updates, and industry insights on bitcoin futures, bitcoin trading, crypto derivatives exchange, and related blockchain technology.

What is Convex Finance: Yield Optimizer for Curve Finance

Summary

  • Convex Finance makes it easy to optimize providing liquidity on Curve and boosts CRV rewards by achieving liquidity mining en masse.
  • The protocol offers two prominent ways to generate boosted rewards: by providing liquidity and by staking.
  • The CVX token is the Convex platform’s native cryptocurrency. It is minted pro-rata for each CRV token claimed on Convex Finance by the liquidity providers of Curve.

Decentralized Finance allows crypto asset holders to generate passive income by providing liquidity to a decentralized automated market maker (AMM). One example is Curve Finance, a decentralized exchange (DEX) that incorporates an AMM into its protocol to allow the permissionless exchange of digital assets. Anyone can add its native CRV token to different liquidity pools and earn fees by locking up their crypto assets.

convex-finance

Providing liquidity to Curve Finance’s pools enables users to minimize the risk of impermanent loss because all pools are composed of assets nearly equivalent in value, such as stablecoins. Despite its benefits, Curve is quite confusing and intimidating to use for a DeFi newcomer. Convex Finance has recently grown in popularity because it addresses this problem. Convex makes it easy to optimize providing liquidity on Curve and boosts CRV rewards by achieving liquidity mining en masse.

What is Convex Finance?

Designed by a team of anonymous developers, Convex Finance is a platform that allows Curve Finance’s liquidity providers to earn boosted rewards without locking their CRV tokens. The platform charges no withdrawal fee and only minimal performance fees.

The protocol offers two prominent ways to generate boosted rewards: by providing liquidity and by staking.

By Providing Liquidity: Users can deposit Curve’s LP tokens in the Convex protocol. These liquidity providers are then paid on Curve with boosted CRV incentives because other users have also locked their CRV tokens with Convex. The boost is pooled from other CRV stakers. Essentially, Convex increases rewards by having lots of people use it.

If you were to do this whole process by yourself, you would have to first purchase Curve tokens, stake them to earn Curve LP tokens, and then become eligible for high yield. However, Convex optimizes this process by doing it en masse, generating CRV faster because more people are using it. Since you don’t manually lock up your own  Curve tokens, they can be withdrawn anytime from Convex.

generating CRV faster

Source: Medium

By Staking: If you’re not a liquidity provider, you can still use Convex to stake your CRV tokens and earn a share of boosted rewards. If you were to stake CRV tokens directly on Curve, you would earn veCRV that rewards you by sharing a portion of the Curve platform’s trading fees. Alternatively, you can stake CRV tokens on the Convex platform to earn cvxCRV tokens in return. The cvxCRV tokens provide you with the same benefits of veCRV – namely airdrops to veCRV holders and rewards from the Curve platform. But cvxCRV tokens also grant additional rewards in the form of CVX tokens and a slice of Convex platform earnings. The catch is that staking on the Convex platform is a one-way transaction. Once you stake on Convex and convert CRV into cvxCRV, there’s no way to go back. Your CRV will have been locked into the Curve protocol and become Curve Liquidity Pool tokens, which are responsible for maximizing incentives for the entire Convex ecosystem.

convert CRV into cvxCRV

Source: Medium

What is CVX Token?

The Native Token Fueling Convex’s Ecosystem

CVX is the Convex platform’s native cryptocurrency. It is minted pro-rata for each CRV token claimed on Convex Finance by the liquidity providers of Curve. The token offers holders a share of Convex platform fees. CVX can be staked on Convex Finance to earn cvxCRV, which provides  a share of Curve LP’s CRV earnings as well as a portion of the fees. As the Convex platform grows revenue, more value will be distributed to cvxCRV holders. In the future, CVX holders will also be able to vote on Convex Finance’s governance mechanism.

convex finance tvl

Source: Defi Pulse

Moving Forward

In just two weeks after launch, Convex Finance cracked more than $1 billion in Total Value Locked (TVL) and as of today has $4.87 billion in TVL. While the project is only several months old, it has already garnered ardent support amongst some members of the crypto community.  As a yield optimizer for the Curve protocol, Convex Finance represents an innovative DeFi project with high potential.