What is Convex Finance (CVX)?
CVX is the native token of the Convex Finance platform. Convex Finance is a decentralized protocol that runs on the Curve Finance (CRV) blockchain and enhances the services and rewards provided to Curve’s stakeholders and liquidity providers (LPs).
Using CVX tokens, Curve Finance liquidity providers can earn increased rewards on their staked assets. Its goal is to help LPs accumulate as many CRV tokens as possible to maximize their earning potential. You can see the Convex price performance and what market trends it follows in the chart above.
What is the Story Behind Convex Finance?
Unlike Curve Finance, the developers of Convex Finance have remained anonymous. The goal was to leverage the staking system employed by the Curve Finance protocol to maximize the rewards that stakeholders and liquidity providers can earn.
Curve Finance is a decentralized exchange that focuses on trading stablecoins – crypto assets that have their value pegged to another asset, such as the US Dollar or the Euro. It allows users to earn additional rewards by staking their assets and grants them veCRV, or vote-escrowed CRV tokens in return.
Convex Finance officially launched in May 2021. At the time of its release, the CVX price was around $6. The token has been volatile from there onwards, with its value generally following similar trends as the CRV token.
Given the limited token supply and the high chances of earning on top of staked assets, many protocols, including Convex Finance, were developed to maximize the profits of liquidity providers.
A significant peak was reached on January 1st, 2021, when the CVX price exceeded $50 for the first time and even reached $62.69. A year after its official launch, in May 2022, the asset was on a decline, although its value was recorded at over $12, doubling that which was logged at launch. Soon after, Convex was affected by the crypto market crash, declining to $4 in June.
Since its launch, CVX experienced one significant protocol incident. In March 2022, a bug was detected in one of the smart contracts that it uses. The vote-locking smart contract had to be redeployed on the network. This led to the Convex Finance price briefly dropping, although it recovered by the end of the month.
What Are the Features of Convex Finance?
The Convex Finance crypto asset supply has a hard cap of 100 million. Therefore, the asset is deflationary and the CVX price is expected to rise as it becomes increasingly rarer. It’s considered to be a volatile asset and experiences frequent fluctuations.
As stated in the documentation, half of the overall CVX supply is allocated as rewards for the liquidity providers on the network, while a quarter is set aside for liquidity mining. Nearly 10% each is dedicated to the Treasure and the development team. A little more than 3% is allocated to the investors, and 2% goes towards veCRV holders.
Although the protocol was built on Curve Finance with the particular purpose of leveraging the platform’s rewards, the Convex Finance price is not pegged to the value of CRV in any way. With each CRV staked, a new cvxCRV token is minted using a 1:1 ratio.
Convex Finance helps users maximize their yields by optimizing boosting on Curve Finance. Liquidity providers receive the veCRV token for their contributions. By staking via Convex, the rewards are sizeably boosted. The aim is to increase the total value locked (TVL) as much as possible.
There are four types of rewards that stakeholders and liquidity providers can earn by using Convex Finance – the interest rate proportional to the liquidity that a user provides, part of the distributed trading fees, the booster provided by Convex, and the Convex Finance tokens themselves.
Using the Convex Finance coin, liquidity providers can be eligible to earn trading fees. Additionally, they can receive the boosted CRV. To simplify the process, liquidity providers are not required to lock CRV in a smart contract to start earning the boosted rewards.
Convex Finance offers its users zero deposit and withdrawal fees, making the service more cost-effective. Users are not required to lock CRV tokens, and their assets can be redeemed at any chosen time.
CVX assets can also serve as governance tokens for the protocol. Token holders are eligible to vote on proposals such as protocol changes and updates. In turn, the CRV tokens that they earn or exchange can be used for the Curve DAO governance.
Although the Convex Finance crypto protocol is only applicable to staking on Curve Finance, the team plans to expand on other platforms, such as Frax Finance. However, it has not been established whether the protocol would be blockchain-agnostic.
