What Is Convex Finance?
Convex Finance (CVX) is the original DeFi protocol developed specifically for the stablecoin exchange Curve Finance. At its core, Convex rewards Curve liquidity providers and CRV participants with additional DeFi revenue. Developed by a team of anonymous developers, Convex Finance is a platform that allows liquidity providers to earn enhanced rewards without locking their tokens. In addition, the platform has no withdrawal fees and only a minor performance fee.
The protocol offers two main ways to receive remuneration: liquidity provision and staking
Providing Liquidity
Participants can invest Curve LP tokens in the Convex protocol. Liquidity providers receive increased rewards for CRV on Curve because other users have also locked in their CRV tokens on Convex. Dynamics merges with other CRV participants. Convex increases rewards by having a lot of people use it.
If this whole process had to be done manually, users would have first to buy Curve tokens, delegate them to get Curve LP tokens, and then claim high returns. But Convex simplifies this process by making it massive, generating CRVs faster as more people use it. In addition, because Curve’s tokens are not manually blocked, they can be withdrawn from Convex anytime.
Delegation and Staking
Participants who are not liquidity providers can still use Convex to delegate their CRV tokens and participate in increased rewards. By delegating their CRV tokens directly to Curve, participants earn veCRV, which rewards them by sharing a portion of Curve’s trading fees.
Moreover, participants can also delegate their CRV tokens directly to the Convex platform to receive cvxCRV tokens in return. The cvxCRV tokens provide the same benefits as veCRV: distribution for veCRV holders and Curve platform rewards. However, cvxCRV tokens also offer additional rewards in the form of CVX tokens and a portion of the profits of the Convex platform.
What Is a CVX Token?
It is the native cryptocurrency of the Convex platform. The coin is minted pro-rata for each CRV token claimed on Convex Finance by Curve’s liquidity providers.
Token holders are offered a share of the Convex platform fees. For example, CVX crypto can be placed on Convex Finance to earn cvxCRV, which provides a share of Curve LP’s CRV revenue and a share of the fees. As Convex platform revenue grows, more and more value will be distributed to cvxCRV holders. In the future, cvxCRV holders will also be able to vote on the Convex Finance governance mechanism.
What Makes Convex Finance Special?
Convex users can earn passive income on the platform in two ways: staking and CVX locking.
Staking provides Curve holders and liquidity providers the opportunity to receive increased rewards for positions they already own and hold. Using Convex Finance, users can stake with CRV tokens and receive cvxCRV tokens in return. Like LP tokens, these represent a stake in Convex and can be exchanged for CRV or any other token at any time.
This mechanism allows even delegated CRV tokens to be exchanged because cvxCRV tokens have liquid markets where the two tokens can easily be exchanged.
In addition to staking on CRV, users can also stake on Curve Finance LP tokens and CVX tokens on the same page. The CVX token lock-in entitles participants to receive a portion of the platform’s trading fees, as well as voting and management rights.
Convex technology allows Curve.fi LPs to earn transaction fees and claim increased CRV without capturing CRV. LPs can earn high commissions for mining CRV and Liquidity with minimal effort.
Convex allows users to receive transaction fees and a share of the increased CRV earned by LPs if there is a desire to delegate CRV. This improves the balance between LPs and CRV investors and enhances capital efficiency.
How Does Convex Finance Work?
Convex Finance staking is designed specifically for liquidity providers on the Curve platform. With the help of Curve protocols, there is an opportunity to increase income by providing liquidity. To do this, it is necessary to perform a booster - to freeze additional CRV tokens received for providing liquidity. Thus, the yield of the pool can be increased by 1.5-2.5%.
Convex Finance offers a way around this system - the user extracts income from Curve’s exchange fees and uses CRV boosting without blocking tokens in the pool. Instead, remuneration is generated by staking Curve LP liquidity provider tokens (such as cCRV or tCRV). It’s enough to put tokens into the staking pool to earn on exchange commissions and get an additional percentage from the boosting.
The efficiency of Convex Finance’s economy is directly linked to the Curve exchange: only holders of Curve LP tokens can participate in the staking program. This way, market volatility is reduced, and remuneration is fairly distributed among liquidity providers. In addition, convex integrates all Curve blockchain networks: Ethereum, Polygon, Fantom, and xDai Network.
A native ERC20-format CVX token supports the service protocol. This token is distributed as a reward for providing liquidity through the Curve platform. In addition, users can use CVX staking for additional income.
Advantages of the service include no withdrawal fees. In addition, there are no minimum charges for pooling funds on the platform, which helps lower gas costs when network utilization is low.
Conclusion
The Curve exchange supports the Convex Finance project. As a result, it is in demand among Curve LP liquidity providers and provides an opportunity to earn extra income on stacking. In contrast to Curve, the project Convex Finance has a more straightforward interface and does not require direct blocking of assets. In addition, the service has no withdrawal fees, and the stacking pools offer high yields.
With Convex Finance, CRV token holders and Curve liquidity providers will receive additional interest and commissions for trading Curve. Ultimately, Convex targets these two types of investors: CRV holders and Curve liquidity providers.
