Convex Finance

What is Convex Finance (CVX)?

Convex Finance is a decentralized finance (DeFi) yield optimizer focusing on Curve Finance. It allows users to earn rewards on Curve with minimum effort and provides liquidity providers and stakers.

This model has allowed Convex to become one of the most influential DeFi projects in the space. It has a majority of Curve voting power and has expanded the model toward the similarly-engineered Frax Finance platform as well.

When Was Convex Finance Launched?

Convex Finance was first announced in April 2021, and the platform went live just a month later. It saw immediate success, with $68 million in total value locked (TVL) in just that first month. By January of the following year, Convex had hit its peak of $21 billion TVL.

Who are the Founders of Convex Finance?

Convex Finance was founded by a team of developers who have chosen to remain anonymous.

How Does Convex Finance Work?

Curve.Finance is a top DeFi protocol that offers users with advanced knowledge of the platform considerable advantages. One of the advantages is called “boosted Curve staking.” Thanks to it, both liquidity providers and stakers can multiply the number of reward tokens they get.

One of the major disadvantages of Curve, however, is that it can be quite difficult to understand and use. Convex solves this problem by offering a much easier-to-use system and interface.

Furthermore, Curve users can only gain boosted rewards if they lock their CRV tokens. Convex alleviates this issue by allowing Curve liquidity providers to get boosts without needing to lock their tokens away.

Normally, individual users have to purchase CRV tokens, lock them on Curve to provide liquidity, and earn Curve LP tokens. Only then would they be eligible for boosted yield. Convex can optimize this process by doing it at scale. That way, Convex can earn CRV faster because of the sheer number of people using the protocol.

Convex also helps stakers out. For example, CRV stakers who use Curve directly get a token called veCRV which allows them to gain a portion of Curve’s trading fees. By using Convex, CRV tokens can be staked to earn cvxCRV.

These cvxCRV tokens grant the same benefits as veCRV but also offer rewards in the form of CVX tokens and a share of Convex platform earnings.

What Makes Convex Finance Unique?

Convex Finance is unique in its major role in the “Curve Wars.” This is because one of the platform’s main goals is to control a large stake in Curve Finance.

Curve is widely considered a titan of the DeFi space and is vital as a platform for a low fee, low slippage swapping of stablecoins. It gives liquidity providers its native token, CRV, as a reward. CRV is then used for voting, staking, and boosting.

Voting is important as Curve governance decides which liquidity pools CRV incentives are going into every 10 days. This is extremely lucrative for other platforms since they’d much rather have their pools incentivized by CRV than their own tokens.

Thanks to its incentivization of CRV holders, Convex can dominate the Curve Wars and has hoovered up the majority of the CRV tokens in circulation.

This, in turn, has seen many projects opt to acquire CVX tokens rather than CRV to gain favorable voting decisions.

All in all, the Convex model has been so successful that it has expanded to the Frax Finance platform. Frax liquidity providers are being incentivized by Convex in the same way that Curve LPs are.

How is the Convex Finance Network Secured?

Security on Convex is threefold. First of all, there is the actual control of the platform, with the second factor being smart contract code integrity, and the third being the blockchain itself.

The Convex Finance Treasury is secured by a “3-of-5 multisig wallet.” Its members include two Convex Finance representatives, C2tP and Winthorpe. The other three wallets belong to external parties, including Charlie from Curve Finance, Tommy from Votium, and Sam from Frax Finance.

Convex documentation lists the various controls and rights granted to the multisig and also explicitly states that the multisig does not have direct access to user deposits. The smart contracts that makeup Convex have been audited once before the launch by MixBytes, and additionally on staking contracts for Frax Finance pools. DApps always carry some level of risk when it comes to smart contracts, however, and Convex did experience a contract bug in March 2022.

This smart contract bug forced the developers to redeploy the Convex vote-locking contract and negatively affected the price of the CVX token.

Finally, there’s blockchain security and consensus. Convex Finance is a decentralized application (dApp) on the Ethereum blockchain, and its native CVX token is an ERC-20 token. Therefore, Ethereum is in full charge of Convex’s consensus and the ongoing state of account balances.

Ethereum is a robust, decentralized blockchain with thousands of validators. Each of these validators is responsible for producing and then validating blocks on the blockchain.

Validators need to stake, or lock, at least 32 ETH in the protocol before they can even get started. Plenty of validators choose to stake a lot more because the more they stake, the more rewards they get if they perform well.

The rewards recouped by validators are a great reason to toe the line. However, that’s not all. Ethereum also has a mechanism called “slashing,” whereby a validator’s stake is confiscated and destroyed if they behave contrary to how they’re supposed to.

Incentivized by the income generated by block production and the threat of loss of investment via slashing, most validators are very happy to keep Ethereum ticking over.

What is the Use of CVX?

The CVX token is the native token of the Convex Finance platform and ecosystem. They are minted pro rata for each CRV token claimed on the Convex platform by Curve liquidity providers.

Holders of CVX are given a share of Convex platform fees and can also take part in governance. This is an extremely important utility since the entire platform is built around the utility of DeFi governance.

Staking CVX, meanwhile, earns a share of Curve and Frax LP’s CRV and FXS earnings. Platform fees that would be returned to CVX stakers are first locked as veCRV and veFXS, then tokenized as cvxCRV and cvxFXS before being given to CVX stakers.

Who Controls Convex Finance?

Convex is led by a team of developers who have chosen to remain anonymous. However, a 3-of-5 multisig has admin rights to the platform and includes representatives from Curve and Frax.

However, one of the main features of Convex is that it features decentralized governance. This is one of the big appeals of holding the CVX token since Convex also plays a role in the governance of Curve. Therefore, holding CVX means having a say when it comes to Curve incentives.

How Much CVX is In Circulation?

CVX has a total supply of 100 million CVX tokens. Exactly half of this amount has been set aside for Curve liquidity provider rewards, which are given out pro-rata for CRV received on Convex.

25% of the supply is reserved for liquidity mining and distributed across four years. The relevant pools are chosen via Convex governance and are currently CVX/ETH and cvxCRV/CRV.

The Convex developer team received 10% of the supply, and slightly less than that figure went to the Convex treasury. Both lots were vested over a period of 12 months.

Finally, 3.3% went to investors, and 2% were airdropped to veCRV holders. Half were instantly claimable, and the other half went to holders who voted to whitelist Convex.

How Do You Buy CVX?

CVX is a DeFi token through and through, so you can buy it easily across various DeFi platforms and decentralized exchanges (DEXs), such as Curve Finance, SushiSwap, Uniswap, and many more.

You can also buy CRV tokens from various centralized exchanges, including many that are viewed as “top-tier” centralized exchange (CEX) platforms.

You can use fiat and stablecoins to buy CVX on CEX platforms, but you’ll be able to trade using many more tokens if you choose to buy CVX on a DEX.

Is It Possible to Buy CVX Instantly?

You can buy CVX instantly on any CEX, but the trade-off is that you can’t actually use your tokens the way they’re designed via a CEX account.

So, if you want to put your CVX to work, a DEX might be a better bet. Granted, DEXs may be between seconds and a few minutes slower than a CEX. But, once the transaction completes, you fully own the CVX tokens you just bought.

On the other hand, you can also purchase CVX on a CEX and then transfer it out into your own wallet, but that process is likely to take a lot longer than buying directly off a DEX.

How Do You Store CVX?

As mentioned, the only way to put your CVX to work is via a cryptocurrency wallet under your control. Luckily, CVX is an Ethereum-based token, so you have plenty of wallets to choose from.

Most DeFi users tend toward hot wallets like Trust Wallet or Metamask because they’re very easy to connect to dApps like Convex and Curve. You could also go for a little extra safety and opt for a Ledger or Trezor hardware wallet.

Convex Finance Energy Consumption

Convex Finance is a dApp on Ethereum, and its CVX token is deployed on the same blockchain. Therefore, it could be argued that Convex might be responsible for a percentage, however small, of Ethereum’s power consumption.

Luckily, Ethereum is now a proof-of-stake blockchain. This means that consensus is no longer attained via the raw computing power provided by entire arrays of GPUs. However, the elimination of all this costly hardware from the network has resulted in a 99.95% drop in energy consumption.

Is CVX a Good Investment?

In less than two years, Convex has gone from the brainchild of unknown developers to a platform pulling the strings of DeFi from behind the scenes.

Curve is a powerhouse in the DeFi space, and Convex has managed to become the dominant holder of CRV voting power through its targeted incentivization of CRV holders. This seems like a sustainable model, too, thanks to the expansion of Convex toward Frax as well.

If Convex continues to grow and develop more ways to attain dominance over the various DeFi protocols, it’s hard to bet against the CVX token going from strength to strength.