Convex Finance (CVX) is again a protocol to help users increase CRV staking to maximize profits
What is Convex Finance?
Convex Finance is a platform built to increase rewards for Stake users or provide liquidity for CRV - Curve's token. Convex Finance will simplify staking on Curve, as well as the CRV lock system.
What is the project trying to achieve?
Convex allows Curve.fi LPs to earn transaction fees and claim enhanced CRV without locking the CRV themselves. LPs can get enhanced CRV and Liquidity mining rewards with minimal effort.
If you want to stake CRV, Convex allows users to receive transaction fees as well as part of the CRV boost received by LPs. This allows for a better balance between LPs and CRV stakers as well as better capital efficiency.
What is the unique selling point?
Convex Finance plays a key role in the Curve wars thanks to its unique incentive structure. Its sole use case is to accumulate as much TVL as possible to achieve the protocol’s goal of controlling as big a stake of Curve Finance as it can. In other words, Convex Finance targets only CRV holders and Curve liquidity providers and does so in two ways:
- CRV holders receive cvxCRV for staking the CRV.
- Curve LPs receive boosted rewards for staking their LP tokens with Convex.
Curve Finance issues veCRV (vote-escrowed CRV) for staked CRV that liquidity providers receive as a reward. In short, veCRV are time-locked CRV tokens with boosted voting power and rewards, which are both a function of the lock-up period of the underlying CRV. You can read more about veCRV here. CRV rewards can go as high as 2.5X of the initial rewards, but the higher the liquidity deposited, the more difficult it is to attain the maximum rewards.
Put differently, it is nearly impossible for any one party to stake enough liquidity to attain the maximum boost, which is where Convex Finance comes in. Convex acts as a cartel that pools the assets of individual stakers and benefits from their aggregated liquidity. Even low-level investors can stake their Curve Finance LPs with Convex and receive boosted rewards that would otherwise not be attainable. They receive:
- The interest rate on their provided liquidity.
- A share of the Curve trading fees.
- The boosted rewards from Convex.
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