What is Convex Finance（CVX）？

[TL;DR]

- Convex Finance (CVX) is an inventive DeFi protocol built on Curve Finance exchange to boost rewards for CRV stakers and liquidity providers in a simple and easy-to-use interface.

- The protocol provides two significant ways to generate boosted rewards: by providing liquidity and by staking.

- The CVX token is the native cryptocurrency that runs the Convex platform.

- Users that stake via Convex Finance can receive incentives in the form of Convex's native CVX token and a portion of increased CRV.

- Curve LP token holders can lock the LP tokens into Convex Finance for CRV incentive boosts.

- Convex Finance was formally launched in 2021 by a pseudonymous individual or group of people called C2tp.






Introduction

The rise of various decentralized finance (DeFi) platforms has enabled digital asset holders to gain from multiple forms of passive income. One of these DeFi platforms, Curve Finance, previously existed as a permissionless decentralized exchange for promoting digital asset exchanges. Curve Finance integrates an automated market maker (AMM) into its protocol but despite all its dominant functions, Curve Finance experiences some downsides, like in interface, which users often find difficult to understand or navigate, discouraging some new DeFi users from using the platform. This led to the invention of Convex Finance (CVX) — another DeFi platform that complements and runs on Curve Finance.


What is Convex Finance?


Convex Finance is a fully decentralized finance (DeFi) system that offers increased staking rewards on the Curve Finance exchange.

The system functions on the Ethereum blockchain and optimizes yield for CRV token holders and Curve liquidity providers.

Convex has a user-friendly interface and provides extra advantages, including cheap performance fees and no withdrawal costs, without requiring users to lock their CRV tokens. Due to this, CRV stakers and Curve liquidity providers receive higher yields.

There are basically two groups of audience Convex is aimed at:

CRV holders: Convex allows CRV token holders to stake their tokens for cvxCRV.

Curve liquidity providers: For Curve LP token holders, Convex lets them stake and boost their tokens.

Convex Finance was created in 2021 by an unknown person or group of people, like that of Bitcoin, going by the name C2tp. CVX is an ERC-20 utility Token Fueling Convex's Ecosystem.


Features of Convex Finance

What makes Convex unique includes the following:

Staking Curve Finance LP Tokens
Locking up CRV tokens for as long as four years to earn rewards may prove unfeasible. Convex Finance allows staking CRV tokens without long-term locking. Investors' tokens are combined with other investors' tokens in a liquidity pool, providing access to boosted Curve staking rewards.

Staking cvxCRV
CRV tokens can be changed into cvxCRV tokens within the Convex Finance platform. Investors can gain from staking cvxCRV tokens in a number of ways. For instance, through airdrops, collecting Curve trading fees, CVX awards, or receiving a share of the platform's overall CRV token earnings.

Staking CVX
Investors can stake their CVX tokens on the Convex Finance platform. Stakers receive a 5% share of all the platform's fees in the form of cvxCRV. Investors may stake and unstake CVX tokens without being charged Curve trading fees.

Vote Locking CVX
Locking CVX tokens enables investors to participate in access weight or governance voting. The tokens may be locked for some time, usually 16 weeks. Investors can go through the app to view the status and unlock date of the tokens. The tokens are eligible for boosted rewards via Curve Finance.


How does Convex Finance work?

The Convex Finance platform provides two ways in which investors can increase their rewards on the Curve exchange: by offering liquidity and by staking.

Staking:
CRV token holders can stake tokens for cvxCRV through Convex instead of staking on Curve for the veCRV tokens. Convex Finance offers boosted Curve staking rewards, and by using Convex Finance, users get additional rewards such as CVX tokens and a share of Convex platform revenue. Stakers will be able to earn CVX rewards and profit from a portion of the earned Convex platform fees.

Providing Liquidity:
Curve LP token holders can deposit the LP tokens into the Convex Finance protocol for CRV incentive increase, which is pooled together with other CRV token stakers. Convex Finance offers a platform that allows Curve's (CRV) liquidity providers to stake and grow more rewards. Also, with the increasing number of pooled users, Convex Finance can increase its reward distribution.


What Does Convex Finance Aim to Achieve?

Convex Finance is a project that basically complements Curve Finance and significantly enhances the users' experience in several ways:

Curve Finance compensates liquidity providers with its governance token, CRV, and trading commissions for transactions on the platform. However, Convex Finance allows customers to deposit their Curve LP tokens on its platform, which rewards them with more CRV and extra benefits. In this way, users gain Curve Finance trading fees, boosted CRV, and CVX tokens, making Convex Finance significantly more lucrative.

Additionally, by increasing the rewards offered to Curve's liquidity providers, Convex directly increases the number of liquidity providers as more people become interested in earning more money. All parties involved gain greatly from this because Curve receives more liquidity, Convex gains more users, and users gain more money through rewards.


Closing Thoughts

Convex Finance is a yield optimizer for the Curve protocol and represents an innovative DeFi project with high potential for future development.

In just a few weeks after its launch, Convex Finance hit more than $1 billion in Total Value Locked (TVL) and, as of today, has $2.96 billion in TVL. While the project is still in the nascent stage, it has already won the fervent support of several cryptocurrency community members.


Author M. Olatunji, Gate.io Researcher
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