Introduction

Under the centralized equity trading model, venture capital funds and institutional investors favor private unicorns, while retail investors face entry barriers. The RWA market has become favored in the cryptocurrency bear market, with a desire to transfer trillion-scale assets onto the blockchain, continuously enhancing the RWA narrative. For the native DeFi market, asset tokenization (i.e., going on-chain) introduces credit products that are completely different from the current blockchain asset attributes, allowing investors to gain returns from the traditional financial market without any barriers. This investment opportunity has further increased the penetration rate of the DeFi market, attracting more and more users to participate in DeFi market transactions. Convergence, an early project committed to connecting traditional finance and DeFi liquidity since 2021, will be described in detail in this article, including its ecosystem, economic model, business risks, and current development status.

What is Convergence?

Established in 2021, Convergence connects the CeFi and DeFi worlds, enabling institutions in need of financing to leverage DeFi liquidity, and allowing DeFi users to access real-world assets. The protocol has completed two rounds of financing, receiving $3.5 million in funding support, with the first round at $2 million and the second round at $1.5 million in strategic additional investment. In March 2021, an IDO was also launched, raising $300,000 in financing.

Team members have rich experience in traditional finance. Co-founder Oscar served as the Chief Operating Officer at Liquefy, was a global market analyst at Deutsche Bank, and also holds positions as a co-founder of DAO Ventures and an investment partner at EONXI Ventures. Another co-founder, Ivan Yeung, has been involved in security tokens, smart contract development, and other projects.

Ecosystem Products

The Convergence ecosystem involves four parts: ConvO (Convergence Offering), ConvX (Convergence Swap), ConvPool (Convergence Pool), and ConvDAO (Convergence Decentralized Autonomous Organization). These four components work together to connect real-world assets with DeFi liquidity.

Source: https://conv.finance/Convergence_whitepaper.pdf

ConvPool

ConvPool is designed to incentivize CONV token, or CONV-LP holders to stake their funds into the pool, which can provide liquidity to the ecosystem or earn staking rewards. In return, liquidity providers can earn a 0.25% transaction fee from the ConvPool and CONV rewards based on a specific interest rate.

ConvX

This component is Convergence’s trading platform, utilizing an Automated Market Maker (AMM) mechanism. After connecting their wallets, users can trade CONV with other tokens on the Ethereum network. The primary trading pairs currently are CONV/ETH and CONV/USDT. The protocol charges a 0.3% transaction fee for each trade, of which 0.25% is distributed to liquidity providers as rewards, and the remaining 0.05% is allocated for the future development of the protocol.

Source: https://convx.conv.finance/

ConvO

ConvO is the core component of the Convergence ecosystem, designed to package security tokens for asset owners seeking financing (such as large investment institutions) and to set prices for trading on ConvX or providing liquidity in ConvPool. The issued tokens will be reserved for the Convergence protocol. In addition to asset owners, ConvO also allows CONV access to some unavailable high-level investment assets, such as shares of unicorn companies. The entire private sale token issuance process goes through three steps:

First, all projects for wrapping tokens must undergo the team’s screening and inspection. The team conducts due diligence on the team background, market competitiveness, technical R&D strength, and compliance, among other aspects of the projects listed. After internal screening, CONV token holders decide whether the projects can be launched on ConvO through voting by the asset committee.

Second, for projects that have been selected and voted to go online on ConvO, a token sale subscription (Private-Sale Token Subscription) needs to be conducted before launching on ConvX. Participants can apply for a whitelist to ensure the allocation of tokens at a fixed price, and this stage requires KYC verification. Users who are selected for the whitelist and pass the KYC verification can obtain the final allocation amount of the private sale tokens. Those who are not whitelisted can purchase the tokens on their own at launch.

Finally, there is the redemption process for the underlying tokens. During the initial issuance period on ConvO and ConvX, each private sale token will be in the form of a Future Token with a lock-up period. Once the lock-up period ends, the redemption of tokens is realized through a custodian smart contract, redeeming at a 1:1 ratio.

ConvDAO

ConvDAO is a decentralized community governance formed by CONV holders, established in May 2023. CONV holders can propose upgrades to the protocol and govern through voting.

Business Risks

Convergence connects traditional financial markets with DeFi, inevitably facing the credit risk of the assets themselves and the moral risk of asset managers. The asymmetry of information on-chain and off-chain, coupled with the lack of regulation, exposes DeFi users to higher risks, which are technically irreducible. Currently, Convergence is leveraging its team’s effort to control and constrain risks in the early stage, but it cannot eliminate the risks from the root, and the effectiveness is still unknown. Investors need to manage their risks carefully.

Economic Model

The native token of Convergence is CONV, with a total supply of 1 billion tokens. It was launched on March 25, 2021, with an initial circulating supply of 448 million tokens. In the token distribution, 40% of CONV is allocated to the ecosystem; 10% to the community; 10% as liquid funds; 10% to the team; 10% for liquidity; 5% to advisors; 4% for seed round financing; 10.4% for strategic financing sales; and 0.6% for public sale through an IDO.

The CONV token was sold at a price of $0.005 during its IDO on Polkastarter, raising $300,000 by selling 60 million CONV tokens.

Source: https://conv.finance/Convergence_whitepaper.pdf

The official announcement indicates that starting from the day the token is launched, there will be a three-year lock-up release, with the release schedule illustrated in the chart below.

Source: https://conv.finance/Convergence_whitepaper.pdf

The CONV token currently plays the following four roles within the ecosystem: First, it is used for governance in ConvergenceDAO, participating in voting decisions; second, it is used to obtain transaction fees on the Convergence AMM (Automated Market Maker) trading platform; third, it grants early priority rights to tokens included in the asset pool; and fourth, it allows for earning staking yields in the liquidity pool.

Development Status

Since the launch of its products, Convergence has reached a total locked value of approximately $680,000. In 2022, as the overall cryptocurrency market trended downward and the DeFi (Decentralized Finance) sector significantly contracted, the narrative around RWA (Real World Assets) began, leading to a substantial increase in Convergence’s liquidity, nearly $8 million. However, liquidity has since sharply declined, currently standing at less than $700,000.

Source: https://defillama.com/protocol/convergence

Source: https://conv.finance/

Conclusion

Convergence trades real-world asset-backed security tokens (such as ETFs) on its platform, achieving a complementarity between real-world assets and DeFi liquidity. This allows asset owners seeking financing to issue tokens and tap into the liquidity of the DeFi market. However, because the business involves off-chain assets, issues such as information asymmetry between on-chain and off-chain, credit and moral risks are inevitable. Investors should pay attention to these related risks.