About

Convex Finance is a decentralized finance platform that enhances rewards for liquidity providers and protocols like Frax, Prisma Finance, FX Protocol, and Curve.fi users. It specializes in boosting staking yields and optimizing liquidity mining through its tokenomics and integration with Curve Finance.

History

Launched in May of 2021, Convex Finance and its native CVX token were created to optimize and control the demand for Curve protocol's weekly token rewards emissions. CRV, the governance token of Curve, is distributed across Curve liquidity pools in the form of rewards to liquidity providers. This CRV can then be sold to realize income or be locked up on the Curve platform as veCRV in exchange for a share of the fees generated by volume on the Curve platform. The longer your veCRV is locked for, the higher the boosted rate of rewards, with the highest rate given to the longest lock up time of 4 years.

Curve has weekly votes to determine the distribution of CRV emissions as rewards across Curve liquidity pools. Locking veCRV gives voting weight in the weekly CRV rewards allocation vote. Because pools with higher rewards will have increased participation in them by liquidity providers, there is a lot of incentive for protocols to influence voting towards their pools.

Convex fits into this by improving upon both elements of the veCRV lock up system. The first was to create a liquid staking solution for CRV so that LPs don't have to lock their CRV for 4 years to receive the maximum rewards. Instead they can deposit the redemption token they receive for depositing their assets into Curve liquidity pools into Convex. In exchange Convex will give boosted CRV rewards as well as additional rewards in CVX tokens. Depositing LP tokens into Convex relinquishes Curve voting rights into Convex's control.

The second and primary goal of Convex is to accumulate as much voting weight as possible through controlling CRV governance tokens and gauge weight. By doing this, Convex is able to dictate which liquidity pools on Curve receive higher shares of the weekly rewards. Because the CRV rewards strongly influence the amount of liquidity that is provided in each pool, protocols have a strong incentive to have their pools receive CRV rewards. At the time of writing, Convex controls close to 50% of the Curve voting weight. This gives each CVX token the equivalent of 5 CRV voting weight, which means CVX token holders have massive influence in the CRV reward voting. CVX holders have the option to lock their CVX tokens for 16 weeks as vlCVX in order to exercise their voting weight.

Protocols that want this voting weight to vote for their Curve pools have two options. The first is to buy CVX tokens that the protocol can use to vote for their pool. The second option is to bribe vlCVX holders with rewards for their votes. This has created an entirely separate piece to the Convex ecosystem where through platforms like Votium, protocols that are vying for vlCVX votes will offer their tokens as bribes and the bribes will be distributed amongst vlCVX holders that are delegated to Votium. Currently, 53% of all vlCVX is delegated to Votium. After 12 voting rounds the bribes to vlCVX holders have totaled over $135 million.