Convex Finance: Renting Liquidity

Curve Finance is the largest DEX by TVL and serves as the premier stableswap AMM. The protocol saw significant increases in volume during the mid-May market selloff, reinforcing its pivotal role in Ethereum's DeFi ecosystem.

CRV is Curve’s inflationary reward token that can be vote escrowed in return for governance rights in the form of veCRV. veCRV controls the allocation of new CRV emissions, an essential element of DeFi, enabling other protocols to incentivize liquidity without diluting native tokens. Maximum voting rights and boosted rewards are available only to those who vote escrow CRV into veCRV for four years, a lifetime in DeFi. Here lies the primary value proposition of Convex Finance (see our Convex Asset Profile).

Convex’s native CVX token can be vote locked for a much shorter period of 16 weeks in return for vlCVX tokens. vlCVX holders allocate the protocol’s war chest of veCRV to maximize CRV emissions for Convex LPs. Protocol fee revenue and third-party “bribe” rewards together produce a 32.7% yield for vlCVX holders.

Why is CVX yield so high and is it sustainable? The demand for digital asset liquidity is consistent, and Curve has dominated this market since its inception. Those that want influence over the distribution of Convex’s veCRV commonly rent liquidity by bribing vlCVX holders.

Convex Fee Revenue

vlCVX token holders receive a portion of new CRV emissions generated by the Curve LPs that utilize Convex.  With the recent Frax Finance integration launched on May 13, vlCVX tokens now also receive a portion of new FXS emissions earned by Frax LPs staking on Convex. vlCVX token holders earn:

1. 5% of CRV emissions split pro rata between CVX stakers and vlCVX lockers