Convex makes optimizing liquidity on Curve easy and increases CRV rewards by achieving mass liquidity mining, minimizing the risks of impermanent loss.
Convex Finance (CVX) is a DeFi protocol built on Curve Finance. Convex rewards Curve liquidity providers and CRV participants with additional returns.
Curve Finance is one of the world's largest decentralized exchanges, making it an excellent base for Convex.
Deep diving into Convex Finance
Convex Finance is a platform designed by a team of anonymous developers that allows liquidity providers to earn enhanced rewards without locking up their tokens.
The protocol offers two main ways to get rewards: by providing liquidity and by staking.
By providing liquidity
Users can deposit Curve LP tokens into the Convex protocol. These liquidity providers are then paid on Curve with CRV incentives.
If you were to do this entire process yourself, you would first have to purchase Curve tokens, delegate them to earn Curve LP tokens, and then become eligible for high yield.
However, Convex optimizes this process by doing it en masse, generating CRV faster since more people are using it. And since users don't manually lock their Curve tokens, they can be withdrawn at any time from Convex.
Benefits of providing liquidity
Convex allows liquidity providers (LPs) to earn transaction fees and claim enhanced CRV without locking in CRV tokens themselves. LPs can earn CRV and mining liquidity rewards with minimal effort:
- Earning CRV can be claimed at a high profit without locking in any CRV.
- Earning CLC rewards.
- No commissions for deposits and withdrawals.
- No fees for additional incentive tokens.
If you aren't a liquidity provider, you can still use Convex to delegate CRV tokens and earn a share of the rewards. If you delegated CRV tokens directly to Curve, you would earn veCRV which rewards you by sharing a portion of the Curve platform's trading fees.
Alternatively, you can delegate CRV tokens to the Convex platform to get cvxCRV tokens. cvxCRV tokens provide the same benefits as veCRV, while also giving additional rewards in the form of CVX tokens and a portion of the profits from the Convex platform.
Benefits of staking
Convex rewards CRV investors with a share of CRV on the Convex platform. Some of the benefits are:
- Earn part of the Convex platform fees at CRV.
- Get transaction fees from the Curve (3CRV) platform.
- Get liquid cvxCRV that allows anyone to get out of their staked CRV position.
- Claim the veCRV airdrop as EPS.
The CVX tokens
CVX is the native token of the Convex platform. It is minted pro rata for each CRV token claimed on Convex Finance by Curve liquidity providers.
The token offers holders a share of the Convex platform fees. CVX can be staked on Convex Finance to earn cvxCRV, which provides a portion of Curve LP's CRV earnings.
As the Convex platform increases revenue, more value is distributed to cvxCRV holders.
So, there are two ways Convex users can earn passive income on the platform: staking and CVX staking.
Participation allows Curve holders and liquidity providers to earn rewards on positions they already own and hold. Users can use Convex Finance to stake CRV tokens and receive cvxCRV tokens in return. Like LP tokens, these represent the staked position on Convex and can be exchanged for CRV or any other token at any time.
This mechanism allows even staked CRV tokens to be exchanged, as cvxCRV tokens have liquid markets.
In addition to CRV staking, users can also stake their Curve Finance LP tokens and CVX tokens on the same platform.
The CVX token makes participants eligible to receive a portion of the platform's trading fees and voting and governance rights.
Decentralized Finance (DeFi) allows users to earn passive yield in their assets. Convex has an exciting way of doing it that can be profitable for crypto enthusiasts.