Last July, I emailed my crypto business accountant to ask him about the regulation disparities between security and governance tokens.

I was hoping that the taxation would be different as both tokens do not have the same purpose. In this same email I tried to comfort him, by telling him that I was a Curve and Convex maximalist and that the purpose of my investments were to gain more governance power and not necessarily money. #Milka

After 2 minutes, he called: “Mr N, I did not get one bit of what you said”.

Then I realized… This gentleman knew about crypto but there is little to no content about convex, especially in French. After all, we are only 4 millions DeFi users…

Someone had to take responsibility for this.

So… Mr A, I would like to dedicate this article to you.

Before we start, I will ask all accountants and Defi Degens reading this article to relax their shoulders and forehead. Everything is going to be ok.

Just kidding, buckle up. We are not here to talk about Doggo coins.

I’d like to take a deep dive into Convex Finance, also known as my DeFi Cashflowing pension plan.

Convex is only 1 year and half old, with 5.05 Bn dollars in total value locked up (TVL). Back in January 2021 it reached 21.17Bn at its all time high. Which, let’s be honest, wasn’t too bad for an 8 months project.

Convex controls the majority of Curve (aka the DeFi backbone), which had over 20.4 billion dollars in value during the 2021 market spike… meaning that this protocol controlled over 43.7 billion dollars about a year ago.

Today as the market corrected significantly, convex controls about 11Bn which still shows a strong TVL resilience compared to the rest of the ecosystem.

But what is it exactly? Convex was developed to assist Curve liquidity providers in optimizing their yield returns.

Before I get into what Convex does, let me explain what Curve is about and why it is so important to the Defi ecosystem.

Disclaimer: Although I own $CVX and $CRV, I am not providing financial advice. I’m just a nice stranger on the internet sharing some interesting DeFi projects.

There are a few key components that must exist in order for a robust decentralized financial ecosystem on the blockchain to function.

Decentralized exchanges, for example, allow trading to take place through their automated market makers (AMM). It’s similar to Coinbase or Kraken, but it’s decentralized and entirely based on smart contracts that interact with your wallet.

The term “automated market maker” simply means that traders can make trades using pools of money rather than having to connect a buyer and a seller. All of this is accomplished through smart contacts, which allow investors to lend their crypto into these pools and become liquidity providers.

They receive a percentage of the fees made for each transaction made within the pool in which they are invested.

**Consider it similar to a currency exchange kiosk at an airport, except that you are the kiosk and receive a small fee for providing liquidity.**‍

Curve Finance, provides low-slippage stable asset trading via their Automated Market Maker setup. Curve specializes in exchanging stablecoins (USDC, DAI, USDT, and so on) or coins of equivalent value such as renBTC, wBTC, and so on with virtually no slippage.

What exactly is slippage?

Let me explain slippage in the context of stock trading, using Tesla as an example.

Today a Tesla share costs $869.89 USD. That is, you can buy some shares for $869.89, but you cannot buy a lot of shares for $869.89. This is because there may not be many shares available at the current price of $869.89

Once you’ve purchased all of the shares available for $869.89, you’ll need to spend more to get more, and your order will be routed through the order book. Slippage is the difference between a trade’s expected and executed price.

When a market’s liquidity is low, there is a high slippage rate because it is more difficult to buy and sell quickly in an illiquid market. Curve has deep liquidity pools, allowing for low slippage.

(source: Token Terminal)

Given this, liquidity in the market is required for DeFi to function.

Curve provides this liquidity and is thus critical to the ecosystem.

On Curve, here’s an example of a million-dollar stablecoin swap:

To make that switch, there is a $136 exchange fee… which is not bad at all.

Today, on the 12th of august 2022**,** you’d lose about 11% percent swapping on Sushiswap due to slippage**. You would receive only $892,506 — a $107,494 difference!**

Tokenomics for CRV

When you contribute liquidity to a pool, you earn the CRV token. This is a governance token that encourages community participation.

Governance tokens are the accepted method of decentralization in DeFi. When a decision is made in governance, they distribute tokens to users, and each token is worth one vote.

Here are some examples of yields from various pools:

Curve governance tokens, on the other hand, only share revenue and voting power with those who lock their CRV. The CRV is then converted to vote-escrowed CRV (veCRV).

Note: Curve made $100 million in total revenue on the 25th of July 2022 since its creation, with a record of 24.4 Million in just the month of January 2021.

As the market conditions are not at its best, Curve has generated $1,7 million just for this month of July 2022.

You are given an adjusted amount of vote-escrowed Curve (veCRV) based on the amount of CRV locked and the length of time chosen, as shown below:

Once staked, veCRV holders are entitled to the following benefits:

• voting rights in the Curve DAO

• 50% of Curve trading fees

• Up to 2.5x the CRV rewards.

veCRV holders, on the other hand, have a say on how CRV rewards are distributed across Curve’s pools. As a voter, you should usually align your financial interests with how you vote on the gauge.

The gauge** is used to determine which pool is most heavily weighted with rewards, and gauge votes are conducted biweekly via Snapshot.**

But who wants to lock their money away for four years just to get the most out of it?

In crypto, four years is a lifetime… in fact, many lifetimes.

Convex was created to assist Curve liquidity providers in maximizing the return on their funds. It has no effect on what Curve does in terms of automated market making; its sole purpose is to maximise CRV collection while also providing alternative yields.

If you’ve ever tried to use the Curve website, you’ll know that their user interface stinks and isn’t very intuitive. It’s like stepping back in time to the early days of the internet… So, while Curve is a great way to earn yield, it’s incredibly complicated and difficult to use.

(This is coming from someone who avoided it until Convex came along.)

Convex finance** is the younger and more user-friendly sibling, allowing investors to earn lucrative returns without tying up liquidity.**

There are staking rewards, liquidity rewards, and other exciting features such as airdrops (which is magical money that you get just using DeFi tools, but more on that another time)

It’s as if you’re increasing your rewards by locking, but without having to lock for four years!

• Earn a percentage of Convex platform fees.

• Claim airdrops like EPS (a stablecoin swap on Binance Smart Chain)

• Earn trading commissions from the Curve platform (in form of 3CRV)

• Earn CVX rewards

• Receive cvxCRV, allowing you to exit your staked CRV position.

Here are some examples of increased liquidity pools (for example, Fixed Forex AUD, a synthetic stablecoin pegged to the Australian dollar, is receiving nearly 44.5% APR with projection of 128% APR (#WGMI / #NFA/ # DYOR/ #Maxbidding ):

cvxCRV is a tokenized version of vote-escrowed CRV (veCRV).

When you deposit CRV on Convex, you will receive cvxCRV tokens in return. This is a permanent action.

Convex is essentially doing the job of locking your CRV tokens for maximum boost and returning a synthetic version of the token in cvxCRV with a price close to that of regular CRV.

When users deposit CRV on Convex in exchange for cvxCRV tokens, the transaction is irreversible, which means the CRV tokens are locked indefinitely.

The total supply limit is: 100 million CVX.

Emission schedule: After every 100,000 CVX minted, the ratio of CVX to CRV emitted is reduced.

Convex now controls more than half of the Curve governance, but they have their own voting system.

As a result, Convex decides the emission schedule for 18 million CRV rewards and 30 million CVX every two weeks (via voting), so projects compete for a piece of the pie.

This means that if you hold the $CVX token, your voting power in Curve grows over time, whereas if you use CRV directly (by locking as veCRV), its power diminishes over time. Why?

CVX gains power as more CRV is locked up in its smart contracts, whereas veCRV loses power due to dilution.

As if Convex wasn’t already intriguing, bribes are a way to earn passive income on your CVX tokens.

If we think of Convex Finance as a union that controls CRV rewards, then it’s in our best interest as a project to get the union to vote in our favour.

And how do we go about doing so?

Protocols must pay incentives to the union in order to receive the best and highest rewards for their project.

To be eligible for these benefits, you must join the union by locking your CVX for 16 weeks et 4 jours. Once locked, you can vote on which Curve pools will receive the most rewards. As of round 24, the approximate income on your locked CVX is around 37 percent — this is the income on rewards, not including the token value increase.

Take for example $FXS, the protocol that powers the stablecoin Frax. They want the highest rewards for their pool, so they use tokens to incentivize locked CVX holders to vote for them.

There have been twenty four voting rounds so far, and Frax has taken part in each of them. They have increased their vote rewards with each round, from 175.22k in round one (0.0758 per locked CVX) to $1.01m in round twenty four ($0.09030 per locked CVX).

So, if you voted for Frax in the 09/08/2022 round, you would have received $0.09030 per locked CVX. At the current price of $7,35 per CVX, that translates to a 1.23% percent dividend paid every two weeks.

If you had claimed the FXS and held it between round 1 and 4, the price tokens would have increased by 3.3X due to appreciation. FXS chart follows:

Convex will become more and more important in DeFi as long as Curve remains important.

If Curve is the backbone of DeFi and Convex controls Curve… then Convex is going to be one of the most powerful protocols in the DeFi ecosystem by essentially controlling the liquidity of stablecoins. The fact that governments are currently discussing regulations and stablecoins are becoming more widely accepted bodes well for the Curve ecosystem.

CVX is still not listed on the centralized exchanges, so the only people who can benefit are those who are already familiar with DeFi. We’re still in the early stages, but the more CRV is locked into Convex smarts contracts, the more value and power the project gains.

Keep in mind that even if everyone pulls their cvxCRV tokens and CRVs from Convex, the CRVs that are already locked in will be extremely powerful.

Also, given the rise in numbers and variety of stablecoins and the proposed government regulations, I couldn’t be more bullish on Curve. With the imminent release of Curve V3 (which will allow for more volatile token swaps) and the creation of a stablecoin Curve, the market and DeFi offer a rather encouraging outlook for the utility of CRV and CVX.

However, keep in mind that while Convex is ideal for wealth management, it is not the best example of decentralization.

S.N / Mykna

Last July, I emailed my crypto business accountant to ask him about the regulation disparities between security and governance tokens.

I was hoping that the taxation would be different as both tokens do not have the same purpose. In this same email I tried to comfort him, by telling him that I was a Curve and Convex maximalist and that the purpose of my investments were to gain more governance power and not necessarily money. #Milka

After 2 minutes, he called: “Mr N, I did not get one bit of what you said”.

Then I realized… This gentleman knew about crypto but there is little to no content about convex, especially in French. After all, we are only 4 millions DeFi users…

Someone had to take responsibility for this.

So… Mr A, I would like to dedicate this article to you.

Before we start, I will ask all accountants and Defi Degens reading this article to relax their shoulders and forehead. Everything is going to be ok.

Just kidding, buckle up. We are not here to talk about Doggo coins.

I’d like to take a deep dive into Convex Finance, also known as my DeFi Cashflowing pension plan.

Convex is only 1 year and half old, with 5.05 Bn dollars in total value locked up (TVL). Back in January 2021 it reached 21.17Bn at its all time high. Which, let’s be honest, wasn’t too bad for an 8 months project.

Convex controls the majority of Curve (aka the DeFi backbone), which had over 20.4 billion dollars in value during the 2021 market spike… meaning that this protocol controlled over 43.7 billion dollars about a year ago.

Today as the market corrected significantly, convex controls about 11Bn which still shows a strong TVL resilience compared to the rest of the ecosystem.

But what is it exactly? Convex was developed to assist Curve liquidity providers in optimizing their yield returns.

Before I get into what Convex does, let me explain what Curve is about and why it is so important to the Defi ecosystem.

Disclaimer: Although I own $CVX and $CRV, I am not providing financial advice. I’m just a nice stranger on the internet sharing some interesting DeFi projects.

There are a few key components that must exist in order for a robust decentralized financial ecosystem on the blockchain to function.

Decentralized exchanges, for example, allow trading to take place through their automated market makers (AMM). It’s similar to Coinbase or Kraken, but it’s decentralized and entirely based on smart contracts that interact with your wallet.

The term “automated market maker” simply means that traders can make trades using pools of money rather than having to connect a buyer and a seller. All of this is accomplished through smart contacts, which allow investors to lend their crypto into these pools and become liquidity providers.

They receive a percentage of the fees made for each transaction made within the pool in which they are invested.

**Consider it similar to a currency exchange kiosk at an airport, except that you are the kiosk and receive a small fee for providing liquidity.**‍

Curve Finance, provides low-slippage stable asset trading via their Automated Market Maker setup. Curve specializes in exchanging stablecoins (USDC, DAI, USDT, and so on) or coins of equivalent value such as renBTC, wBTC, and so on with virtually no slippage.

What exactly is slippage?

Let me explain slippage in the context of stock trading, using Tesla as an example.

Today a Tesla share costs $869.89 USD. That is, you can buy some shares for $869.89, but you cannot buy a lot of shares for $869.89. This is because there may not be many shares available at the current price of $869.89

Once you’ve purchased all of the shares available for $869.89, you’ll need to spend more to get more, and your order will be routed through the order book. Slippage is the difference between a trade’s expected and executed price.

When a market’s liquidity is low, there is a high slippage rate because it is more difficult to buy and sell quickly in an illiquid market. Curve has deep liquidity pools, allowing for low slippage.

(source: Token Terminal)

Given this, liquidity in the market is required for DeFi to function.

Curve provides this liquidity and is thus critical to the ecosystem.

On Curve, here’s an example of a million-dollar stablecoin swap:

To make that switch, there is a $136 exchange fee… which is not bad at all.

Today, on the 12th of august 2022**,** you’d lose about 11% percent swapping on Sushiswap due to slippage**. You would receive only $892,506 — a $107,494 difference!**

Tokenomics for CRV

When you contribute liquidity to a pool, you earn the CRV token. This is a governance token that encourages community participation.

Governance tokens are the accepted method of decentralization in DeFi. When a decision is made in governance, they distribute tokens to users, and each token is worth one vote.

Here are some examples of yields from various pools:

Curve governance tokens, on the other hand, only share revenue and voting power with those who lock their CRV. The CRV is then converted to vote-escrowed CRV (veCRV).

Note: Curve made $100 million in total revenue on the 25th of July 2022 since its creation, with a record of 24.4 Million in just the month of January 2021.

As the market conditions are not at its best, Curve has generated $1,7 million just for this month of July 2022.

You are given an adjusted amount of vote-escrowed Curve (veCRV) based on the amount of CRV locked and the length of time chosen, as shown below:

Once staked, veCRV holders are entitled to the following benefits:

• voting rights in the Curve DAO

• 50% of Curve trading fees

• Up to 2.5x the CRV rewards.

veCRV holders, on the other hand, have a say on how CRV rewards are distributed across Curve’s pools. As a voter, you should usually align your financial interests with how you vote on the gauge.

The gauge** is used to determine which pool is most heavily weighted with rewards, and gauge votes are conducted biweekly via Snapshot.**

But who wants to lock their money away for four years just to get the most out of it?

In crypto, four years is a lifetime… in fact, many lifetimes.

Convex was created to assist Curve liquidity providers in maximizing the return on their funds. It has no effect on what Curve does in terms of automated market making; its sole purpose is to maximise CRV collection while also providing alternative yields.

If you’ve ever tried to use the Curve website, you’ll know that their user interface stinks and isn’t very intuitive. It’s like stepping back in time to the early days of the internet… So, while Curve is a great way to earn yield, it’s incredibly complicated and difficult to use.

(This is coming from someone who avoided it until Convex came along.)

Convex finance** is the younger and more user-friendly sibling, allowing investors to earn lucrative returns without tying up liquidity.**

There are staking rewards, liquidity rewards, and other exciting features such as airdrops (which is magical money that you get just using DeFi tools, but more on that another time)

It’s as if you’re increasing your rewards by locking, but without having to lock for four years!

• Earn a percentage of Convex platform fees.

• Claim airdrops like EPS (a stablecoin swap on Binance Smart Chain)

• Earn trading commissions from the Curve platform (in form of 3CRV)

• Earn CVX rewards

• Receive cvxCRV, allowing you to exit your staked CRV position.

Here are some examples of increased liquidity pools (for example, Fixed Forex AUD, a synthetic stablecoin pegged to the Australian dollar, is receiving nearly 44.5% APR with projection of 128% APR (#WGMI / #NFA/ # DYOR/ #Maxbidding ):

cvxCRV is a tokenized version of vote-escrowed CRV (veCRV).

When you deposit CRV on Convex, you will receive cvxCRV tokens in return. This is a permanent action.

Convex is essentially doing the job of locking your CRV tokens for maximum boost and returning a synthetic version of the token in cvxCRV with a price close to that of regular CRV.

When users deposit CRV on Convex in exchange for cvxCRV tokens, the transaction is irreversible, which means the CRV tokens are locked indefinitely.

The total supply limit is: 100 million CVX.

Emission schedule: After every 100,000 CVX minted, the ratio of CVX to CRV emitted is reduced.

Convex now controls more than half of the Curve governance, but they have their own voting system.

As a result, Convex decides the emission schedule for 18 million CRV rewards and 30 million CVX every two weeks (via voting), so projects compete for a piece of the pie.

This means that if you hold the $CVX token, your voting power in Curve grows over time, whereas if you use CRV directly (by locking as veCRV), its power diminishes over time. Why?

CVX gains power as more CRV is locked up in its smart contracts, whereas veCRV loses power due to dilution.

As if Convex wasn’t already intriguing, bribes are a way to earn passive income on your CVX tokens.

If we think of Convex Finance as a union that controls CRV rewards, then it’s in our best interest as a project to get the union to vote in our favour.

And how do we go about doing so?

Protocols must pay incentives to the union in order to receive the best and highest rewards for their project.

To be eligible for these benefits, you must join the union by locking your CVX for 16 weeks et 4 jours. Once locked, you can vote on which Curve pools will receive the most rewards. As of round 24, the approximate income on your locked CVX is around 37 percent — this is the income on rewards, not including the token value increase.

Take for example $FXS, the protocol that powers the stablecoin Frax. They want the highest rewards for their pool, so they use tokens to incentivize locked CVX holders to vote for them.

There have been twenty four voting rounds so far, and Frax has taken part in each of them. They have increased their vote rewards with each round, from 175.22k in round one (0.0758 per locked CVX) to $1.01m in round twenty four ($0.09030 per locked CVX).

So, if you voted for Frax in the 09/08/2022 round, you would have received $0.09030 per locked CVX. At the current price of $7,35 per CVX, that translates to a 1.23% percent dividend paid every two weeks.

If you had claimed the FXS and held it between round 1 and 4, the price tokens would have increased by 3.3X due to appreciation. FXS chart follows:

Convex will become more and more important in DeFi as long as Curve remains important.

If Curve is the backbone of DeFi and Convex controls Curve… then Convex is going to be one of the most powerful protocols in the DeFi ecosystem by essentially controlling the liquidity of stablecoins. The fact that governments are currently discussing regulations and stablecoins are becoming more widely accepted bodes well for the Curve ecosystem.

CVX is still not listed on the centralized exchanges, so the only people who can benefit are those who are already familiar with DeFi. We’re still in the early stages, but the more CRV is locked into Convex smarts contracts, the more value and power the project gains.

Keep in mind that even if everyone pulls their cvxCRV tokens and CRVs from Convex, the CRVs that are already locked in will be extremely powerful.

Also, given the rise in numbers and variety of stablecoins and the proposed government regulations, I couldn’t be more bullish on Curve. With the imminent release of Curve V3 (which will allow for more volatile token swaps) and the creation of a stablecoin Curve, the market and DeFi offer a rather encouraging outlook for the utility of CRV and CVX.

However, keep in mind that while Convex is ideal for wealth management, it is not the best example of decentralization.

S.N / Mykna