Curve and Convex
What is Curve and Convex and what are their strategies
Locking CRV in Curve to become veCRV allows you to vote on which Curve pool gets the CRV emission, providing a boost of CRV rewards to the holder’s of that pool. Protocols are bribing veCRV holders to vote for their Liquidity Pool (LP) in order to attract liquidity. Users can now lock their CRV in Convex which then uses it to boost for the Curve LP. Users can lock CVX to control that locked CRV to receive the bribe rewards.
What is Curve?
Curve is a Decentralized Exchange (Dex) which has the highest Total Value Locked (TVL) in all DeFi. It doesn’t feature a constant formula, rather it uses its own to decrease slippage. Curve can be primarily thought of as a non-custodial stablecoin exchange that lets users and other decentralized protocols swap with low fees and low slippage.
What are CRV and veCRV?
Curve’s native token is CRV. When users lock CRV they recieve voting escrowed CRV (veCRV). The longer the lock, the more veCRV you receive. veCRV has three main functions, voting, shared fee revenue and boosting.
- veCRV holders can vote on which pool gets emissions. The more votes are delegated to a pool, the higher the CRV reward, which in turn means a higher reward and APR, thus attracting more liquidity. When you hear the term “Curve Wars”, the competition over Curve emission control is what is being referred to.
- 50% of trading fees are rewarded to veCRV holders in the form of CRV.
- Depending on the quantity of veCRV a user holds they can earn up to 2.5x more rewards on their liquidity by boosting their rewards. For example, a given tri-pool of 4.02% -> 10.04%, which means if a user deposited into that pool without veCRV they would receive the base vAPY of 1.12% + reward APR of 4.02%. However if a user had a specified amount of veCRV they would get the base vAPY of 1.12% + a boost APR up to 10.04%.
Protocols who participate in Curve want deep liquidity for their relevant token to help maintain the peg. They want the most rewards to their pools in order to attract the most Liquidity Providers (LPs). There are three predominating strategies to achieve this:
- They can incentivise the pool directly, giving their native token to LPs.
- They can buy CRV, lock it to veCRV and vote for their own pool.
- They can bribe other users.
What is Convex and how does it work?
Convex allows Curve LPs to earn trading fees and claim boosted CRV without having to lock CRV to veCRV themselves. Operating as a yield booster LPs can receive boosted CRV and liquidity mining rewards with minimal effort.
https://docs.convexfinance.com/convexfinance/general-information/why-convex
For example, pools on Convex can receive an estimated 1.8x-2.3x boost in rewards plus the additional reward in CVX (at the time of writing Yearn Finance was affected byAndre cronje’s step away).
https://www.convexfinance.com/stake
Convex is able to boost the pools by taking their deposited CRV and locking it into Curve for veCRV, enabling them to control veCRV. Their control is twofold:
- Users that lock CRV into Convex are given cvxCRV, Convex now owns that CRV and it cannot be swapped back. However, a swap between cvx and CRV is possible on DEXs; it requires an LP to do so. Users can then stake their cvxCRV on Convex to earn 47.24% APR. This action means they relinquish their veCRV voting rights.
https://www.convexfinance.com/stake
- Convex takes a 16% fee from CRV boosts, 5% of which is locked into Convex.
Convex also has its own governance token, by locking CVX on Convex for 16 weeks users receive vote locked CVX (vlCVX). vlCVX grants holders control over the CRV owned by Convex and earns from protocol fees.
Votium
Convex’s system means that you can use CVX to receive bribes too. vlCVX holders can use https://votium.app/ to and delegate their vlCVX, Votium then optimally votes for pools that generate the highest yield in return for a fee.
Votium enables users to stack incentives, meaning they can keep stacking and claim it once gas fees are optimal. Once a user delegates their vlCVX on Votium it automatically votes for many pools with the highest rewards for vlCVX which may mean receiving many tokens, each of which need to be individually claimed. However, if a user wishes to support a particular token or wants only to receive one type of token they may manually choose which pool to vote for. Unless a user has a large amount of CVX it is likely better to vote manually.
Convex strategies
Four most common strategies for CVX could include:
- If you think CVX’s premium is overvalued but still want to hold a stake in the Curve ecosystem, lock CRV on Curve.
- If you think CVX’s premium is justified but overpriced, stake cvxCRV on Convex. Consider buying directly instead of converting.
- If you are an existing Curve LP and want additional exposure, lock your LP token on Convex.
Want to know more?
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