Decentralized finance (DeFi) has grown rapidly over the past few years, attracting over $100 billion in capital.
Convex Finance (CVX) is one of the most enduring primitives built to serve on-chain users. The platform offers unique yield farming mechanics that provide significant value across DeFi. Since its inception, Convex has dominated its niche with breakthrough utility.
Convex Finance’s feature set leverages Curve Finance to create value for users.
The Curve platform is a decentralized exchange focusing on stablecoins. The protocol uses automated market makers (AMMs) to power decentralized swaps with deep liquidity.
This model offers an alternative to traditional exchanges, which use market makers to ensure healthy liquidity on trading pairs. In contrast, Curve allows anyone to supply assets to liquidity pools on token pairs. Liquidity providers (LPs) earn trading fees in exchange for this service.
For example, let’s consider an ETH/USD trading pair on Curve:
Curve charges trading fees on each transaction conducted. The protocol distributes these fees to liquidity providers and CRV stakers. CRV stakers receive vote-escrowed CRV (veCRV) which carries voting power and earns rewards. veCRV holders govern the protocol.
However, this flow was not well optimized. CRV stakers may not wish to provide liquidity, while liquidity providers may not wish to stake CRV. Convex Finance simplifies this process, while also generating extra yield for users and significantly boosting capital efficiency.
Convex Finance streamlines incentives for Curve stakers and LPs.
Primarily, the platform allows users to stake Curve LP tokens for boosted rewards. These rewards are generated from CRV, and CVX rewards from a share of convex platform fees.
Users can also stake CRV directly via Convex in the form of veCRV. Convex pools this staked CRV to earn maximal rewards and voting power. In return, users receive cvxCRV tokens on Convex.
By converting CRV to locked CRV and providing liquidity on behalf of the two parties, the Convex team has created a yield booster. The boosted CRV rewards Convex earns are shared between the CRV lockers and liquidity providers, with Convex taking a cut as a fee. Convex also locks the CRV it receives, becoming a CRV stakeholder.
The Convex (CVX) token can be locked for 16 weeks to earn yield from the protocol’s CRV and voting incentives.
Convex Finance’s risk can be broken down into two parts: the quality of their smart contracts acting as intermediaries for CRV lockers and liquidity providers, and the risks of Curve Finance itself.
Curve and Convex, deployed since January 2020 and May 2021 respectively, have been operating without any exploits or hacks. Both had attracted over $20 billion dollars of total value locked (TVL) at their peaks, which acted as a live bounty for hackers to exploit the protocol. The fact that there have been no exploits demonstrates the resilience of their smart contracts, proving they are safe.
Interest rates for providing liquidity on leading stablecoins such as USDC, USDT, and DAI currently hover around 2-5% in current market conditions. This is acceptable as they do not bear directional risks and allow users to earn yield on their USD while staying liquid.
Thanks to Convex’s pooled voting power from veCRV holdings, the protocol is able to incentivize pools and further boost rewards for users.
Origin Protocol’s yield generating platforms feature bespoke AMO strategies that harness Convex to generate superior yields for holders.
OUSD is a yield-generating stablecoin fully collateralized by reserves of USDT, USDC, and DAI. The protocol deploys these reserves to blue-chip DeFi protocols to earn heightened yields. A key component of this strategy harnesses Convex and Curve to earn LP and token rewards.
Launched in 2023, OETH is a liquid staking token (LST) launched by Origin. Users can deposit ETH to mint OETH, which can be used widely across DeFi. Deposited ETH is staked to the Beacon Chain. The protocol’s AMO strategy also supplies ETH and OETH to the Curve OETH/ETH pool via Convex for boosted rewards.
Users can mint OETH and OUSD directly via Origin’s all-in-one Dapp.
Both tokens can also be purchased on leading centralized exchanges or via AMMs like Curve.
While Convex’s use case is highly specific, other protocols do offer similar mechanics.
Launched in 2021, Yearn Finance pioneered yield aggregation in DeFi. The protocol offers a variety of vaults to stake assets and farm yield across a vast range of pools.
Aura is perhaps the most significant Convex competitor. However, while Convex integrates with Curve, Aura harnesses Balancer to boost rewards and optimize positions for users.
While these competitors are attractive for many users, Convex and Curve have some of the most battle-tested DeFi pools with more liquidity than its competitors.
Convex has quickly become one of the most popular applications in DeFi thanks to its unique mechanics and attractive yields.
While it’s important to acknowledge that all DeFi protocols carry varying degrees of risk, Convex’s battle-tested codebase has stood the test of time.
The protocol remains a mainstay of DeFi, with deep integrations across the space. Both OUSD and OETH allow users to take advantage of Convex’s yield opportunities with minimal technical knowledge or time investment. As a result, Origin Protocol’s an attractive entry point for users looking to participate in DeFi.
Convex Finance is one of crypto’s most enduring DeFi protocols, integrating directly with Curve Finance to optimize yields and boost capital efficiency on the platform.
Origin’s AMO strategies stake Curve LP positions via Convex to earn boosted yields and token rewards in the form of CRV and CVX.
Convex Finance’s mechanics promote deep liquidity and align incentives for Curve stakers and liquidity providers.
