Most recent update: [ May 28, 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Convex Finance, made available on the VirgoCX Platform, including an opinion that Convex Finance is not itself a security and/or derivative.
What is Convex Finance?
Convex Finance (CVX) is a decentralized finance (DeFi) protocol built on the stablecoin exchange Curve Finance. The CVX token is the derivative token of the Convex Finance protocol, and its primary function is to allow token holders and liquidity providers of the Curve DEX to earn additional rewards – all by staking their tokens. It’s a relatively simple process, but this simplicity is what has made Convex so successful in the Curve ecosystem.
Who is behind Convex Finance?
Keeping with the values of decentralization in the cryptocurrency industry, Convex Finance is a project developed by a team of anonymous developers. While this may be a cause for concern for some investors, CoinMarketCap asserts that Convex Finance is considered to be one of the most important and influential protocols in the DeFi space. It is, however, important to exercise caution with any investment and to perform your own due diligence.
How does it work?
To understand how Convex Finance and staking the CVX token works, we must first briefly look at how the Curve platform works. Basically, Curve facilitates trading through user-provided liquidity pools. Users can then charge fees on their deposited assets. In exchange, users receive a reward of Curve Liquidity Pool tokens (CRV), the derivative token of the Curve DEX. There are other incentives for users to contribute to the liquidity pool, but Convex Finance utilizes this method for its protocol.
What Convex does is reward users for depositing on the Convex protocol rather than directly through the Curve DEX by offering them a higher yield than the DEX itself. Convex acts as an intermediary to pool and deposit CRV on behalf of CRV holders; one aspect of the Curve DEX is that users gain higher rewards the longer their assets are staked (a process known as yield-farming) and the more that they contribute to liquidity – these are otherwise known as ‘boosted rewards.’ This makes it difficult for a single user on Curve to gain the maximum level of boosted rewards, as an astronomical amount of CRV needs to be staked in order to get anywhere close to the max boost level. The Convex protocol circumvents this – it pools the assets of all the users that deposit through Convex, allowing even low-level investors to benefit from the aggregated liquidity and, consequentially, the boosted rewards. This offers more competitive rewards without needing to lock up CRV tokens for extended periods of time.
The CVX token
CVX is the Convex Finance protocol’s native token, and is minted whenever a CRV token is claimed on the Convex protocol by the liquidity providers of Curve. This token offers holders a share of Convex’s platform fees. CVX can be staked to earn cvxCRV, another token that directly links to the Curve DEX, and allows users to earn a portion of the DEX’s CRV earnings and trading commissions. In turn, the more that Convex Finance grows, the value distributed to cvxCRV holders also increases. The catch is that converting your tokens into cvxCRV is a one-way street; once they have been converted there is no way to revert your tokens, making this a permanent claim on the Curve and Convex trading fees.
Like other decentralized finance protocols, CVX is also used for governance; CVX holders can vote on the workings of the Convex Finance protocol by staking their tokens (in what is known as a vote-lock), primarily on how the protocol allocates its CRV rewards.
CVX has a total supply of 100 million CVX, and is distributed as follows:
- 50% towards Curve Liquidity Pool Rewards
- 25% to liquidity mining distributed over four years
- 9.7% to the treasury
- 1% for veCRV holders in an instantly claimable air drop
- 1% for veCRV holders who voted to whitelist Convex
- 3.3% back to investors
- 10% to the Convex development team
For reference, veCRV (vote-escrowed CRV) is the token that is provided when a user time-locks their CRV tokens on the Curve DEX, and are the tokens that hold the boosted rewards.
Prior to launch, Convex was audited by MixBytes, a company specializing in blockchain and smart contract security audits. Currently, the Convex treasury is secured by a 3 of 5 multi-signature consisting of the following parties:
- C2tP of Convex Finance
- Winthorpe of Convex Finance
- Charlie of Curve Finance
- Tommy of Votium
- Sam of Frax Finance
Like all other investments, investors need to be mindful of the risks losing some or all of their funds. Convex Finance’s own whitepaper asks users to exercise caution and work within their own risk framework when interacting with the platform.
Drawbacks & Risks
Although Convex Finance is the most successful protocol on the Curve DEX, its value is tied directly to the success of the Curve platform. Even if it may be unlikely, in the event that the value of the Curve platform were to tank, then subsequently the value of the CVX token would as well. Furthermore, there are significant complications that arise when investing into CVX as its whole use case revolves around staking the token for rewards from another platform. The staking process can be complicated for investors with no experience of similar projects, so it is always advised for potential investors to perform their own due diligence and to get a full understanding of how the platform and its associated tokens function before investing.
Before listing Convex Finance on the VirgoCX Platform, VirgoCX performed due diligence on Convex Finance and determined that Convex Finance is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following:
- The creation, governance, and location of Convex Finance and/or its primary development team;
- The supply, demand, maturity and liquidity of Convex Finance; and
- Legal and regulatory risks associated with Convex Finance.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
For a more in-depth look at how the Convex Finance protocol works and how to stake CVX yourself, check out the following resources below:
Convex Finance’s official whitepaper: https://docs.convexfinance.com/convexfinance/
Convex Finance on CoinMarketCap: https://coinmarketcap.com/currencies/convex-finance/
Convex Finance on Shrimpy Academy: https://academy.shrimpy.io/post/what-is-convex-finance-cvx-a-powerful-defi-yield-farming-platform-explained
Convex Finance on Phemex: https://phemex.com/academy/what-is-convex-finance
Convex Finance on CoinPosters: https://coinposters.com/convex-finance-cvx-what-to-know/