Convergence’s integration of Convex

Published in

cvgFinance

7 min readMay 16, 2024

Convergers and Llamas, a warm GM to you.

The audit for our upcoming Convex integration is finished, and it is now time to reveal how the Void will embrace the Kingmaker! 👑

There is a lot to digest, so hang tight, anon!

1- The landscape today

Nowadays, Convex has become an important piece of architecture in the DeFi landscape, with CVX being one the rare assets capable of providing a consistent and real cash flow. Several protocols built on top of Convex, mostly by creating liquid lockers for vlCVX, that automatize and socialize the process of collecting vote incentives.

We currently have 3 options when it comes to vlCVX liquid lockers: pxCVX/uCVX, clevCVX, and afCVX. The last (and new) one is very interesting, as it leverages clevCVX to extract a yield that is significantly higher than the competition. Shout out to Asymmetry, very nice design!

However, existing lockers are still unable to propose a model that fully maximizes vote incentives earnings, while also collecting some of the yield of staked CVX (stkCVX). afCVX is a hybrid model: it sacrifices 20% of its CVX holdings to offer liquidity while still extracting some yield with stkCVX. As all CVX aren’t locked for vlCVX, the capital efficiency isn’t maximized.

On the other hand, until now, no protocol has been capable of actually boosting the yields of any other Convex’s product, whether we talk about LPs, or cvxTokens (we have auto-compounders, but those don’t boost the native yields). If we ask ourselves “why?”, the answer is pretty simple: it’s not possible for Convex atop Curve. However, it is possible to boost the yields for Convex atop Frax. But the process is painful for users, as it requires them to lock their LP.

With its upcoming integration of Convex, Convergence brings an answer to all the points mentioned above by proposing a full suite of products, that addresses the needs of many Convex users, and not only CVX holders.

Overall, Convergence aims to:

Unlock the full capital efficiency of CVX, by combining vlCVX and stkCVX earnings in a fashion never seen before;
Unlock the full capital efficiency of Convex for Frax, while removing the need for locking LPs;
Provide boosted staking for cvxToken users thanks to financial engineering.

2- Convergence for Convex

To summarize, Convergence will propose the following products on top of Convex and Frax:

Two vlCVX liquid lockers (cvgCVX and CVX1);
Boosted liquid lockers for Frax LPs, max locked on Convex (Convex for Frax);
Boosted cvxCRV, cvxFXS, cvxFXN, and cvxPRISMA staking pools.

First, only cvgCVX, CVX1, and boosted cvxTokens staking will be live. Liquid lockers for Frax LPs will be released later.

3- cvgCVX and CVX1

Two lockers? Yes, two lockers.

cvgCVX is a tokenized version of vlCVX. Converting CVX to cvgCVX is irreversible;
CVX1 is a tokenized version of stkCVX (staked CVX). CVX1 is always redeemable against CVX at a 1:1 rate.

Both cvgCVX and CVX1 are minted at a 1:1 rate against CVX. However, only cvgCVX can be single-side staked to earn yield.

CVX1 can’t be staked alone and doesn’t earn any yield natively. Its only purpose is to be paired against cvgCVX in the stable pool. When CVX1 is minted, the underlying CVX is staked as stkCVX, and the rewards it generates are passed to cvgCVX single-side stakers.

This design allows cvgCVX to be effectively paired against CVX, as CVX1 can be fully redeemed against CVX at any time, while earning stkCVX yield (in addition to vlCVX vote incentives and other rewards).

Eventually, 20% of the global vlCVX voting power will be cut, to ensure the cvgCVX/CVX1 pool incentivization. Convergence will own a portion of the cvgCVX/CVX1 LP as Protocol Owned Liquidity (POL). The rewards farmed through this pool will also be passed to cvgCVX single-side stakers.

To summarize, reward sources for cvgCVX are the following:
- vlCVX vote incentives rewards;
- Rewards earned from Convergence’s cvgCVX/CVX1 POL;
- Rewards earned from CVX1’s underlying stkCVX;
- CVG emissions according to Convergence’s gauge weights;
- A portion of Frax LP fees once lockers are live.

Except for CVG, all rewards will be distributed as cvgCVX. The process is the following:

1- Swap vote incentives (vlCVX), cvxCRV (stkCVX), and CRV (stable pool) for CVX;
2- Mint CVX1 with CVX;
3- Swap CVX1 for cvgCVX and distribute cvgCVX.

Such a flow allows us to defend the cvgCVX peg, while increasing our stkCVX holding, which boosts cvgCVX earnings.

4- Liquid lockers for Frax LPs

Building on top of Convex/Frax is the only way to boost rewards extracted from Convex when it comes to farming LP tokens.

On Frax, there are two ways of boosting your rewards:

holding veFXS (Convex does that);
locking your LP token (Convex allows you to do that).

Via Convex, it is possible to lock your Frax LPs, while benefiting from the socialized veFXS boost.

As you can see on the screen below, the longer you lock your LP, the more CRV, CVX, and FXS you earn.

For each LP, Convergence will create a liquid locker, which will:

max lock the LP on Convex for Frax;
issue a tokenized version of the locked LP at a 1:1 rate.

As the stable pools will be composed of Frax’s assets, we’ll seek a gauge for each one of them, and lock them all on Convex/Frax, allowing the Convergence protocol to collect CRV, CVX, and FXS rewards.

Converting any LP for its tokenized version is irreversible. A stable pool will be needed for each LP, so users can exchange the tokenized version of the LP against its underlying. The same financial engineering that is done for CVX with CVX1 can be reproduced for Frax LPs.

For example:
If we choose to tokenize the crvUSD/FRAX LP on Convex/Frax (let’s call it cvgFRAX), we can imagine a FRAX1 token, where the underlying is the same crvUSD/FRAX LP, but on Convex/Curve. cvgFRAX would then be paired to FRAX1 in the stable pool, while cvgFRAX single-side staking would collect rewards earned via the crvUSD/FRAX pool from Convex/Curve. The peg to FRAX would still be ensured, as FRAX1 can be redeemed instantly for FRAX or crvUSD.

Once staked on Convergence, the tokenized version of the LP earns boosted CRV, CVX, and FXS rewards, plus CVG emissions on top.

As CRV, CVX, and FXS rewards are enhanced, a 20% fee will be redirected to other staking contracts within the Convex integration.

To summarize, reward sources for Frax LPs liquid lockers are the following:
- Boosted CRV, FXS & CVX rewards from Convex;
- A portion of FXS earned from Convergence’s Protocol Owned Liquidity on Frax LP lockers’ stable pools;
- Rewards earned from FRAX1’s underlying crvUSD/FRAX LP on Convex/Curve;
- CVG emissions according to Convergence’s gauge weights.

As it is mentioned above, Frax LPs liquid lockers won’t be available right at launch. The first LP supported will soon be announced.

5- Boosted staking for cvxTokens

It will be possible to deposit cvxCRV, cvxFXS, cvxFXN, and cvxPRISMA on Convergence.

cvxCRV:

cvxCRV stakers on Convergence will earn CRV, CVX, 3CRV, and CVG. The rewards rate between CRV/CVX vs 3CRV will constantly be optimized, to provide the highest yield possible from cvxCRV to depositors.

To summarize, reward sources for cvxCRV are the following:
- CRV/CVX and 3CRV rewards from Convex;
- A portion of CRV fees taken from Frax LP liquid lockers earnings once they are live;
- A portion of CRV earned from Convergence’s Protocol Owned Liquidity on Frax LP lockers’ stable pools once they are live;
- CVG emissions according to Convergence’s gauge weights.

cvxFXS:

cvxFXS stakers on Convergence will earn FXS, CVX, and CVG.

To summarize, reward sources for cvxFXS are the following:
- FXS & CVX rewards from Convex;
- A portion of FXS fees taken from Frax LP liquid lockers earnings once they are live;
- A portion of FXS earned from Convergence’s Protocol Owned Liquidity on Frax LP lockers’ stable pools once they are live;
- CVG emissions according to Convergence’s gauge weights.

cvxFXN and cvxPRISMA:

cvxFXN and cvxPRISMA stakers on Convergence will earn their native cvxToken yield, plus CVG emissions according to gauge weights. There is no real boosting of rewards for those (except if you consider CVG emissions as boosting), but we decided that no cvxToken would be left behind!

6- Metagovernance

Eventually, the governance power over Convex held by Convergence will be delegated to CVG lockers via the mgCVG primitive.

Votes will be done on snapshot and mgCVG holders will vote bi-weekly on gauge weights for Curve/Frax, Prisma, and Protocol f(x). The metagovernance process will also follow governance votes for each protocol.

The Convergence protocol will take a 20% cut on the global vlCVX voting power to ensure stable pools incentivization.

And that’s it, anon. We hope that everything was clear enough. If it’s not the case, don’t hesitate to join us on Discord to ask any question!

An ETA about the Convex integration launch will soon be shared; stay tuned!

Website: https://cvg.finance/
Twitter: https://twitter.com/Convergence_fi
Discord: https://discord.gg/convergencefinance