Focus on cvgCVX

Published in

cvgFinance

5 min readJun 4, 2024

Gm fellow flywheel maximalists!

Today, we’re diving deep into Convergence’s second liquid locker, cvgCVX, as it represents the cornerstone of our upcoming Convex Finance aggregation.

If you missed the first article that describes the full integration and its core mechanics, here it is: https://medium.com/cvgfinance/convergences-integration-of-convex-aa0ca079e932.

I. Overview

The financial architecture we’ll deploy atop Convex’s products aims to maximize earnings for the CVX liquid locker, while also optimizing and enhancing rewards of other sections of the aggregation (i.e. cvxTokens first).

cvgCVX is designed so it can extract the yield produced by its underlying vlCVX holdings, but also collect earnings from other sources, such as stkCVX (staked CVX), and its own stable pool, that we’ll deploy and maintain. As stated in the article linked above, the architecture implies the utilization of a second CVX wrapper, called CVX1.

Overall, the CVX liquid locker relies on 3 distinct components:

cvgCVX itself, whose underlying is vlCVX;
CVX1, whose underlying is stkCVX;
The cvgCVX/CVX1 stable pool.

Staked cvgCVX accrues the rewards produced by all those components.

II. Understanding cvgCVX

cvgCVX is a tokenized and tradable version of vlCVX, that can be staked to earn boosted rewards.

cvgCVX is minted at a 1:1 rate against CVX, and can not be redeemed. Converting CVX to cvgCVX is irreversible. However, a stable pool will exist, and it will be possible to swap cvgCVX for CVX at a varying market rate.

All CVX received by the locker are perpetually locked as vlCVX, and cvgCVX stakers earn vote incentives rewards (and other rewards detailed below), distributed as cvgCVX, plus CVG emissions according to Convergence's gauge weights.

cvgCVX can be staked or unstaked at any time, and rewards will be claimable at each Cycle (Convergence’s epochs of 1 week).

III. CVX1 and cvgCVX/CVX1 stable pool

1- CVX1

CVX1 is the second wrapper used in our Convex integration.

At any time, it is always mintable and redeemable at a hard 1:1 rate against CVX. All CVX1’s underlying CVX are staked as stkCVX (simple CVX staking).

CVX1 needs to be seen as a financial engineering trick to enhance cvgCVX earnings, more than a direct yield venue. It is impossible to stake it alone, and its only purpose is to be paired against cvgCVX in the stable pool.

All the earnings generated by CVX1’s underlying stkCVX are passed to cvgCVX stakers. Then, since CVX1 is always redeemable for CVX, pairing cvgCVX to CVX1 instead of naked CVX in the stable pool allows cvgCVX to keep its floating peg to CVX and to benefit from stkCVX rewards, while all its underlying CVX are locked as vlCVX.

2- cvgCVX/CVX1 stable pool

Convergence will use its protocol-owned CVX holdings to bootstrap the system and seed the stable pool, which will be kept as Protocol Owned Liquidity (POL). The stable pool will be incentivized to receive CRV and CVX emissions, and it will be possible to stake the LP token on Convergence to benefit from additional CVG emissions.

During the bootstrapping phase, 80% of POL’s CRV and CVX earnings will be passed to cvgCVX stakers. This ratio will decrease post-bootstrapping.

IV. Other yield sources

1- Fees from cvxCRV staking

Since Convergence optimizes staked cvxCRV earnings, a 5% fee is cut from its CRV/CVX or 3CRV rewards, to boost cvgCVX earnings.

Please refer to the Boosted staking for cvxTokens section in the article linked above, to learn how cvxCRV base yield is enhanced.

2- Fees from Frax LP liquid lockers

Once Frax LP liquid lockers are live, a portion of the fee is cut from their boosted earnings, and passed to cvgCVX stakers.

Please refer to the Liquid lockers for Frax LPs section in the article linked above, to learn more about it.

V. Rewards distribution

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;
5% of cvxCRV earnings;
7.5% of Frax LP liquid lockers earnings.

CVG rewards will be claimable every week, while all other rewards will be claimable every 2 weeks, and distributed as cvgCVX.

All rewards (except CVG) will be swapped for cvgCVX through the following process:

(1) swap all rewards to CVX ⇒ (2) mint CVX1 ⇒ (3) swap CVX1 against cvgCVX

Using such a method allows us to:

defend the peg of cvgCVX;
increase our stkCVX holdings and thus, cvgCVX earnings.

If cvgCVX becomes over-pegged, arbitrageurs will be able to take advantage from it by minting it and exchanging it for CVX.

VI. Metagovernance

The governance power held by the system’s vlCVX holdings is delegated to mgCVG holders, which can then vote on governance proposals for each protocol that Convex integrated (Curve, Frax, Protocol f(x), and Prisma), and for Convex itself.

Governance votes will last 2 days, and a 15% quorum on mgCVG votes is needed for the metagovernance to be effectively replicated.

During the bootstrapping period, mgCVG won’t be able to vote on gauge votes. Convergence will use its vlCVX voting weight in the best interest of cvgCVX stakers (i.e. maximize their vote incentives returns).

Eventually, the governance power over gauge votes will be progressively delegated to mgCVG holders, which will then vote for Curve/Frax, Prisma, and Protocol f(x) gauge weights.

mgCVG will drive 80% of the system’s vlCVX voting weight over Curve/Frax, and 100% over Prisma and Protocol f(x). A 20% fee is taken from the voting power over Curve/Frax to ensure incentivization for the cvgCVX/CVX1 stable pool.

And that’s it, anon! Now you know everything you need about cvgCVX and its powerful design!

If you’re wondering how much yield the system can achieve, please take a look at this thread, which displays some simulations: https://x.com/CvgIntern/status/1795821742273057214

Stay tuned, as more info regarding the CVXRush will soon be shared! 👀

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