Convex has become the second largest staking asset protocol! How does Messari explain its relationship with Curve?

According to DeFi Llama data, Convex Finance has reached a Total Value Locked (TVL) of 21 billion USD in CVX assets, surpassing DeFi 1.0 veteran MakerDAO and trailing only behind Curve Finance CRV. This DeFi 2.0 concept protocol, which is closely linked to Curve, officially surpassed 20 billion USD in locked value in 2022, surpassing most DeFi 1.0 veterans.

Understanding Convex Finance CVX Quickly

Due to the diversified stablecoin exchange pools of Curve Finance CRV and the long-term lock-up model for CRV holders, the protocol provides stable profits and reduces selling pressure for governance tokens and liquidity rewards, attracting significant capital utilization.

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The niche of Convex Finance CVX lies in enhancing profits for CRV holders, with the CRV obtained not subject to lock-up restrictions. There are two main functions:

CRV Stakers: Convex offers CRV staking, allowing stakers to earn additional rewards compared to Curve. Through Convex, CRV can be converted into cvxCRV, the Convex version of CRV, allowing you to earn rewards such as veCRV, CRV, CVX, 3crv governance fee distribution rewards, and all possible airdrops. However, the conversion of CRV to cvxCRV is irreversible and requires repurchase on the secondary market.

Using the current interest rates as an example:

Curve Liquidity Providers: Convex offers Liquidity Providers (LP) on Curve the ability to earn trading fees, CRV rewards, CVX rewards, without the need for lock-up, and without additional deposit and withdrawal fees.

Using the crveth pool interest rate on Convex as an example:

Compared to the crveth pool interest rate on Curve:

Messari's Evaluation of the Relationship between Curve and Convex

The research institution Messari wrote a report at the end of December last year titled "The Convex Complex: How Convex Finance is Shaping DeFi."

The institution believes that as the importance of Curve's governance inflation deepens, Convex has become crucial. Convex simplifies the experience of maximizing its benefits, and in many ways, the two protocols operate symbiotically.

The locked assets of both protocols are increasingly converging:

As mentioned earlier, Convex collects CRV governance tokens from Curve users and maximizes their profits. After staking CRV on Curve, users can obtain veCRV and governance voting rights. By address division, Convex has obtained the vast majority of veCRV, giving it significant power over Curve's governance proposals.

Messari found that despite Convex extracting 16% of the profits from liquidity providers to distribute to users who lock CVX, unexpected revenue has recently been generated from governance voting campaigns. This can be attributed to another protocol Voltium, which allows vlCVX holders to gain governance rights and additional income on the platform. This provides another revenue channel for Convex users interested in governance.

Messari's evaluation of several potential risks for Convex:

Single Protocol – As Convex heavily relies on Curve, if Curve encounters vulnerabilities, Convex will suffer the most. However, as Curve has undergone multiple audits, the risk is relatively low.

Protocol Competition – Other protocols may imitate similar strategies, such as Yearn also competing for CRV governance rights. However, Convex has a quantity advantage, and Yearn has adopted a different strategy through Convex, contributing to some of the CRV strategies.

Large-scale CVX Acquisition – There may be institutions acquiring large amounts of CVX to gain Convex's governance rights, becoming the Convex of Convex. However, Messari believes this is not easy to achieve, as SushiSwap is currently the largest secondary market. Additionally, Convex has accepted SushiSwap's LP, but the token volume and depth have achieved their goals at a high cost.

Lastly, Messari believes that due to the symbiotic relationship between Convex and Curve, there is no incentive to disrupt Curve. Those seeking to maximize CRV profits or profit from governance participation will have the motivation to utilize Convex. As the protocol with the highest DeFi lock-up volume and governance power, the control of CVX holders will shape the future.