The rise of the cryptocurrency market has led to decentralized finance to new heights of success. DeFi is fueled by the concept of yield farming. Up until recently, cryptocurrencies were considered to be for holding purposes and returns can be earned only by selling during price rallies. However, yield farming has completely changed the concept of holding cryptocurrencies. Through yield farming, users can earn good returns on their crypto holdings by lending them out to borrowers. Convex Finance is one of the projects of the hot DeFi market. In this guide, we will delve more into what this specific DeFi protocol is and how does it work.
What is Convex Finance?
Convex Finance is a DeFi protocol built on top of Curve Finance. Curve Finance is a stablecoin exchange and the largest in terms of total value locked. This puts Convex at an ideal rank in the market as it is able to benefit from the massive liquidity of Curve. The platform is also working specifically as an add-on for Curve. The main offering of Convex Finance is to boost the returns that CRV holders – the native token of Curve – and Curve’s liquidity providers through additional streams for interest earning. In essence, Convex Finance provides amplified Curve staking.
To understand Convex, one must delve into how Curve works. The CRV token is issued as a reward for yield farming but the protocol also has another token, veCRV. veCRV is used to boost CRV rewards by as much as 2.5 but that requires a lot of holdings in veCRV.
Convex Finance functions much like a mutual fund. It pools up the funds of everyone using the protocol so that the maximum amount of CRV can be obtained which is then converted into veCRV. This maximizes the returns for all token holders.
Future outlook
While this may not sound as interesting, the simplicity of Convex Finance is what has made it as successful as it is today. The crypto – or any market – is all about reward maximization and Convex provides an easy alternative to maximizing the yields from one of the top decentralized exchanges. This gives it a bullish future outlook.
At the time of writing, the cryptocurrency stands at a price level of $29. According to the estimates of Wallet Investor, the cryptocurrency is expected to be operating at a price level of $44 in a year’s time while the five-year projection places it at $125. Digital Coin Price projects a similar price of $110 by 2026.
