Yield-boosting application Convex Finance crossed $20 billion in total value locked (TVL) this Sunday, days after becoming the second-largest decentralized finance (DeFi) protocol by TVL.
DeFi projects rely on smart contracts instead of middlemen for financial services such as lending, trading, and borrowing.
Data from DeFi Llama shows that the platform locked just $68 million after its launch in May 2021, surpassing older projects in later months. The project took a month to attract $1 billion, and five months to reach $10 billion. Increased demand for the product led to an additional $10 billion in liquidity in the last two months.
Convex allows users to access liquidity and earn fees from Ethereum-based stablecoin exchange Curve Finance, the largest DeFi protocol with a TVL of $23 billion.
Curve tokens (CRV) are issued as yield farming rewards to liquidity providers on Curve Finance, and can be converted into vote-escrowed CRV (veCRV). Holding veCRV allows users to participate in platform governance, earn higher rewards and fees, and receive airdrops.
The tokens are time-locked, meaning users are incentivized to lock their CRV for a long time to receive more veCRV and more platform rewards. However, this mechanism effectively locks up liquidity, creating opportunity costs for users.
To solve this problem, Convex pools all user assets together so that it can purchase curve tokens, convert them into veCRV, and maximize rewards for its liquidity providers. This allows Convex users to receive Curve rewards without locking up curve tokens for lengthy periods.
Convex’s native tokens (CVX) trade at $47 at the time of writing, down 6.6% in the past 24 hours. The network is worth over $2.2 billion by market capitalization, as per data from CoinGecko.