Convergence is a decentralized governance aggregator and liquidity incentivizer built on top of protocols like Stake DAO, Curvance, Conic, and more.
Convergence aims to optimize the capital efficiency and functions of underlying protocols by using mechanisms (gauges, staked assets tokenization, and bonding) from well-known protocols such as Curve, Convex, and OlympusDAO.
CVG, Convergence’s governance token, is used to incentivize liquidity and aggregate governance. Additionally, Convergence implements a novel revenue distribution mechanism called Govearn, through which returns generated by internal or external growth are redistributed to stakers as dividends.
The team behind Convergence seeks to accumulate governance over underlying protocols and incentivize user participation. While Convergence operates as an aggregator without relying on a single substrate protocol, its value proposition lies in structural mechanisms rather than solely relying on aggregated protocols.
Convergence will first integrate with Stake DAO. Subsequent partnerships have not yet been confirmed, but may include Curvance, Conic, Tokemak, Concentrator, CLever, and Frax. Like Convex's relationship with Curve, Convergence can be seen as complementary to its partner protocols. Its objectives include creating derivative tokens to enhance liquidity and gain governance rights, as well as optimizing rewards for liquidity providers.
The Convergence team is comprised of nine people, including four developers and five non-developers handling operations, business development, marketing, and community.
Convergence offers staking opportunities for various governance tokens, vault tokens, and other yield-bearing assets. Convergence’s staking vaults feature corresponding gauges to incentivize deposits with CVG emissions. The gauge mechanism is similar to Curve’s (see below Meta-Governance Landscape section for further explanation), however, is not limited solely to liquidity providing (LP) tokens but includes almost every yield-bearing asset from each partnered protocol.
To gain governance control over various protocols, Convergence adopts a strategy similar to Convex’s strategy with CRV: tokenizing staked assets. In this process, users can convert the protocol's native token (TKN) into Convergence-assets (i.e., cvgAssets or cvgTKN) and stake them. By staking cvgAssets, users become eligible to receive the native rewards of the underlying assets, along with additional CVG rewards. Governance accumulated through the above process is streamed to Convergence’s locked, meta-governance token (mgCVG).
CVG rewards as emission are distributed weekly towards the staking gauges (the rewards are not streamed linearly but all at once). This weekly distribution of rewards as well as the gauge voting rounds are synchronized with the cvgCycles (7 days). If a user stakes in the middle of the cycle ‘n’, they will receive rewards subject to cycle ‘n+1’ at the beginning of cycle ‘n+2’.
It's important to understand that once an asset is converted into a cvgAsset, the process is irreversible, similar to converting CRV to cvxCRV. Users can stake and unstake their cvgAssets, but they cannot convert them back to their original assets. To ensure reverse convertibility and liquidity for these tokens, cvgAsset/Asset pools will be deployed, enabling users to exit their positions when desired, albeit at market-determined discounts/premiums.
Bonding and Protocol-Owned Liquidity
Convergence will implement a strategic bonding program to acquire assets for its treasury and accumulate protocol-owned liquidity (PoL). Convergence has developed their own proprietary bonding mechanism, similar to the original mechanism pioneered by OlympusDAO.
Through bonding, users deposit pre-approved assets (e.g., FRAX, CVX, CRV, etc.) in exchange for discounted CVG tokens, vested over a short period of time. It’s an asset swap whereby Convergence swaps its tokens for desired treasury assets. Users are incentivized to bond their assets since it enables them to acquire CVG tokens at values lower than the price of the asset. This mechanism aims to ensure consistent growth of the treasury, albeit at the cost of releasing extra CVG tokens into the market, therefore increasing the circulating supply.
This bonding process is incomparable to bonds in traditional finance, so best not to attempt to draw parallel.
Bonding offers several benefits to Convergence. In addition to acquiring key treasury assets, it allows them to accumulate their own liquidity (i.e., protocol-owned liquidity). For example, Convergence could request users bond a CVG-DAI liquidity pair from Uniswap. Owning their own liquidity is an enormous benefit, as it ensures users can trade the project’s token across all market conditions. Relying on external liquidity providers can lead to liquidity being withdrawn during distressed markets, exacerbating selloffs, slippage and volatility.
Additionally, PoL represents a source of revenue. Each swap transaction in a pool contributes a fee to liquidity providers, providing a constant revenue stream for the protocol. Furthermore, PoL enables protocols to explore yield farming opportunities.
Below is an illustration of a timeline that describes the state of the protocol and the user before buying the bond, at the time of purchase, after buying the bond, and the time when the bond matures:
Users will have the option to purchase the CVG bond with FRAX, crvUSD, CRV, CVX, CNC, FXS, SDT, and TOKE to get discounted CVG, vested over a short timeframe. The vesting duration ranges between 5-14 days (subject to change based on the assets used to purchase the bonds).
At the time of bonding, the user gets a bond that starts to vest from day 1, but 100% of bonded CVG will not be claimable until the end of the vesting period. Vesting durations are decided before the initiation of bond sale rounds.
Convergence’s bonding model is slightly different from Olympus’s bonding model. Bonds have a modulable vesting term (i.e., the team has the freedom to choose desired vesting duration in each sale rounds). Once the vesting duration is fixed, the bonds follow that vesting term. With an editable/upgradable vesting term the bonds have a maximum ROI (maximum discount), and a minimum ROI (minimum discount). Bond prices are calculated with an on-chain oracle that aggregates the bonded assets' prices over various decentralized exchanges.
Convergence has allocated 32% of CVG's total supply (48m CVG) to sell bonds. The quantity of bonds to sell in each round is subject to governance vote, but initially, bonding rounds will last three months, and 2m CVG will be sold during this 3-month period. This bond sale rounds will continue for 60 months.
8m CVG will remain in the bond program as a strategic elastic reserve without a predesignated plan. This reserve will allow the Convergence team to deploy some bonds at its discretion, to opportunistically take advantage of favorable market conditions.
Similar to staking and locking, bonding positions are also tokenized. When a user buys a bond, his bonding position is represented by an NFT. This NFT will be burned once the full CVG amount has been redeemed. Users may alter an existing bonding position or create a new one at any time. Altering an existing position (i.e., increasing the amount of bonded assets and thus increasing the amount of CVG that can be redeemed) resets the vesting term.
To compute the price of a bond, Convergence uses cvgOracle. The cvgOracle is called each time a user buys a bond, fetching the price of the asset (the asset used to buy the bond) from multiple decentralized exchanges, targeting the most liquid pool for the asset.
Convergence bonds also include a security check based on Chainlink price feeds. Each time the cvgOracle returns a price, this price is compared to the corresponding asset price given by Chainlink. The transaction will fail if the price difference between both oracles exceeds a given percentage.
Convergence intends to utilize its treasury and protocol-owned liquidity to generate yield, which will be used to incentivize users who lock CVG through the Govearn mechanism. Funds will be raised for the treasury through bond sales, partnerships, a community raise, yield earned from investments, and protocol fees (5%-10% based on the staking vaults).
80% of treasury yields will be distributed every three months to ysCVG holders based on their respective share of the total ysCVG supply. The other 20% is reinvested to compound the yields.
Convergence plans to utilize its reserve of stablecoins received through selling CVG bonds to repurchase CVG from the open market and provide liquidity as required (most likely in CVG/FRAXBP). A framework for these buys is currently being developed. The Convergence team will actively manage the deployment of treasury assets, ensuring effective utilization. Rewards obtained will be collected and reinvested on a weekly basis.
CVG is the governance token of Convergence. Convergence plans to distribute CVG through emissions and CVG bonds. 63m CVG will be emitted over 113 years to stakers and liquidity providers; 40m CVG will be distributed over 240 weeks through bonding.
CVG vault emissions are controlled through liquidity gauges attached to each respective Convergence vault, to be directed by vote of CVG stakers.
Locking CVG gives users voting rights and a claim on treasury yields. When a user opts to lock CVG, this action is represented by the creation of a unique token in the form of a non-fungible token (NFT). This NFT represents a specific quantity of veCVG, mgCVG, and/or ysCVG, enabling its holder to engage in voting and/or obtain governance rewards during each Treasury Distribution Event (see Treasury & Protocol Owned Liquidity section). Importantly, these NFTs can be freely traded on the open market.
Upon creating a lock, users are allowed to determine the proportion of CVG that they wish to allocate towards veCVG, mgCVG and ysCVG. Each CVG locked for veCVG also produces one mgCVG, however each CVG allocated to ysCVG does not generate a mgCVG.
As an example, if you were to lock 100 CVG for 96 CVG cycles (max duration) with a proportion of 60% veCVG and 40% ysCVG, you would receive, 40 ysCVG, 60 mgCVG, and 60 veCVG.
By presenting this option to users, the platform allows for customization and personalization of their locking, governance and income preferences, empowering them to tailor their participation in accordance with their individual goals and priorities.
veCVG (vote escrowed CVG) represents a form of voting power. The allocation of veCVG to a user is based on how long they lock their CVG - the longer a user locks their CVG, the greater the amount of veCVG their NFT will receive. For example, if a user locks 1,000 CVG for 96 cvgCycles, they will be rewarded with 1,000 veCVG. If instead they lock 1,000 CVG for 48 cvgCycles, they will receive 500 veCVG. As the escrowed tokens approach their lock expiration, the amount of veCVG gradually decreases.
veCVG holders also have the ability to deploy their weight in the liquidity gauges, thereby influencing the direction of CVG emissions. It is important to note that, unlike Curve, vote locking does not offer any additional boost.
Eventually, as the protocol matures, veCVG may be used to whitelist and vote on strategies, alter bond parameters, fees and more.
mgCVG (meta-governance CVG) represents the authority to vote on underlying protocols by inheriting the voting rights of the token under cvgTKN. In terms of meta-governance power, mgCVG can be likened to vlCVX or vlAURA, as the quantity of mgCVG does not change throughout the locking duration (unless you lock more CVG).
The quantity of mgCVG initially allocated to a user depends on the duration of the lock. The longer CVG is locked, the greater the amount of mgCVG assigned to the corresponding NFT. The quantity of mgCVG is initially equivalent to the veCVG amount and remains constant until the lock expires.
ysCVG (yield sharing CVG) enables users to claim their proportional share of treasury profits during Token Distribution Events (TDEs). The quantity of ysCVG that a user receives is contingent on how long they long their CVG tokens. Longer lock durations result in a greater amount of ysCVG awarded to the user's associated NFT.
When a user initiates a lock during a specific TDE cycle N (where 1 TDE cycle equals 12 cvgCycles), the ysCVG amount is adjusted based on the number of complete cvgCycles the lock will endure within the ongoing TDE cycle N. The full amount of ysCVG is subsequently updated at the commencement of the TDE cycle N + 1.
A user locks 1,000 CVG for 48 cvgCycles during tdeCycle N, cvgCycle 7:
The full amount of ysCVG (available at tdeCycle N + 1) is equal to 1000*(48/96) = 500
At the time of locking, the amount of ysCVG for tdeCycle N is equal to: ((12-7)/12)*500 = 208.33.
In the next tdeCycle N + 1, the amount of ysCVG allocated to the cycle would be 500.
The full amount of ysCVG remains constant until the conclusion of the lock duration. Distribution of rewards will be conducted in accordance with each user's respective share of ysCVG.
Here is what the life of locked CVG derivatives look like overtime:
Convergence charges a fee for facilitating its services. The team has not yet finalized the full fees for all of its offerings, but they’re likely to range between 5%-10% of staking revenue.
The maximum supply of the CVG token is 150,000,000. The majority of tokens (72%) are held for staking emissions and bond sales, while the DAO, team and investors collectively hold 26.5% of tokens. Convergence plans to airdrop 1% of token supply, with details yet to be released.
Staking rewards (40%): 60m CVG released weekly, over 397 years. The initial weekly emissions released will be 60,576. Every 2 years, emissions are reduced by a factor of √2 (i.e. 29.078%). Emission reduction stops after 20 years. After 20 years, the protocol will issue 1,893 CVG weekly until the total staking inflation is released. There’s also a parameter which allows the DAO to modulate emissions, reducing to a minimum of 80% of the default inflation, up to a maximum of 120% of the default inflation.
Bonds (32%): 48m bifurcated in 40m and 8m. 40m CVG released over 240 weeks (4.6 years). 8mCVG will be held in the bonding program as an elastic reserve, without a predesignated plan.
DAO (9.5%): Vested over 1.5 years, 5% available at launch. Used to deploy initial liquidity and for future incentives (community events, contests, etc.).
Team (8.5%): Vested over 2 years.
Investors (8.5%): Whitelist: 33% available at launch. The remaining 67% are vested over 3 months. Seed investors: 120 days cliff followed by a 5% allocation release. The remaining 95% are vested over 15 months.
Partners (0.5%): Allocation reserved for advisors and close partners. Vested on the same schedule as seed investors.
Airdrop (1%): Details yet to be released.
Convergence will initially integrate with Stake DAO. Potential partners under consideration, but not yet confirmed include Curvance, Tokemak, Conic, Concentrator, CLever, and Frax.
In the realm of decentralized finance, Stake DAO has emerged as a notable protocol, aimed at simplifying the management of various assets for users seeking to enhance their yields.
Presently, individuals or protocols desiring to leverage governance-based lockable tokens such as CRV, FXS, and others are confronted with two primary options, they can either (1) lock these tokens on the native protocol, enabling them to partake in voting and receive incentives; or (2) they can choose to employ a locker to boost their yield and engage in yield farming, but at the expense of governance power and related incentives. This dichotomy forces users into a predicament, compelling them to make a trade-off between voting authority and yield optimization.
Stake DAO's Liquid Lockers
Stake DAO's Liquid Lockers, however, represents a nuanced solution. These innovative lockers enable users to unlock the potential of lockable tokens, such as ANGLE, FXS, and CRV, without having to compromise on yield, voting power, or liquidity. This means that anyone providing assets through Stake DAO Liquid Lockers enjoy the full benefit of an enhanced yield boost while retaining their complete voting rights. Moreover, users can elevate their voting rights, trade them, and seamlessly exit their positions back to the underlying token.
Each Liquid Locker is equipped with a reward contract and a Curve Factory Pool, ensuring boosted yield and accessible exit liquidity. For a more visual understanding of this setup, please refer to the accompanying diagram.
The above schematic shows the reward structure for sdCRV, which can be applied to all sdTKNs. Vote incentives are usually a major share of the yield and are dependent on veCRV and the performance of the liquidity allocation votes. A user can delegate their votes to optimize bribe yield without needing to deal with vote management.
Notably, the utilization of Liquid Lockers imposes limited fees on users, including an up to 1% fee on harvest calls. Liquid Lockers also secure a share of the 15% performance fee earned by the implemented strategies, allocated as follows:
• 8% of claimed rewards are redistributed to the respective Liquid Locker.
• 5% is designated for veSDT holders.
• 2% is allocated to cover DAO-related expenses and bolster the DAO treasury.
• Up to 1% is allotted to the harvester.
Stake DAO for LP Token Staking
Stake DAO extends its support to liquidity providers, enabling users to contribute liquidity provider tokens (e.g., Curve LP tokens) to earn staking yields. Stake DAO utilizes its accumulated veCRV to deliver amplified yields to liquidity providers from boosted CRV rewards and SDT rewards, based on gauge weight.
Those holding Stake DAO’s native governance token, SDT, can lock their tokens for vote-escrowed SDT (i.e., veSDT). The longer the lockup period (up to four years), the greater the boost and benefits one enjoys across the platform. veSDT holders have the voting power to influence SDT inflation across various strategies and lockers. veSDT also gains a share of platform fees in FRAX3CRV. Moreover, holders can boost rewards on their liquid locker holdings and/or LP strategies.
The Convergence platform benefits Stake DAO liquidity providers and SDT holders, summarized in three key categories:
Converting SDT to cvgSDT and Staking
Convergence enables users to convert their SDT tokens into cvgSDT, a liquid derivative of veSDT. Each SDT deposited on Convergence is locked forever on the Stake DAO voting escrow contract and cvgSDT is minted at a 1:1 rate. Converting SDT to cvgSDT is irreversible; however, a cvgSDT/SDT pool exists on Curve. Liquidity in this pool is incentivized by Convergence, ensuring users can exit their cvgSDT position at a floating peg to SDT.
cvgSDT stakers benefit from native, boosted veSDT rewards, and from 12.5% of SDT harvested from staking pools (sdTKNs and LPs). CVG emissions are added on top, according to the cvgSDT gauge weight.
In addition, the treasury is used to further boost earnings with:
• 50% of SDT harvested from the cvgSDT/SDT stablepool owned liquidity;
• An additional SDT boost from the treasury’s bootstraping module.
cvgSDT stakers also benefit from potential bribes, earned via the protocol’s veSDT holdings. Bribes will be swapped to SDT or cvgSDT. The voting power inherited from veSDT would be attached to the mgCVG derivative of locked CVG.
To summarize, cvgSDT stakers can claim:
• veSDT native rewards (sdFRAX3CRV);
• A share of Convergence’s fees in SDT;
• An SDT boost from the protocol’s treasury;
• Bribe rewards distributed as SDT or cvgSDT;
• CVG rewards according to gauge weights.
Convergence also serves to benefit sdTKN stakers, including those holding sdCRV, sdBAL, sdFXS, sdANGLE, sdPENDLE, and sdFXN. The same schematic which was used in describing the sdCRV rewards can be used to understand sdTKN staking on Convergence.
sdTKN stakers gain access to the underlying veTKNs' native rewards, as well as fees generated by Stake DAO. Additionally, they stand to benefit from boosted bribes earnings, distributed as sdTKNs, and boosted SDT emissions. CVG emissions are allocated on top of these benefits, contingent on the respective sdTKN gauge weight on Convergence. Certain staking pools may also enjoy supplementary rewards, courtesy of the treasury's bootstraping module.
For liquidity providers participating across various protocols, such as Curve and Balancer, Convergence offers a platform to stake their liquidity provider tokens (LPs) while enjoying an array of boosted earnings. In tandem with the native rewards provided by each protocol, which are already enhanced by Stake DAO's mechanisms (such as boosted CRV rewards for Curve), LP stakers unlock amplified SDT rewards. Furthermore, they receive CVG rewards according to the gauge weights on Convergence. Some staking pools may also have access to additional rewards through the treasury's bootstraping module.
Staking rewards are distributed weekly, at the beginning of each cvgCycle. A user is not able to claim rewards for the current cycle if they deposit when the cycle is already running. They’re only eligible for the rewards if they choose to maintain their deposits for a full cvgCycle.
If one stakes his assets (cvgSDT, sdTKNs or LPs) during a given cvgCycle N, his rewards will be available at the beginning of the cvgCycle N+2.
In addition to the upcoming integration with Stake DAO, Convergence may also integrate with Conic, Curvance, Tokemak, Concentrator, CLever, and/or Frax. These integrations are not confirmed, but under consideration by the team.
Curvance is a decentralized stablecoin lending protocol that focuses on LPs from Curve, Convex, Aura, and Frax ecosystems. It enables users to earn optimized yields and maximize capital efficiency through peer-to-peer lending. Assets like cvxCRV, auraBAL, and yCRV can potentially yield higher APRs than their original platforms, with the added benefit of collateralizing deposits for secure stablecoin loans. Interest rates depend on factors such as pool APR, price volatility, token liquidity, and loan-to-value ratios. Curvance introduces decentralized lending, token governance via CVE tokens for DAO voting, and efficient liquidity routing to underlying contracts.
Conic is a protocol on Ethereum that provides "Omnipools", where users deposit a single asset, to be allocated across various multi-asset, whitelisted Curve pools. Hence, liquidity providers of an Omnipool gain exposure to multiple Curve pools via a single Omnipool LP token.
At the core of Tokemak is the Liquidity Management Pool (LMP). Tokemak’s Autopilot deploys assets deposited into the LMP, while Liquidity Marketplace allows DAOs to incentivize liquidity from any desired LMP according to the transparent liquidity rate.
Concentrator is a yield enhancer which boosts yields on Convex vaults by concentrating all rewards into auto-compounding tokens: aCRV (cvxCRV) and aFXS (cvxFXS/FXS)
CLever is a leverage system for CVX holders, which allows users to deposit into collateral strategies and claim future yields.
The Frax Protocol is the cornerstone of the unified Frax Finance ecosystem, featuring three stablecoins: FRAX (pegged to USD), FPI (a CPI-indexed stable coin), and frxETH (pegged to ETH). Supporting these stablecoins are three subprotocols: Fraxlend for lending, Fraxswap, the native AMM with time-weighted market maker orders, and Fraxferry for cross-chain transfers. Governance is handled by Frax Share (FXS), which accrues fees and revenue, while FPIS governs FPI. A unique gauge rewards system lets the community propose rewards for Frax-based strategies, with FXS emissions decreasing annually and distributed based on veFXS staker votes.
Although at this early stage it’s impossible to know how the Convergence ecosystem will develop, it’s possible there could be an active Convergence bribe market (similar to Curve, Convex and Frax), where DAOs or users incentivize emissions to specific pools. There are two assets that benefit from bribing: (1) veCVG and (2) mgCVG.
Since veCVG holders vote on Convergence liquidity gauges, therefore directly influencing CVG emissions across the numerous Convergence vaults, protocols will likely want to bribe veCVG holders to achieve increased yields on vaults that are of interest to them. For example, if a protocol wants to incentivize users to deposit into one of their vaults on Convergence, they could bribe veCVG holders to direct CVG emissions to that vault, thereby boosting yields on it. These bribes could equate to a compelling income stream for veCVG holders.
mgCVG gives users governance power over underlying protocols. Since mgCVG holds the voting rights of governance tokens locked under cvgTKN wrapper, it inherits the bribe market of underlying governance assets (e.g., veCRV, veSDT, vlCVX, veFXS, etc.), all of whom currently have thriving bribe markets.
In a bull market, there’s a reflexive nature to bribes. Multiple dynamics feed into an increased CVG price, with an increasing CVG price consequently amplifying these same dynamics, thus creating a self-reinforcing loop.
In an improving DeFi market with most token prices appreciating, total value locked (TVL) on the Convergence platform would likely increase. Even if the number of assets on the platform remains constant, TVL would still increase in US dollar terms as staked tokens are increasing in value. However, in a more optimistic scenario with new money broadly flowing into DeFi and Convergence attracting new users, TVL would also grow in ETH terms as new assets are deposited, therefore growing TVL even more rapidly in US dollar terms.
With increasing TVL, it’s likely the CVG token price increases, thereby increasing the value of CVG emissions, and consequently increasing the amount protocols would want to bribe since these bribes direct more valuable CVG emissions. Increased bribe income increases the bribe APRs on veCVG, thus positively influencing CVG price since higher income APR is more attractive.
Unfortunately, in a declining bear market, these reflexive forces reverse, detrimentally impacting bribes and likely the price of the CVG token. This dynamic is most obvious with the original pioneer of DeFi bribes: the vote-locked Convex token, vlCVX. At its peak in January 2022, CVX price reached its all-time high price of $60.09, with bribe APR reaching 55% in March 20222. Today however, during the depths of a significant crypto bear market (August 2023) with money flowing out of the DeFi space, CVX price is $2.80 and bribe APR is 20%.
In addition to bribes, Convergence’s bonding program also serves to amplify the value proposition of the protocol and fuel the flywheel. Through successful bond sales, Convergence can increase their governance power over partnered protocols. Assets received through bonds are locked for max duration, therefore max-boosting the yield opportunity. Yield on treasury assets are to be distributed to ysCVG holders every 3 months.
If we start with treasury inflow from a bond sale, here is what the flywheel looks like:
The incentive to own veCVG / mgCVG is for bribe income and governance power. On the other hand, the incentive to hold ysCVG is purely to have a share in Convergence’s treasury yield distribution.
For users interested in maximizing CVG yield, there may be arbitrage opportunities between veCVG, mgCVG, and ysCVG. The natural equilibrium is at a point at which the returns per veCVG and mgCVG are equivalent to one ysCVG. If this is imbalanced, a user has the option to choose one of the two options where they get better returns compared to the other.
When any factor from the above-discussed flywheel increases the intrinsic value of owning veCVG + mgCVG, or ysCVG, it would compel users to balance the supply of the derivative tokens.
Meta-governance refers to the act of one DAO and/or protocol participating in the governance process of another DAO/protocol through one or more tokens or token derivatives. This is often done to leverage voting power, improve efficiency, coordinate interests, and maximize yields.
Across DeFi, there are numerous protocols that accumulate governance tokens of different protocols, with the benefit accruing to their native token. The native token therein holds the governance authority and earns yields from the underlying protocol.
Convex is one of the best examples to show how meta-governance works and can be used to achieve specific goals. Convex Finance is a yield aggregator built on top of Curve Finance. It allows users to earn boosted CRV rewards and Curve trading fees by depositing their Curve LP tokens (LP tokens that represent a user's share of a liquidity pool on Curve) into Convex.
Curve utilizes a vote-escrowed tokenomic system whereby users can lock their CRV tokens up for veCRV. This veCRV is then used to vote and direct the emissions of CRV to specific Curve LPs. The longer a user locks their CRV, the more veCRV they have to vote on emissions. This dynamic is originally what lead to the ‘Curve Wars’, whereby protocols and DAOs would accumulate CRV in order to direct emissions (and thus high APYs) to their pools, leading to increased liquidity for their tokens.
Convex Finance allows liquidity providers on Curve to boost the rewards earned from their LP positions without needing to lock CRV themselves. Convex functions by accepting deposits of CRV tokens from users, permanently locking the CRV tokens for the maximum duration of time, then directing the boosted yields to Convex liquidity providers and accepting bribes to direct CRV emissions.
Currently Convex has 48.6% governance power on Curve distributed among the vlCVX token holders.
In summary, Convex targets two main groups of users:
1. CRV holders: Convex enables CRV token holders to stake CRV for cvxCRV, a liquid derivative of locked CRV.
2. Curve liquidity providers: Convex allows users with Curve LP tokens to stake them with Convex & receive boosted yields.
It’s worth noting, the Curve ecosystem recently came under pressure due to a reentrancy attack that led to the draining of several Curve pools that utilize a specific version of the Vyper compiler. The exploit notably drained $7 million CRV tokens from the CRV/ETH pool and led to pressure on the CRV price as token holders rushed to exit elsewhere. The onchain price of CRV reached a low of $0.11 due to the removal of liquidity, whereas centralized exchanges still showed CRV prices above $0.50. The founder of Curve, Michael Egorov, had a series of very large stablecoin loans collateralized by his CRV tokens. The lending markets use Chainlink oracles which reference CEX pricing of CRV and thus Michael wasn't immediately liquidated. However, he had to sell a large amount of his tokens OTC to relieve his on-chain debt. The future of Convex is almost entirely dependent on the Curve ecosystem and CRV price, and therefore this recent event should be monitored closely, as its resolution is vital for Convex’s continued success.
Aura is a meta-governance and yield aggregation protocol built on top of the Balancer decentralized exchange (DEX). It is a fork of Convex, designed to optimize yield for Balancer LPs and veBAL holders, featuring a unique bribing system and vote-locking mechanism.
The protocol has managed to attract over $400m in TVL and gain control of the largest share of veBAL (34.9%) since its launch in early 2022.
Users of Balancer provide liquidity and earn 50% of the trading fees in the pool and some additional BAL rewards. The remaining trading fees are sent to the Balancer treasury (12.5%) and the veBAL locking contract (37.5%) for distribution to veBAL holders.
Users can take their BAL tokens and provide liquidity in the 80/20 BAL/ETH pool, which can then be locked for 1-52 weeks for veBAL. This veBAL is what directs the emissions of BAL in the Balancer / Aura ecosystem and it also generates yield boosting effects.
Aura, as a yield aggregator, takes this one step further, accepting user deposits of BAL and max locking it on Balancer for veBAL. In receipt, users receive a liquid wrapper for veBAL, called auraBAL, which is minted 1:1. The Aura token directs the protocol's share of veBAL and thus BAL emissions.
Balancer LPs come to Aura and stake their BPT (Balancer LP tokens) to earn boosted yield from Aura’s veBAL share. Instead of users putting their BPT token into the Balancer gauge for veBAL, Aura does it on their behalf. Aura gives 75% of the BAL rewards to users and some additional AURA tokens. Users get the benefit of the large veBAL share that Aura has accumulated and earn boosted yields
The AURA token can be locked to receive protocol fees and voting power in the direction of the Aura protocol share of veBAL.
Aura was very successful in accumulating veBAL, as it was the only yield aggregator built on top of Balancer. Further, it had strong backing from DeFi natives as it was built by 0xMaki, well-known for his contributions to Layer Zero and Sushi, among other projects.
PlutusDAO is a governance aggregator that enables users to accumulate governance power, while maximizing liquidity in the Arbitrum ecosystem. The protocol currently exists only on the Arbitrum L2 and aims to be the home for exotic liquid-wrapped tokens as well as a governance blackhole for protocols utilizing vote-escrowed tokenomics.
Alongside its governance aggregation products, Plutus offers a vaults product line focused on optimizing yield and developing Arbitrum-native DeFi building blocks. Currently, Plutus has one active vault product, developed in partnership with GMX's GLP liquidity solution.
Plutus currently offers two main product categories:
1. plsAssets for governance aggregation and liquid wrapping services
2. plvAssets, which are vault products designed to optimize rewards and convenience for users. Currently the only plvAsset supported is GMXs GLP vault which works via auto-compounding of a user's GLP position.
Plutus currently supports ARB, RDNT, DPX, JONES and SPA for their governance aggregation and liquid wrapping products. A user deposits these tokens and Plutus max locks them, in return users receive a liquid wrapped derivative of their assets (e.g., plsARB). These derivatives benefit from the higher yields (on top of the boosted yields) since staked assets receive inflationary PLS emissions and a cut of Plutus DAO’s productive treasury revenues. Therefore, each staked asset always yields a higher and a more liquid exit than the max-locked native asset.
Due to the inherit nature of smart contracts, Convergence (like all decentralized applications) faces the risk of exploitation. Convergence is an aggregator built on top of other protocols, who are also built on top of other protocols; therefore Convergence inherits several layers of smart contract risk. An exploit of the underlying liquidity pools wouldn't necessarily be the end of Convergence but it has the potential to greatly impact Convergence’s growth and adoption. The team hired Halborn to complete an audit for the protocol’s smart contract, which can be found here.
As reflected in the Halborn Audit, the protocol is designed in such a manner that almost all the components of the mechanisms are controlled via a multisig wallet. There is a huge trust assumption with an anonymous team as all the deposits will route through the multisig wallet controlled by the team.
The team is fully anonymous / pseudonymous. While this has worked out for some projects, especially given the currently regulatory climate, it typically means the team are able to walk away from the project without ramification. We saw that throughout 2022 where many anonymous teams wound down their projects or slowly stopped contributing, at the direct expense of users and token holders.
The complexity of the Convergence flywheel and the mechanics of the three unique, locked tokens in the Convergence ecosystem may be a hindrance to adoption as users either fail to understand the system or don’t wish to spend time figuring it out. In crypto, the simpler to understand dApps tend to be successful.
Convergence faces strong competition in the yield aggregation space from incumbents such as Convex and Aura. These protocols have strong backing from DeFi natives and have TVL’s orders of magnitudes higher. While Convergence currently aggregates pools that these incumbents do not, it’s not inconceivable that these more established projects could expand to cover the same products that Convergences does. In this scenario, it is likely that Convergence will rapidly lose market share.
Convergence faces regulatory risk, like all of DeFi. The underlying mechanics of the aggregation and distribution of yield could break US securities law.
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