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How to Convex, which Convexes a negative premium to cvxCRV?

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Recently, cvxCRV, a pledge issued by Convex, which held the largest number of VecrVs, also showed a negative premium of about 10% under the supply-demand imbalance in the bear market.

原文标题：《熊市之下 cvxCRV 出现负溢价，Convex 为救场向 cvxCRV 分配更多权益》

Original source: Panews

The token model of Curve is very representative. Various aggregators and stablecoin project parties lock CRV tokens into VecrVs competitively to ensure that mine pools related to their own interests get higher CRV mining rewards, resulting in "Curve War".

However, locking a CRV into a veCRV is one-way and requires waiting up to four years for redemption. Recently, cvxCRV, a pledge issued by Convex, which held the largest number of VecrVs, also showed a negative premium of about 10% under the supply-demand imbalance in the bear market.

Convex VecrVs held 50.7% of the total, and cvxCRV had the highest negative premium

Curve's primary goal in designing native token CRVS is to encourage liquidity on the Curve platform and to involve as many users as possible in protocol governance. Curve allows the native token CRV to be locked into a Vote-Escrowed CRV (veCRV) to obtain three interests:

Share 50% of the transaction fee, which will be used to purchase 3CRVs, or LP tokens from TriPool, to be distributed to veCRV holders. Obtaining the governance voting rights of Curve can determine the distribution of CRV liquidity mining incentives among different mining pools. Increased my CRV mining bonus on Curve by up to 2.5 times.

Because the mining reward can be increased, users who carry out liquidity mining on Curve need to pledge CRV to improve their mining reward. But VecrVs are not transferable, and users' needs may change, which creates a market for aggregator class projects that help users mine. Liquidity providers do not have to pledge CRV tokens themselves, and can earn higher rewards than if they mined the Curve directly.

By the afternoon of January 6, 2023, as can be seen from the blockchain browser, the contract addresses that hold the most VecrVs are Convex, Yearn and Stake DAO, which respectively hold 50.7%, 7.9% and 4.1% of the total volume of VecRVs. It holds 62.7% of the total. Convex holds more than 50% of VecrVs, suggesting that it is now firmly in the lead in the Curve War.

熊市之下 cvxCRV 出现负溢价，Convex 为救场向 cvxCRV 分配更多权益

After pledging CRV tokens through these projects, although they cannot be redeemed, these projects issue liquidity pledge vouchers to users, namely cvxCRV, yCRV, sdCRV of Yearn and Stake DAO, which can be traded in the secondary market.

Currently, the conversion ratio of cvxCRV/CRV, yCRV/CRV, and sdCRV/CRV is 0.917, 0.973, and 0.992, respectively. Convex, which has a larger market share, has a higher negative premium for the CVXCRVS it issues. It should be noted that there are 1:1 CRV tokens at the bottom of the issuance of these liquidity pledge vouchers, and there is no lack of collateral, but there is a negative premium due to the liquidity and supply and demand reasons.

CRVS have been criticized for high inflation and low income

In addition to the problem that the pledged CRVS cannot be redeemed, the high inflation and low income of CRVS are also criticized by investors, which may also be one of the reasons for the lack of confidence of the pledged CVXCRVS.

According toCurve's official unlock planFor now, due to the unlocking of core team and community tokens, CRV tokens will maintain a high inflation rate until the core team tokens are released in August 2024. For the whole of 2023, inflation will be about 27.2 percent.

熊市之下 cvxCRV 出现负溢价，Convex 为救场向 cvxCRV 分配更多权益

Curve has the highest liquidity among the DEX, but the volume is not high, so the revenue from CRVS is not high. On the main Ethereum network, for example, Curve has $3.45 billion in liquidity and $257 million in transactions over the last 24 hours; Uniswap V3 had liquidity of $2.98 billion and trading volume of $420 million in the last 24 hours. With less liquidity, Uniswap is trading at a higher volume, and Uniswap is mostly stablecoin transactions with higher transaction fees.

According to Token Terminal data, some common valuation indicators of Curve also performed poorly, with P/S at 1286.7 and P/F at 643.4.

Convex's response: it will use 2 per cent of revenues to buy back cvxCRV

According to Convex's design, the liquidity provider should be able to secure higher returns without having to pledge CRVS; CVX pledgor can obtain 5% of the agreement fee income, and the accumulated veCRV increases gradually, which is conducive to the long-term development of the agreement. Users of Convex, which has secured the CRV to veCRV, shall be entitled to 10% of its fees, in addition to its existing rights, and shall be able to sell cvxCRV on the secondary market at any time. This mechanism can achieve a win-win situation among liquidity providers, CVX pledge and CRV pledge.

However, the exchange ratio of cvxCRV/CRV shows a negative premium of more than 10% in extreme cases, which indicates that the current demand of cvxCRV is insufficient.

Convex-announced on January 2nd that it had rolled out a series of measures to increase the rights of cvxCRV through a governance ballot.

1. Modify the fee structure by adding 2% cvxCRV wrapper fee for repurchasing cvxCRV from the open market.

熊市之下 cvxCRV 出现负溢价，Convex 为救场向 cvxCRV 分配更多权益

2. To motivate the cvxCRV pledgor, the Convex will transfer a portion of the existing CVX release to the pledgor of the cvxCRV.

3. Update the cvxCRV/CRV liquidity pool to enable some new functions through the latest version of the factory pool (using internal price prognostic machine), and the existing cvxCRV/CRV pool rewards will be redirected to the new liquidity pool.

4. With the update of wrapper contract, the pledged cvxCRV can be transferred, which means it may be used as collateral in other projects. To adjust the way of reward harvesting, the pledge of cvxCRV can choose to receive only CRV, CVX or 3CRV.

In terms of the distribution of the agreed income, the new distribution mode mainly assigns part of the incentives originally allocated to the pledgees of the Convex governance token CVX to the stakeholders of CRV.

There was no change in the distribution of agreed revenues to liquidity providers, who still received 87% of agreed revenues. However, according to the relevant expression, concessions may be required for the cvxCRV pledge on the distribution of CVX in the future.

summary

The maximum value of the cvxCRV issued by Convex is over 10%. After that, the Convex Convex will favour the pleditors of cvxCRV in the distribution of future returns, so that it will repurchase cvxCRV and allocate more CVX tokens to the pleditors.

In addition to liquidity reasons, the high inflation and low income of the CRV may also be contributing to the loss of confidence of cvxCRV holders, with inflation of about 27.2% in 2023. According to the current data, P/S of Curve is 1286.7.