Introduction: How does Curve reward its liquidity providers?
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🦋 Understanding the Curve rewards scheme is crucial to understand Curve and Convex
relationship. To put it simply, the more you provide stablecoins to Curve, the more you get CRV tokens and the more you get CRV tokens, the more you can get rewards on Curve!
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- Curve Finance is a liquidity aggregator: a digital ‘place’ where users exchange
stablecoins with low fees and low slippage
- Curve Finance issues Curve tokens (CRV) to its liquidity providers as a reward and these
tokens are convertible into veCRVs (vote-escrowed CRV)
- veCRVs can be used for boosting rewards, earning trading fees and receiving airdrops
among other options
- The more veCRVs you own, the more you can boost the CRV rewards from your
liquidity pool, as high as 2.5x. It’s a virtuous circle! However, reaching this maximum
needs a lot of veCRVs and is consequently hard to achieve, especially for small liquidity
providers
How does Convex help CRV holders/Liquidity providers to boost their Curve rewards?
Convex is an intermediary between CRV holders/Liquidity providers on one hand and Curve
on the other hand. Convex users pool their CRV tokens together to maximize rewards
whatever their size! In other words, many CRV holders/Liquidity providers team up as one BIG
CRV holder through Convex and therefore are able to reach the maximum rewards.
- Convex lets CRV holders stake CRV tokens on Convex and gives them cvxCRV in return
- Then, Convex maximizes CRV rewards by aggregating these CRV tokens and profiting
from the virtuous circle
- Finally, Convex rewards cvxCRV holders giving them a claim to a boosted veCRV
rewards from Curve exchange they couldn’t have reached alone, a slice of Convex
platform earnings, CVX tokens and airdrops to veCRV holders
Why Convex is trying to get as many CRV tokens as possible?
For all these reasons mentioned above, Convex is involved in an ongoing battle for CRV tokens,
trying to lock up as much Curve liquidity as possible. Convex needs all the CRV tokens they can
get to keep increasing interest rates for Curve Liquidity providers/CRV holders and they are
not the only ones involved here