The Weekly Yax #19: Farming Convex
The Weekly Yax is the easiest way to keep up with the yAxis Project. Every Sunday, we highlight major news and developments, alongside key takeaways from the week’s episode of Ya Herd?
Major News & Developments
- August 27th marked the 19th episode of Ya Herd? and its podcast format.
- August 28th yAxis closed a pull request for the Great Harvest Merkle Distributor.
- August 28th yAxis redeployed v3 on Kovan.
Ya Herd? Week #19 Key Takeaways
This week’s episode was motivated by yAxis’s prioritization of Convex Finance yield farming strategies in v3. The recent Convex Finance strategy pull request conveys progress towards that vision. As a result, yAxis utilized this week’s Ya Herd? as an opportunity to provide a brief overview of Convex Finance, explain why yAxis plans to farm it, and how farming Convex will help accrue value to the yAxis Project.
Overview of Convex Finance
Convex Finance is built on top of Curve Finance, which, as we discussed in the Week 8 DeFi Building Blocks edition, specializes in swaps between pegged assets in “like-for-like” pools, most famously in its 3Pool of USDC | USDT | DAI. Curve’s AMM technology concentrates liquidity around the peg for low-slippage swaps between these “like-for-like” assets, allowing users to provide liquidity and earn yield with minimal impermanent loss risk. Liquidity providers generate yield from the fees generated by these swaps, in addition to CRV rewards — with the option to boost CRV rewards via Curve’s Gauge system by staking and locking up CRV.
Convex Finance enters the chat.
Convex democratizes access to the CRV boost by allowing liquidity providers to deposit through a “pooled boost” and removing the need for each LP to buy and lockup CRV of their own. This value proposition has enabled Convex Finance to garner $7 billion in TVL in less than six months. Convex’s governance token, CVX, will serve as the mechanism for governing the veCRV votes that the platform houses, allowing holders to influence the allocation of CRV rewards in a way that benefits Convex and its userbase.
Why yAxis Plans to Farm Convex
The key advantage Convex offers yAxis, as discussed above, is access to Curve’s boost without the need to hold and lock CRV. Holding and locking CRV presents a two-fold issue for yAxis: (1) yAxis can’t take principal risk with user funds by holding an asset other than what was deposited (2) yAxis needs to retain instant liquidity of user funds. Convex solves that structural misalignment and creates seamless boost accessibility, enabling yAxis to offer much higher base yield by earning additional CRV.
CVX rewards are added atop the boosted CRV rewards to further improve the base yield yAxis is able to offer. In addition to increasing base yield, CVX rewards also create the optionality for yAxis to hold onto some of the CVX farmed as part of its treasury diversification strategy. As an added co-benefit, yAxis could maximize the utility of CVX to vote to direct emissions to pools that benefit yAxis and its users — more on this in Week 15 Treasury Diversification edition.
In addition to the advantages Convex Finance offers yAxis, fundamental components of Convex’s design create room for yAxis to provide value for users. For starters, Convex doesn’t autocompound. With LPs earning yield in the form of three or more tokens, yAxis can provide the service of pooling capital with other depositors to improve gas efficiency and enable more frequent compounding than a user could achieve on their own, thus resulting in greater realized yield. yAxis also brings its security credentials and fund oversight to the table, which combined with efficient autocompounding, provides a more “set and forget” Convex UX.
Furthermore, Convex offers a wide variety of pegged USD, BTC, and ETH pools, all of which offer different yields, exhibit significant yield variability, and present unique peg risk profiles. As a meta-aggregator, yAxis has the flexibility to run multiple strategies for the same asset, creating a “composite” Convex yield — helping to mitigate yield variability, simplify the UX, and diversify risk. A parallel to this value proposition would be ETFs in traditional finance, a type of product that has exploded in traction over the last decade. This comparison further demonstrates the ability of yAxis’s fund management to resonate with institutional capital.
Accruing Value to yAxis
Farming Convex Finance enables yAxis to offer higher base yield and therefore support more TVL, increasing Project visibility and prominence within the DeFi ecosystem. Additionally, higher base yield positions yAxis to offer attractive returns that are less reliant on YAXIS rewards, preventing sell pressure and allowing yAxis to implement an emissions strategy that scales alongside TVL — as discussed in the Week 13 Emissions Strategy edition. Lastly, a significant portion of the yield offered by Convex Finance is in the form of governance token. Proportionately more governance token farmed combined with greater overall TVL should vastly increase yAxis’s revenue generation.
For value accrual context, we look to yAxis’s peers in the yield aggregation market vertical that have recently implemented Convex strategies. Notably, Badger Finance launched five BTC Convex-powered vaults on June 24th. Since that time, BADGER has appreciated roughly 55% vs. ETH (as compared to down over 60% vs. ETH in the preceding two months) and 135% vs. USD.
It’s clear that farming Convex has the potential to catalyze an inflection point for the yAxis Project. While the plan is to launch the v3 Canonical Vaults initially in a guarded launch with the base curve strategy to minimize risk, given the massive codebase change from v2 to v3, the yAxis Team is excited to implement the recently written Convex strategy quickly thereafter and continue to roll out more Convex strategies over the coming months.
yAxis Project Stats of the Week
- MetaVault TVL $5.1 million.
- YAXIS staking 33% APY (28% APR) and LP 1218% APY (288% APR).
- 86% of the YAXIS circulating supply is staked.
Community Content Spotlight
This week’s community content spotlight goes out to all the active community members who help to make the yAxis Project such a robust, yet light-hearted organization. Whether it’s mobilizing quickly to provide insightful commentary on serious matters that inform project direction, such as the v3 Launch Strategy Discussion, or creating a meme query regarding the unrelenting barrage of questions about the Great Harvest, the yAxis community never fails to deliver. Thank you for making yAxis such an exciting place to be each and every day.
Join Us: Bounties & Jobs
Coordinated by the yAxis Champions Programme, the yAxis Bounty Board lists requests for proposals (RFPs), where community members can respond to specific Project needs and receive compensation upon task completion. See the current opportunities below and check the Bounty Board frequently as more opportunities will be added over time, such as the recently added Convex Development Bounty, which led to this Github Pull Request.
If none of the current opportunities appeal to you, but you would still like to contribute, reach out to email@example.com. You have the opportunity to shape the next era of yAxis.
That concludes the nineteenth edition of The Weekly Yax. Thank you for reading and looking forward to many more!
Onward and upward, Herd!