How does Convex Finance work?
Convex Finance is a decentralized finance (DeFi) protocol that allows users to earn yield on their crypto assets.
It is built on the Ethereum blockchain and uses a variety of smart contracts to facilitate the lending, borrowing, and staking of digital assets. The core feature of Convex Finance is its automated market maker (AMM) pool. This pool allows users to deposit their crypto assets into the pool and receive liquidity rewards in return.
The rewards are generated from the trading fees collected by the AMM when users trade against each other in the pool. The liquidity rewards are distributed among all participants in proportion to their share of the total liquidity in the pool. In addition to providing liquidity rewards, Convex Finance also offers staking services for its native token, CVX.
Users can stake their CVX tokens in order to earn additional yield on their holdings. The staking rewards are distributed among all participants in proportion to their share of the total staked CVX tokens. Finally, Convex Finance also provides a lending platform that allows users to borrow or lend digital assets with interest rates determined by an algorithmically set interest rate curve.
This curve is based on market demand and supply for different types of digital assets and adjusts accordingly over time.
