Convergence Explained: Decentralized Governance Hedge Fund
Convergence's purpose is to act as a governance black hole that mixes various mechanisms (gauges, staked assets tokenization, and bonding) from Curve, Convex, and OlympusDAO.
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Introduction
1. Convergence Finance Overview
2. Gauges
3. Bonding
4. Convergence Tokenomics Overview
5. Token metrics
6. Involved Players
Conclusion
Introduction
In our research on Curve, we extensively delved into the workings of Curve and the L2 Convex built on top of it. A common characteristic among all protocols in this ecosystem was their functionality primarily tied to Convex and Curve, either directly or through other protocols. However, since the period between 2020 and 2021, a noticeable trend towards aggregation emerged — both in the form of multi-chain/cross-chain functionality and the consolidation of multiple protocols under a unified interface. During this time, numerous projects adopting voted-escrow tokenomics, following the Curve model, surfaced, such as Velodrome, Solidly, and others. Previously, aggregation concerning these protocols usually revolved around voting protocols and the collection of fees/yields, streamlining user experiences by automating the process and eliminating unnecessary operational overhead.
What if we were to combine the functionalities of protocols utilizing ve-tokenomics and offer management of multiple protocols through a unified interface? What if we could implement this by leveraging proven mechanics and projects? It is precisely with this goal in mind that Convergence was conceived.
1. Convergence Finance Overview
The main objective of Convergence is to operate on top of other protocols, optimizing their capital efficiency while simultaneously simplifying their usage and participation in governance. Simply put, it allows for higher returns to stakeholders and liquidity providers. To achieve this, aggregation will be performed over foundational protocols, initially including Stake DAO, Convex and Conic Finance. It's worth noting that protocols without ve-tokenomics can also be aggregated. In the absence of ve-tokenomics, the core aggregation structure remains unchanged, requiring only minor adjustments.
Convergence emphasizes that aggregations should be relevant either in terms of capital efficiency or operational effectiveness. Even if Convergence deploys a "native" mechanism on top of each aggregation, the socialization process must always be justified by optimizing local returns/functionality. Thus, Convergence can be seen as a sort of L3, analogous to how Convex is a self-sufficient L2 built on top of Curve.
In essence, Convergence can provide functionalities such as:
Protocol aggregation and meta-governance management (management of foundational protocols), for example, atop Convex.
Independent governance operations and direct emissions similar to Curve.
Issuance of discounted $CVG through bonds, leveraging Olympus.
Launching a treasury and rewarding token holders.
The underlying asset(veCRV, veFXS, vlCNC, etc.) is locked permanently and a tokenised version of the asset - cvgAsstes - is issued instead. These are called "lockers" to which management authority is transferred from the underlying assets. Every three months, 80 per cent of treasury profits will be distributed to $CVG lockers in the form of $CRV , $CVX , $FXS , $SDT and $CNC. There will also be cvgAsset/Asset pools deployed on Curve.
Another distinguishing feature is that Convergence utilizes two oracles:
cvgOracle: A specialized universal on-chain oracle within the chain, used to calculate bond prices for Convergence bonds. This oracle can fetch bond asset prices from various AMMs (Uniswap V2 & V3, Sushiswap, Curve...) and is called each time a user buys a bond.
Chainlink Oracle: Used to verify the data from cvgOracle, preventing exploitation of Convergence bonds through attempts to manipulate underlying pools and allowing Convergence to function properly during periods of high price volatility. Whenever cvgOracle returns a price, it is compared with the corresponding asset price in the Chainlink price feed.
Additionally, an innovative aspect of Convergence's bonds is the tokenization of each position into an NFT (ERC-721 token). This enables users to freely transfer, trade, or sell their bonds even before the end of the lock-up period. Moreover, after the lock-up period expires, the NFT doesn't necessarily need to be burned, as it can be reused to open a new position, reducing protocol usage costs.
2. Gauges
Similar to Curve, Convergence incorporates Gauges. In brief, Gauges are essential for determining the amount of rewards a specific address will receive. In the case of Curve each liquidity pool has its own Gauge that measures who deposited liquidity and how much. Subsequently, based on the "weight," the Gauge allocates reward emissions across different pools and LPs within those pools.
Convergence's Gauges, however, have some distinctions: unlike Curve's Gauges, a user's stakes in the staking pools will be determined not by Gauges but directly by each staking pool contract. Various types of Gauges will also be implemented as new protocols are integrated, or if the DAO decides later to assign different types to the Gauges. Initially, all Gauges will be of the same type.
3. Bonding
Bonding offers users discounted prices for $CVG tokens in exchange for external assets such as $FRAX, $CRV, $wETH, and so on. The Convergence protocol utilizes these assets to expand its treasury and create protocol-owned liquidity (POL).
Convergence's bond system operates in rounds, each lasting for three months. Each round provides a discount for purchasing CVG tokens, with a cap of no more than $2,000,000. The bond program is currently planned for four and a half years (20 bond rounds), but the DAO will ultimately have the opportunity to vote on its extension (i.e., reducing the maximum purchase cap to $2,000,000 in CVG).
In simpler terms, Convergence builds its treasury by issuing bonds, which serve as the foundation of the protocol. This treasury continually generates income distributed among holders of ysCVG tokens and serves as a guarantee for maintaining multiple pools managed by the protocol.
4. Convergence Tokenomics Overview
The tokenomics of Convergence bears a striking resemblance to Convex but introduces several crucial features.
CVG: CVG serves as Convergence's governance token. By locking CVG, users can actively participate in both Convergence and the underlying protocols. Similar to Curve and Convex, CVG holders, acting as voters, can influence the calibration weights within Convergence and claim a share of the treasury bond yields.
Additionally, $CVG will be utilized to reward its holders with real yield paid out in various assets from the Curve ecosystem every three months. Through the use of a bond program instead of a traditional liquidity mining program, Convergence aims to own its liquidity and establish a treasury. This treasury will be fully utilized to generate income, with a significant portion distributed to $CVG stakers.
In summary, Convergence allows $CVG stakers to:
Participate in Convergence and manage underlying protocols.
Vote for calibration weights to guide CVG token inflation (similar to the mechanism in Convex, Curve, and other ve-protocols).
Claim shares in the treasury every 3 months.
Trade their locked positions.
Convergence Tokenomics employs several tokens:
veCVG: This token grants voting power through CVG lockup (similar to veCRV or vlCVX). Like Curve, the amount of veCVG received depends on how long a user locks CVG. Notably, locking votes will provide no incentive, as treasury bond yields will be redistributed among NFT holders as an incentive. Users with a minimum of 2500 veCVG (similar to Curve) can submit a CIP to Convergence DAO.
mgCVG: This is a new meta-governance primitive generated when a user decides to lock $CVG in veCVG. The amount of mgCVG received depends on the number of cycles the user locks their CVG, with each cycle lasting one week. For a lockup of 96 cycles, the user receives 1000 mgCVG for 1000 CVG, and for 48 cycles, they receive 500 for 1000.
mgCVG is a non-fungible token (NFT) and can be compared to vlCVX, a liquid version of locked CVX. However, mgCVG represents an increasing number of votes across multiple aggregated protocols. Thus, the quantity of mgCVG determines the voting power in governance across foundational protocols (Curve, Convergence, Convex and Stake DAO), with its voting power not diminishing like veCVG.
ysCVG is a token that can be created instead of or in addition to veCVG. ysCVG represents the distribution of $CVG income and is designed to allocate protocol rewards among stakeholders. Like mgCVG, ysCVG is an NFT token. ysCVG has no management rights and is considered a passive user's space. There is no need to constantly relock the position, as the ysCVG balance does not decrease over time.
By holding a locked position with ysCVG, users can claim various assets every 3 months. Additionally, 80% of treasury yields will be distributed among lockers based on their ysCVG balance, and rewards will be distributed in the form of $CRV, $CVX, $FXS, $CNC, and $SDT. Over time, this token list may be expanded. Moreover, the ZAP function allows rewards to be received in tokens such as ETH or stablecoins.
5. Token metrics
Total Supply: 150,000,000 CVG
40% - Staking rewards, 63,000,000 $CVG, Staking emissions are designed to last for a bit more than 400 years, as they will decrease by a factor √2 every 2 years. Emissions reductions will stop after 30 years, to keep the same tail emission until the total inflation has been released.
32% - Bonds, 45,000,000 $CVG, A maximum of 40,000,000 $CVG will be issued through the bonding program, for a minimum of 4 years and a half. The DAO may eventually increase the duration of the bonding program. An elastic reserve of 8,000,000 $CVG will remain unplanned in the bonding program, as an elastic reserve.
9,5% - DAO, 14,250,000 $CVG, Tokens are vested for 18 months, and will be released every 45 days. 712,500 $CVG (5%) will be available at launch, and used for various purposes (initial liquidity, community boost program, bribes etc.).
8,5% - Investors & 0,5%, Partners - 10,050,000 $CVG, tokens will be vested for 19 months, with a 120 days (4 months) cliff. 502,500 $CVG (5%) will be released post-cliff, and the remaining tokens will be linearly available, every 45 days. 3,450,000 $CVG are reserved for the community funding round. More details TBA.
8,5% - Team, 12,750,000 $CVG, tokens will be vested for 24 months, with a 180 days (6 months) cliff. 637,500 $CVG (5%) will be released post-cliff, and the remaining tokens will be linearly available, every 45 days.
1% - Airdrop, 1,500,000 $CVG are reserved for an airdrop. Convergence added some unsold IBO tokens to the 1,500,000 CVG initial distribution. And in the end a total of 1,683,000 CVG will be allocated.
These tokens will be redistributed between: top 103 Zealy leaderboard; Llama DAO and Llamas NFT holders; veSDT holders; cvgPepe holders and between users who will participate in onchain events such as blocking CVG, converting SDT to cvgSDT or staking sdTKN.
6. Involved Players
Stake DAO - we mentioned StakeDAO in a research about Curve, it's a true Curve Wars veteran. It is reported that Stake DAO will be the first protocol to cross the event horizon of Sagittarius_0x* and this is first Convergence’s liquid lockerIt's (with cvgSDT). Also worth noting that Convergence is built on top of the Stake DAO's Onlyboost infrastructure. The meta-governance functionality is implemented here: mgCVG holders will be able to exercise Convergence's veSDT voting power. Thus, Convergence provides a rewards-boosting platform on top of Stake DAO, allowing stakers and liquidity providers from various protocols to benefit from enhanced rewards through boost socialization.
Prisma Finance - LSDFi-protocol with support from Curve and Convex. Prisma will be added to the token cohort of ysCVG and ysCVG holders will be able to claim CRV, CVX, CNC, FXS, SDT and PRISMA every 3 months.
LeNFT - have created a cvgPEPE pool and gauge. veLE integration in Convergence is currently being investigated for both Governance and leNFT's DeFi integrations.
Paladin is an active participant in the Curve ecosystem and the creator of Warden, a protocol for Curve liquidity providers. Warden assists them in maximizing their profits and potentially earning a desired bonus of 2.5 times by borrowing veCRV tokens (provided by others). Paladin DAO is also actively involved in collaborating with Convergence.
It may also be noted Convex and Conic Finance - Convergence will work on top of all of these protocols.
Backers:
Convergence received contributions in the amount of $1.8m led by Dewhales Capital, Prismatic Capital, Kaizen DAO, NGC Ventures, County Capital, Blockhub DAO, Avangard Capital, Nomiks, and such angels as @CryptoGrills, @CryptoISFreedom, @0xPims, @Iknowwhyy, @catdogman22 and more. Backers can also include members of DeFi communities such as Stake DAO, Tokemak, Curvance, Paladin DAO, Aladdin DAO, Temple DAO, Moni, Alfa DAO.
Conclusion
Convergence represents another sophisticated element within the Curve ecosystem, diverging from the previous trajectory of multiplying entities. Instead, it focuses on uniting multiple protocols. Furthermore, Convergence's operational principles and architecture may give rise to even more intricate, composite strategies by leveraging protocols built on top of Curve.
Consider the potential of integrating with 0xConcentrator to enhance its aggregated yield from Convex positions. Alternatively, exploring a connection with another product from Aladdin DAO, such as Clever, which allows taking loans against deposited CVX, could enhance leverage efficiency.
These are just the strategies on the surface, relatively easy to see and comprehend. In this case, Convergence can be likened not just to Lego blocks composing the Curve ecosystem but to a switching node: insert one connector, add another connector, and observe the outcome! It's intriguing to see how sophisticated and interconnected the Curve ecosystem can become.
Convergence Finance links:
Website | Twitter | Discord | Whitepaper | Documentation | Medium