Convex liquidity declines amid imminent $126 million token unlock

Quick Take

  • There is a large amount of Convex tokens that are about to be unlocked.
  • This unlocking process is happening amid limited liquidity for swapping CVX to ether (ETH).

Over a quarter of the supply of Convex Finance (CVX) is about to be unlocked, spurring fears about a further price decline. This comes as the amount of liquidity on the platform — which can help absorb selling pressure — has shrunk considerably.

Right now, Curve's main pool for CVX tokens is balanced. Data from Curve shows there's currently about $11.2 million of wrapped ETH available as potential liquidity, alongside over $11.8 million of CVX tokens.

But come June 30, about 27.4 million CVX coins worth over $126 million will be unlocked, according to this Dune Analytics dashboard. This figure amounts to over 27% of the total Convex token supply.

These unlocked tokens are the first of 16 unlocks for vote-locked CVX tokens that will happen once a week from June 30. In total, 52.2 million CVX tokens will be unlocked.

Convex is a DeFi protocol built on top of Curve (CRV) which is a decentralized exchange for token swaps. Convex provides a platform for CRV holders to stake the token and compound rewards from Curve.

CVX holders can lock their coins for voting on which pools to incentivize liquidity for on Curve. As such, stablecoin issuers like Frax Finance and other DeFi protocols tend to own the most CVX tokens. Other projects can also bribe holders of these vote-locked Convex tokens to vote for more yield on their liquidity pools. Vote-locked Convex tokens cannot be unlocked for a minimum of 16 weeks.

It is not a given that this unlocking process will lead to further selling pressure for CVX. At its current price of $4.82, Convex is down more than 90% of its all-time high of $60 achieved in January. As such, holders may choose to re-lock their coins and keep their Curve voting power.

Should significant sales of Convex happen, then the Curve pool for CVX (which is currently still balanced) may become unbalanced in the short term, as the liquidity for swaps evaporates.

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