The CEX Stack is Recession Proof
Convex, Ethereum, and gm(X) produce steady cash flows
CEX
Memes stick, and after I tweeted the ironic “CEX” portfolio yesterday, I decided to expound upon why I believe it’s a rock solid crypto portfolio to weather the current and upcoming global financial tumult.
I hold 70% ETH, 17.5% CVX, 12.5% GMX in my current portfolio, which is by no means financial advice or optimal weighting, but works for my risk tolerance, conviction, and goals.
Recession Risk
As the Federal Reserve raises interest rates to battle inflation, the likelihood of a recession is increasing. Asset growth in a recession is difficult to find, and as an asset class, crypto is venturing into unknown territory since Bitcoin was born following the previous financial crisis. Crypto has solid arguments for why it’s an improvement over legacy money and financial systems, but has behaved and is perceived by traditional finance as risky/high beta relative to the stock market.
For those looking to invest even further out on the risk curve during an economic contraction, it helps to find assets that generate yield, have strong network effects, and high probability growth catalysts. Growth starts with a shared narrative, and this year the Ethereum Merge, the switch to Proof of Stake, is on. Nobody has enough ETH. Part of the CEX Stack thesis is a ‘rising tide lifts all boats,’ but there are specific reasons why the ‘C’ and ‘X’ are leveraged ‘E’ plays too.
Narratives
The “C” Narrative - Convex is at the epicenter of the Stablecoin wars. Stablecoins are the lifeblood of DeFi and the gateway drug to crypto for a lot of investors who can’t stomach price volatility.
The “E” Narrative - The Merge.
The “X” Narrative - Layer 2 ‘22, and specifically, Arbitrum.
GMX is at the center of Arbitrum, and is now ahead of both Sushi and Uniswap in terms of the number of smart contract interactions.
Sustainable Competitive Advantage
Each asset and protocol has different sustainable competitive advantages.
Referred to as “The Kingmaker,” Convex controls Curve gauge voting. This is due to the enormous amount of locked CRV (veCRV) that is held by Convex (44% of locked CRV), and directed by vote locked CVX (vlCVX) holders every two weeks. The way to stablecoin liquidity is through Convex, and Votium bribes. vlCVX voters exchange Curve gauge votes for token bribes from protocols looking to deepen liquidity and increase yield for their Curve pools. While the Curve wars rage on, Convex is the battlefield. Do Kwon and the Terra army may think the Curve wars are over with 4pool, and their+FRAX’s enormous amount of locked CVX, but the real winners may be vlCVX holders who will be the beneficiaries of huge bribes.
1/ Introducing the 4pool - between @fraxfinance, TFL and @redactedcartel we pretty much own all the cvx UST-FRAX-USDC-USDT Curve wars are over, all emissions are going to the 4poolintroducing the 4pool: @terra_money 🤝 @fraxfinance & a kickass partnership with the flappers: @terra_money 🤝 @redactedcartel https://t.co/CgDDvRUwGp
zon @ItsAlwaysZonny
Ethereum
Ethereum continues to move towards improving the Blockchain Trilemma with better decentralization, security, and scalability. However, Ethereum’s moat is the developer community. This is the most organic developer community in the space.
Source https://cryptohayes.medium.com/five-ducking-digits-cd92a7ab72ce Ethereum is mere months away from the Merge, when the blockchain switches to a proof of stake (PoS) consensus mechanism. Ethereum’s decentralization is two orders of magnitude more decentralized, in terms of the number of validator nodes, than the next closest chain. As the $ETH supply is reduced from fee burning and the end of Proof of Work mining, price should continue to increase making it cost prohibitive to 51% attack the network. Ethereum scaling with Optimistic Rollups and zk Rollups is providing the best user experience in terms of speed and low cost.
Source blockworks.com
Innovation and ownership. GMX’s tokenomics, GLP as the liquidity pool/counter-party for traders, and their ability to ship are best in DeFi. The relationship the development team has with GMX investor and users is symbiotic. The dev team are extremely technical, but marketing is mostly organic and content is generated by the community. A good example of the community ownership is the GMX Blueberry Club, now with over 3,000 members, a revenue generating treasury, and ambitious roadmap.
The team nor the investors are beholden to the other or any other party (e.g. VCs), but both work together to improve the trading experience, protocol development strategy, ecosystem development, and value capture for the token. Don’t take my word for GMX’s growth, just check the chain and compare the data with CEX OI since the start of the November, ‘21 downtrend. GMX has increased users, OI, liquidity, and token price while the rest of the trading platforms have contracted. GMX Stats Dashboard
Sustainable yield
Convex - Bi-weekly bribes. As Curve stablecoin pools get more competitive, volatile pair pools expand, and “sidechain/Layer 2” gauges increase, it will be harder for protocols to get deep liquidity in their pool without additional incentives. That’s where Votium bribes come in for vlCVX holders. Every two weeks, vlCVX holders allocate their share of Convex’s veCRV to the available pools through a Snapshot vote. The majority of these votes are determined by:
which pools are providing the largest bribes.
which DAOs/protocols hold a significant share of vlCVX (they vote for their own pool).
Source llama.airforce
Source llama.airforce Locked CVX has yielded nearly 50% since bribes began. Over $20m in bribes were doled out last week to vlCVX holders, and that number will continue to climb ensuring sustainable yield for CVX lockers.
Ethereum - Staking yields are decreasing due to the influx of staked ETH, but once the Merge is complete, they will 2-3X (read the article to find out why). Staked Ethereum derivatives are growing quickly as they are now accepted forms of collateral and liquidity is being incentivized by DEX’s. It’s possible staked ETH derivatives become the standard base asset once the Merge is complete, creating a very capital efficient/superfluid collateral.
GMX - GMX is an extremely capital efficient DEX. Protocol fees and token emissions are shared with GMX stakers and GLP holders (liquidity providers who act as the counter-party for traders). GMX generates fees from funding, opening/closing positions, liquidations, and swaps, all of which are shared by GLP holders and GMX stakers. Fees are paid out in ETH and escrowed GMX tokens (esGMX), which is a genius token. esGMX creates loyalty amongst investors who can stake their esGMX rewards for additional yield, or vest them over one year by holding a large enough GMX or GLP position. Consistent staking yields will continue through bear and bull markets due to the growth in decentralized perps trading
That’s basically it, but I decided to challenge myself and come up with a ton of C, E, and X words to describe these assets because it oozes memetic energy. We like the CEX!
C:
Composability
Censorship resistant
Collateral
ETH - Everywhere
CVX - Rari Fuse
GMX - Vesta Finance
Community
Credibility - GMX and Convex have been thoroughly audited without a single major exploit
E:
Ecosystem exposure across projects and chains
Curve deployed across almost every EVM compatible chain and is likely heading to Aurora (NEAR) next
GMX Ethereum L2 and Avalanche. Partnered with Synapse so very likely they deploy on other EVM compatible chains in the future
Ecosystem partnerships
Yearn, Badger, and other yield aggregators utilize Convex’s maximum CRV emissions boost and CVX emissions to return the highest possible stablecoin yields to their protocols’ LPs and token holders.
DAOs, stablecoin protocols, entire L1 blockchains (Terra and Waves), and new protocols are continuously buying and locking CVX to control CRV emissions or encourage liquidity. This will continue to be a trend as Curve v2 Factory pools increase. Here’s a full list of the DAOs that own and vote lock their CVX.
Source https://daocvx.com/leaderboard/ Curvance and Lend Flare are two new protocols that are building money markets around the Curve LP tokens, and converting to yield bearing collateral by staking them in Convex. These new primitives will surely lead to additional stablecoin liquidity entering the ecosystem and better capital efficiency for LPs.
Epicenter of DeFi, web3, and liquidity
Ethereum is the center of an ever thickening and lengthening web in the blockchain universe. It’s the hub of innovation, liquidity, smart contract history, credible neutrality, creativity (NFTs), etc etc etc.
Convex supercharged Curve, which is the epicenter of DeFi liquidity and yield. Stablecoins are the gateway crypto for many skeptics who can’t stomach the price volatility. A capital efficient stablecoin only portfolio, managed by Curve and Convex, will outperform most major stock indexes. Curve’s growth outside low feee/slippage stable swaps has lead to Factory V2 volatile asset pools, curve gauges for funding public goods, and we have only barely scratched the surface of this key primitive’s capabilities.
Source defillama.com
Emissions
While liquidity can be thin for Convex and GMX due to a high percentage of staked or locked tokens, investors don’t have to worry about private sale or VC token unlock dumping.
13.3% of CVX supply has been vesting for Team/Investors. These tokens will be fully vested after 1 year, which is just a couple months away.
1.8% of GMX supply vests for the Team over 2 years. Can you imagine the investors banging down X’s door to get access to some of the 1 million GMX tokens reserved for marketing, partnerships and community developers?
Ethereum’s emissions are dropping by ~87% once the Merge is complete, and it’s likely ETH becomes a deflationary asset. $ETH will be very scarce, and is ultra sound money.
Engagement
The Convex and GMX protocols require active participation in the ecosystem in order to maximize the benefits provided by the token. GMX and GLP rewards claiming/compounding/vesting, vlCVX voting, locking, stablecoin pool management for maximum yield. Convex and GMX users are some of the most well informed in DeFi because they pay attention to the market, the players, and are early to opportunities.
Of course all transactions require ETH🔥, regardless of L1 or L2. As Ethereum’s userbase grows, buy pressure and burns will increase.
Source glassnode.com
X:
X (cross) chain
The Ethereum Virtual Machine (EVM) is being run on nearly every Layer 1 blockchain, and competitive and fast liquidity bridges exist allowing users to quickly move funds back and forth. Curve, GMX, and wrapped ETH are present on multiple chains which allows investors to get immediate exposure to new ecosystem opportunities and oftentimes, incentives. Crosschain swaps are an exciting development, and the aforementioned DApps are likely going to receive plenty of trade routing. The ERC20 token standard is also ubiquitous across the multichain landscape so there is plentiful liquidity for Curve and GMX instances outside Ethereum.
Stablecoin ecosystem partners like Terra ($UST) and Frax ($FXS) are spreading liquidity across Curve’s various blockchain instances and rewarding LPs. Curve gauges will soon be enabled on side chains/L2s and vlCVX holders can delegate votes (and CRV emissions) outside Ethereum L1.
GMX has deployed its primary instance on Ethereum’s Arbitrum L2, which will soon be getting a major performance upgrade, Nitro. The DApp is also on Avalanche and will likely continue building on other chains to give users the best trading experience for their favorite tokens.
deX
The best developer in the space is building a platform, not just a perpetuals exchange. GMX already offers no slippage swaps due to the deep GLP liquidity, dynamic fees, and has been integrated across yield aggregators to receive trade routing. As GLP depth increases, swap volumes should as well.
The release of the X4 Medium paper confirms Xdev_10 is building perhaps the most flexible and multipurpose DEX ever. Look out Uniswap, Curve, Balancer, Sushi, and Solidly!
indeX (GLP)
GLP is by far the best crypto bull index available. It’s a weighted blend of macro crypto assets and stablecoins, and is a low beta play against BTC. The GLP index acts as liquidity for traders and pays fees + escrowed GMX tokens that can either generate additional yield or be vested for liquid GMX. GLP yield fluctuates between 45-100% APR depending on the size of the pool, trading volume, and GMX price!
eXtras
Airdrops galore, especially for vlCVX holders. A potential Arbitrum token will be a massive windfall for GMX users as well.
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