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CVX Token Sinks Due to Convex Finance Bug

Locked CVX tokens flooded the market following a smart contract exploit, pushing down prices.

Due to a smart contract problem, a team was compelled to prematurely release a large chunk of its token’s circulating supply, causing markets to become chaotic.

The Convex Finance team said on Twitter on Friday that it had redeployed the contracts responsible for the vote-locking governance mechanism following the discovery of a problem that would have rewarded certain users disproportionately.

“There were no instances of [the problem] being used prior to the new vlCVX contract being deployed. However, due to the immutability and non-upgradability of Convex Finance contracts, a new contract has to be launched. In the future, the new vlCVX contract will include a fix for this potential problem,” the team noted in a blog post.

It’s the latest illustration of the risky experimental nature of decentralised finance (DeFi), a $200 billion market characterised by supply shocks, smart contract faults, and unpredictable prices.

Convex’s vote locking mechanism is critical to the project’s token economy, which enables users to collect “bribes” from other protocols and direct liquidity transfers into another protocol, Curve Finance, but only if they lock their tokens for 16 weeks.

This technique is critical in the complicated, multifaceted war for voting power in another protocol’s token, Curve Finance’s CRV, often referred to as the “Curve Wars.”

Additionally, the vote locking mechanism is critical in managing CVX’s circulating supply, with more than 72% of the supply locked earlier on Friday. CVX traders that trade frequently keep an eye on important unlock dates, as they might cause supply and price changes.

As a result of the rapid, unexpected unlocking of millions of tokens on Friday, there was a big supply shock.

Prices decreased as much as 20% in a matter of hours, from $19.10 to $15.22.

However, significant holders have stepped in to bolster their positions, and many users have chosen to re-lock their tokens rather than sell, despite the macroeconomic uncertainty caused by the Ukraine crisis.

While prices have remained erratic throughout the afternoon, CVX is currently trading at $16.55, down 15% on the day.

 

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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