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Convex Finance ‘Unlockening’ a Bellwether for Crypto Investor Attitudes

Crypto investor sentiment faces a new test as $100 million of tokens for the Convex protocol will unlock simultaneously Wednesday night. 

Token holders of the asset management cryptocurrency face a dilemma: sell their coins at a steep loss or hold in the hope CVX’s price will rebound.

The tokens were locked in March after a bug came to light. 

Convex’s price is likely to slip as unlocked tokens hit the market, industry participants said. Experts say the extent of the slippage will reflect investor sentiment — and perhaps even indicate whether the crypto market is nearing a nadir at last. 

Convex launched its smart contract for the second time in March after the bug was patched. A mass of investors immediately locked their CVX tokens in the new contracts for a coded-in 16 weeks, and a sizable tranche of tokens — around 30% of total supply — will unlock Wednesday at 8 p.m. ET. 

The price of CVX has cratered from nearly $40 in April to under $4. The flood of tokens ought to make it fall further. 

“Anytime you have a decent unlock, not every investor is going to liquidate, but enough are that the price performance is generally negative,” David Martin, product manager at the crypto trading platform FalconX, told Blockworks.

Even a small amount of selling pressure or short interest could tank CVX’s price. The hedge fund Ouroboros Capital, for example, said on Twitter that if just 250,000 of the 27 million CVX being unlocked are sold, the price would likely dive 10%.

8/N: CVX is so illiquid right now. Thanks for whales like Analytico unstaking his LP and then locking it (more on this later). Just $1mn of CVX sell will pummel price by 10%. How keen would you be to sell if you are already down 80% and have to take 10-30% slippages? pic.twitter.com/tZ1nn5yo7B

— Ouroboros Capital (@0xroborosCap) June 28, 2022

But selling interest appears limited ahead of the unlockening. Martin points out Convex’s funding rate is much smaller than the NFT-focused blockchain Flow’s was ahead of its own unlock event year, indicating investors do not believe CVX’s price can fall much further.

As actors throughout the crypto industry face liquidity crunches, however, some may sell their newly unlocked CVX out of necessity.

“If [a fund] is in a credit crunch internally … [it] might sell something that just became liquid to continue with operating expenses,” Martin said.

CVX is popular among DAOs, with six DeFi (decentralized finance) organizations each holding more than a million tokens. 

With a market cap of $230 million, Convex alone is unlikely to shift the crypto market. But the unlockening could indicate whether investors hope to exit their crypto positions at all costs or plan to stay for the long haul. 

“If convex trades up or flat or only slightly down, it shows that capitulation may have stopped. If the price significantly declines, people are puking, for lack of a better word,” Martin said. 

Major Convex unlocks will continue throughout the summer, with an additional 15 million tokens unlocking in July and August. Tokens belonging to embattled DeFi projects Wonderland and Terra unlock August 4. 

Convex did not immediately return a request for comment.


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