Introducing Delegated ve(3,3) — veToken Finance v2 — Part 1
An article about new token economics for veToken Finance, aiming to improve the liquidity of defi protocols that adopt voting escrow token economics. A long-term solution compared to Convex.
Background:
The competition of holding veCRV
If you are not family with voting escrow, please read here
Demand for CRV has been at the core of competition that has developed between several yield-optimizing protocols. Yearn and Convex are the major players and competitors in terms of CRV acquisition and deployment. Beyond the boosting of pools, control of CRV also translates to the governance of the Curve protocol and demand has increased to levels of significance.
Why did convex win the war?
Answer: CRV value separation between governance and yield + own governance token incentivize.
cvxCRV corresponds to a veCRV owned by Convex. They are locked in forever, but the liquidity available on cvxCRV/CRV allows depositors to close out their position. Convex utilizes cvxCRV to create a one-way flow of CRV to Convex, and provide regular users a boosted yield. while using vlCVX. Short term (~16 weeks) vote-locked CVX captures the value of veCRV governance rights.
The positive feedback loop Convex trying to build exhibits that when LPs from Curve enter the system, the amount of fees distributed to cvxCRV & vlCVX increases; this attracts more CRV to be locked into the system with their emission token economics model, which in turn allows the system to further boost yield on liquidity provided to Curve through Convex. Cycle repeats.
One of the key assumptions here is that cvxCRV-CRV will be close 1:1; CVX is actively working to maintain this, and one of their solutions is through the incentivization of the Convex governance token.
Opportunities:
First:
Liquidity and governance are the lifeblood of defi protocols, as more and more defi projects realize that ve-model tokenomics, which essentially merge two populations, LPs and governance token holders via token mechanics, is the right trend for them to move towards. There are an increasing number of defi projects that have started to adopt the ve-model.
Due to the nature of the ve-model structure, which encourages long-term locking, retail investors and ve-model token holders may suffer a short term liquidity loss. Because of this, as well as the diverse nature of ve-model projects existent in DeFi currently, there is a need for a generic DeFi protocol that builds on top of ve-model projects (to work as CVX to CRV) to increase their liquidity and demand of their governance tokens, while increasing the usability of their own products.
If you are a yield aggregator protocol like PICKLE, who has been adopting the ve-model for a year now, by integrated with veToken finance, the opportunity exists to increase the usability of yielding pools (in this case, referred to as pjar), while permanently locking PICKLE (also known as Dill), which will lead to a yield increase and repetitive positive cycle.
If you are a lending protocol like Hundred Finance, another protocol who recently adopted the ve-model, by integrating veToken, the opportunity exists to increase the supply and borrow rates, as well as increase fees, leading to more HUN locked, more supply and borrow activity, and thus the cycle repeats.
Second:
Learning from CVX and Andre’s Solidly exchange, in a long run viewpoint, in order to make such a protocol working with all ve-model projects in the long run, simply using governance token emission for liquidity mining is not a long term and scalable solution that supports ve-model projects as generic protocols.
Third:
veAsset-Asset liquidity pools (LPs) are critical to enable such protocols continuously hounding regular users to lock the veAsset permanently; LP pools should be protocol-owned liquidity to reduce the impact of mercenary liquidity providers carrying out short-term farming practices. This will help maintain the ratio between veAsset-Asset near (1:1), and at the same time will be used as a source of protocol revenue.
Competition:
We did not want to launch a Convex, votium or Bribe to compete with existing projects. As adopting ve-model becomes a trend for existing and new defi protocols, this was designed with the generic protocol which adopts the ve-model in mind.
Solutions:
veToken Finance: A long-term solution for ve-projects, utilizing protocol-owned LP.
Introducing delegated ve(3,3), the updated token economics model for veToken Finance. We decided to change the ticker of the original token to $VET to $VE3D (delegated ve(3,3)).
The new design works to stay with a few principles:
- All veToken protocol revenue (income - expenses) will all be located to ve3d stakers — xve3d
- VE3D emissions by the protocol should backed with veAsset locked value, LP of veAssets — Assets and performance fee from veAssets projects LP Liquidity mining
- xVE3D (Staked version of VE3D) vote for weight gauges and decide which pools receive VE3D token emissions (besides the protocol fees generated from all LP revenue).
Other Key Points:
- All xVE3D holder owns the LP token of veAsset-assets and their future profits
- xVE3D holder owns all the permanent veASSET that are permanently locked by veToken Finance
- xVE3D holders owns the governance rights to the veAsset that the protocol has locked
- xVE3D holders own performance fees for the LP token on our yield products
Flow chart:
Here is the CVX model:
Support CRV, cvxCRV for profit yielding, vlCVX for governance on Curve.
Here was our first VET model v1:
Expanding the scope to support ve-model projects more broadly: a design to support all ve-model projects, vetAsset for profit yielding, vlvet for governance — a reflection of all integrated ve-model projects.
This is the latest VE3D model:
Designed to support all ve-model projects, vetAsset for profit yielding, locked VE3D ($xVE3D) — for governance across all integrated ve-model projects, and VE3D emission that is based on the owned LP (including the value of veAsset the contract has locked). It is a long-term sustainable solution for ve projects by not utilizing governance token emissions, and instead engage through protocol-generated fees and protocol-owed Lqiudity (without rebasing).
Protocols that stake VE3D receive a full liquidity boost package due to veToken support from AMM to lending and yield-generating protocols. Using one type of token xVE3D can boost all the gauges that support the ve-model.
For veToken Finance v2
- Yield aggregator for ve-model projects
- Protocol owned critical LP (veAsset — Asset LPs)
- VE3D stakers receive all protocol revenues
- VE3D natively supports delegation
- Permissionless support for new veAsset integration
- Permissionless support for Gauges & Bribes
Credits:
- Authors : Jaqen , 2x from Fisher8 Capital
- Huge thanks to vfat.fools & vfat , Pickle Finance & Larry for your endless support
- Curve Finance & Michael Egorov for their
vedesign - OlympusDAO & Zeus (3,3)
- Andre Cronje innovative ve(3,3) model
Reference
2. CRV wars: understanding the race to accumulate power to influence Curve Finance protocol
About veToken
veToken Finance was created in 2021 with the intent of maximizing rewards without sacrificing token accessibility. veToken looks to continue to adopt new voting escrow projects as they come to market, with an expected initial launch date this year. veToken enables and encourages governance, reward maximization, and liquidity — all in one place, encompassing a multitude of projects.
You can learn more about veToken Finance at our website below, and join the conversation with our Twitter and Discord communities below as well.
Stay tuned for more to come from the veToken Finance team.
