veToken Finance
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veToken Finance
Motivation
In August 2020, the Curve protocol started its journey towards decentralized governance by launching a decentralized autonomous organization (DAO) to manage changes to the protocol. Most DAOs are controlled by governance tokens that give voting rights to holders of the tokens. In this case, the Curve DAO is controlled by the CRV token.
Anyone with a minimum number of CRV tokens that are vote-locked is able to propose an update to the Curve protocol. Updates can include changing fees, changing where fees go, creating new liquidity pools, and adjusting yield farming rewards. Holders vote to reject or accept a proposal by locking up CRV tokens. The longer the CRV token is locked up, the more voting power it has [2].
This is the basis of which veCRV comes from: voting escrow. It is inherent in the project need that holders lock their tokens for voting and profit sharing. Recently, these token economics have drawn increasing attention from the DeFi community. There are similar concepts used by various projects, such as Pickle Finance, Snowball Finance, Wasabi Finance, Badger DAO, Frax.Finance, etc.
Projects like Curve and Pickle Finance have their own respective tokens. Users are enabled to lock them up for long periods of time to earn veAsset, and by staking their veAsset they are then able to yield the greatest returns. The examples of Curve Finance and Pickle Finance showcase the ability to request token holders to lock tokens for long period of time (up to 4 years) in order to maximize rewards. The veAsset token economics is summarized here by Antonnell (https://github.com/antonnell/veToken-voting). This involves token vesting, gauges and voting.
There are several advantages and disadvantages to this design:
This structure encourages long term loyalty to the ecosystem, and encourages governance participation. Additionally, this model reduces the amount of tokens in the available market to achieve a deflationary tokenomics model.
From either the users perspective or from retail investors perspective, despite locking tokens for 4 years (as seen with Pickle and Curve, respectively), the rewards may be great; however, they are losing their asset’s liquidity - as they are not able to cash out, which is often important for retail investors in order to endure substantial volatility.
veAsset Token Economics Trend
While Curve Finance's voting escrow token economics gain increasing success in the DeFi field, they are also providing the DeFi community and projects a good reference point and options to adopt similar economics in order to attract community activity involving governance. At the same time, they are able to share potential profits and fees to the ones who lock the token. Here are the projects that have been adopted this token economics model; we believe there are more to come.
veToken Finance Mission:
veToken Finance enables DeFi users to boost yield and farming rewards without sacrificing liquidity, and lock tokens for long term time windows in order to maximize rewards and participate in DAO governance with minimal effort.
How it works ?
We’ll use Pickle and CRV as an example:
veToken enables users to stake their PICKLE or CRV tokens (through staking tokenized Dill or veCRV), and in turn receive protocol fees and shares of boosted PICKLE or CRV received by liquidity providers. and trade tokenized Dill and veCRV (we call tokenized veAsset in generial) at Secondary markets. Accordingly, this staking mechanism provides better capital efficiency, and better balance between liquidity providers and stakers.
In the meantime, veToken’s long term holders are permitted to vote for protocol parameters, such as gauge weights (a la Curve) and Farm Weights (a la Pickle), as well as any other governance voting.
For the CRV, PICKLE Token holders:
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For the LP holders and farming seekers:
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Last modified 6d ago
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