Curve has been at the top of the chain’s TVL rankings for quite some time. Curve’s innovative ve (vote-escrowed) token model design is definitely one of the most dominant factors in this anomaly, compared to fellow DEXs and especially the trading volume dominant Uniswap.
Therefore, today’s article will start from Curve, introduce and compare Curve’s veCRV, Solidly’s ve(3,3), and iZUMi’s veNFT, and analyze the significance and application prospects of the ve token model in DeFi2.0 and future DAO governance scenarios.
The Curve platform has two types of tokens: CRV and ve-CRV. Users are required to lock their CRV tokens (for a maximum of 4 years) to receive the corresponding weight of ve-CRV tokens. The number of ve-CRVs in a user’s account decreases linearly as the lock-up time decreases and ve-CRVs cannot be transferred or traded. The ve-CRV token model used by Curve is essentially a way for holders to sacrifice short-term liquidity in order to gain access to the various benefits of the platform, such as fee shares, CRV rewards, and voting rights for DAO governance.
In the Curve platform, the voting rights of ve-CRV can determine the CRV rewards allocated to different pools (also called gauges), thus incentivizing liquidity providers to add more tokens to the corresponding pools to gain revenue. Therefore, for issuers of various stablecoins and pegged assets, the control over the CRV token incentive is important because it determines the yield and thus the liquidity between the corresponding asset and the mainstream tokens, and liquidity is crucial for this type of asset to maintain price anchoring, thus the value of ve-CRV voting rights cannot be overstated.
In addition to this, the ve token model has various positive implications for the development of the project. For example, ve-CRV tokens that require lock-up will encourage users to make decisions with long-term value, as the lock-up period is typically 1–4 years, and the longer the lock-up period, the more belief the holder has in the long-term value of the protocol. They believe that even if they sacrifice the current liquidity, but put in a longer time dimension, the lock-up now is instead a right investment decision.
This is because LPs who provide liquidity on Curve are rewarded with CRVs, and if they can boost their liquidity rewards by locking up CRVs, they have enough incentive not to sell these CRVs in the market but to lock them up directly, not only providing liquidity to the platform but also becoming a holder of the platform tokens. In contrast, in other protocols without a ve token mechanism, the liquidity provider of the protocol would gain by selling in the secondary market directly after the token incentive, i.e. the interests of the liquidity provider and the platform token holder are not aligned, but the ve model ameliorates this problem pretty well. This has also prompted more CRVs to be locked, and the result is that more than 50% of CRVs are locked for ve-CRV.
Another very important effect is that because ve-CRV itself is non-transferable, ve’s lock-in mechanism functions to remove these tokens from the secondary market, reducing market circulating supply. From the demand side, the lock-in mechanism gives token holders enough incentive to buy CRVs in order to obtain the various benefits offered by the agreement.
AC (Andre Cronje), founder of Yearn Finance, recently launched a new project called Solidly Exchange based on an innovatively designed ve(3,3) token model. The other partner of the project is Daniele, who has built the popular projects Abracadabra. money, Popsicle Finance, and Wonderland Finance. They launched Solidly together with the following modifications to the ve model based on ve-CRV:
(1) Encourage users to lock up their positions to obtain VeTokens with an aggressive inflation model to ensure that locker’s rights are not diluted
In order to encourage locking and voting, Solidly will compensate users for the inflation risk brought by locking up, and give locker the share of additional tokens issued in emission according to the corresponding total circulation share to ensure that the corresponding equity share of VeToken will not be diluted. This way users who lock their positions do not have to worry about inflation affecting the value of the tokens in their accounts, while those who do not lock their positions will bear the downside risk of token inflation.
(2) ve Token Upgrade to NFT
Solidly has two kinds of tokens, one is the ERC-20 standard homogenized token SLD, which is also the platform token that users can trade directly in the exchange. The other is ve (3,3) in the form of NFT, users need to lock the SLD token to get ve(3,3) NFT to enjoy the various benefits corresponding to ve (3,3). Compared with the non-transferable feature of ve-CRV, ve tokens in the form of NFT add another form of liquidity property, and users can directly trade the NFT of ve tokens, thus transferring the corresponding platform rights and interests. An account can also have multiple ve(3,3) NFTs at the same time, which is convenient for users to manage.
(3) ve(3,3) ouroboros
Unlike other DEXs, Solidly chooses to give all the fees to the ve(3,3) voters of the corresponding pair pool. In the form of incentive fees, this allows the system to reach a state of the ouroboros, allowing for self-improvement and thus continuous development.
The difference with ve-CRV is that the Solidly locker is only rewarded with the emission of the pool that lockers voted on, rather than the fees of different pairs across the platform, as on Curve. So the locker is incentivized to vote and tends to vote on pairs with higher fee returns. This is to help the protocol automatically identify the best pools to pay out rewards, i.e. pools with more Fees have higher trading volume and better depth, which also generates more protocol revenue.
iZUMi Finance, the innovative protocol that provides programmable liquidity mining on Uniswap V3, based on the inspiration of AC’s ve(3,3) model and its own product characteristics, has just announced the iZUMi DAO veNFT plan. The DAO will be governed with a quadratic voting mechanism based on veNFT.
The new iZUMi DAO veNFT (veiZi) governance token will enable DAO governance through quadratic voting on key issues for the community.
veiZi NFT is compatible with the ERC721 standard and is designed to fully represent the governance rights of the iZUMi Finance protocol, which include voting, boosting and returning staking rewards. veNFT’s are a major step forward for the industry in terms of NFT utilization. Whereas in most DAOs, governance votes are represented by the number of tokens held in a wallet, iZUMi DAO governance votes are represented by the number of tokens held within a veiZi NFT.
iZUMi intends to adopt a DAO governance model with quadratic voting used to determine how the project will proceed on key issues. Each cycle’s iZi emissions will be determined and allocated according to the outcome of veNFT voting. For staking rewards, 50% of the platform’s revenue will be used to buy back iZi, which will be allocated to veiZi NFTs according to voting power. veiZi NFTs can be minted by any iZUMi wallet address by locking iZi tokens for a certain period of time. It will also be possible to acquire veiZi through third-party NFT marketplaces.
veiZi are unique in that they are interest-bearing NFTs, allowing holders to stake them for rewards every month. Each iZUMi wallet will be able to stake a single veiZi NFT, with extensions of both the locked period and locked number available at any time. Unstaking is also possible at any time after a user collects their rewards. However, those farming rewards may be reduced if veiZi is unstaked before the rewards are claimed, due to the cancelation of boosting. Users can then redeem their veiZi and get back their locked iZi tokens after the locked time has been reached.
The introduction of veiZi will benefit the community in a number of ways, firstly by reducing the circulation of iZi in the secondary market Second, veiZi is uniquely an interest-bearing NFT, enabling holders to earn staking rewards every month. Third, veiZi can be staked once and used an unlimited number of times to boost farming pools. Fourth, veiZi can be traded on mainstream NFT markets such as OpenSea.
In the table below, we compare the different attributes of the ve tokenomics for the three platforms.
You can see that each platform has trade-offs for different FEATURES of the ve model based on their own product attributes. This is the most fascinating part of the blockchain industry and the DeFi space, where each project can rely on the innovation and experience of previous projects to continuously improve or even innovate on product design and tokenomics.
The success of the Curve platform and its ve-CRV token model has driven the development of the entire Curve ecosystem, the most representative of which is Convex, which currently occupies third place in the TVL ranking. Convex liberates the liquidity value corresponding to ve-CRV through a deeper layer of CVX tokens, thus making the entire Curve system more efficient.
After AC announced ve (3, 3) and its corresponding Solidly Exchange platform, the crypto industry has also, based on the development history of Curve ecosystem, started to build Solidly-based ecological projects within a very short period of time, such as 0xDAO, veDAO and Solidex(the counterpart of Convex).
And iZUMi Finance, based on Uniswap V3, has the same great potential and opportunities. Its unique veNFT tokenomics in the Uniswap V3 ecosystem and its efficient liquidity mining model fully highlight the “Lego” attributes of the DeFi industry, which may bring unexpected vitality to the entire Uniswap V3 ecosystem, and may also lead to the establishment of its own iZUMi ecosystem as a result.