I love every project that fully realizes the potential of veToken!
➤ What is the veToken economic model?
In projects that adopt the veToken model, locking tokens will yield ve tokens. For example, locking CRV will yield veCRV.
When locking tokens, you can usually choose the duration of the lock. The longer the time, the more ve tokens you will receive. ve tokens can participate in project voting governance and earn a share of the project's profits.
From this perspective, the veToken economic model is to lock tokens, earn rewards, and participate in project voting governance.
It's simple logic, isn't it? The innovations in DeFi are often this straightforward (like LPs), yet their impacts are immense.
➤ Simple?
Starting from the role of ve tokens, can the veToken model attract us to lock tokens?
▪️ Locking for money?
For us, the biggest drawback of locking tokens is the inability to sell them in a timely manner. But everyone must have seen a picture like this: to eat the last rise, you must hold on!
For most medium to long-term token holders, having interest from locking tokens already provides a certain level of motivation.
Since the duration for locking tokens is optional, and the cycles in the crypto world seem to always be four years, most people will rationally choose to lock their tokens until the last six months of a bull market. This satisfies the ideal situation of enjoying token appreciation while also earning interest!
▪️ Voting governance?
The vast majority of projects have voting governance sections, but most are merely superficial. The reason is that governance projects are unrelated to the interests of token holders! So making voting governance effective can solve the problem.
Continuing with Curve as an example, the additional rewards for each mining pool in Curve are determined by veCRV votes. The more votes a mining pool receives, the higher the liquidity incentives.
If there is a mining pool that happens to be the one where you hold tokens, would you be willing to vote for it? If you have already locked your tokens, you would.
What if you are a major holder in a mining pool or a project party? You want your mining pool's rewards to increase, but you don't have ve tokens. You would need to buy tokens to lock them up and then vote or campaign for votes.
Buying tokens is easy to understand. If I also have faith in projects using the veToken model, adding production to my mining pool is just giving more reasons to buy tokens.
The methods of campaigning are quite 'interesting'. Everyone knows that in any voting election, there is bribery. For example, the promises in the US elections are a form of bribery. But in the crypto world, what actually happens is that you vote for my mining pool, and I directly give you money. This kind of bribery operation happens in Curve and is called the Curve War. Using the word 'War' illustrates how intense it was at that time!
➤ Great!
This simply describes the role of ve tokens. In this part, I will elevate the veToken economic model.
At the very base of veToken is the locking of tokens, which will inevitably reduce token circulation and sell pressure, lowering the pressure on the price to rise. In interest-related voting governance, maximizing benefits will require purchasing more tokens to lock, which will bring purchasing power and drive up the price.
Just two simple lines can form a positive upward flywheel, but not to a great extent. Let's start elevating from here!
Locking tokens stimulates relevant users to buy and stake tokens, allowing mining pool rewards to generate more tokens, all of which occur internally within the project. This is the internal cycle.
If the rewards from the mining pool enable the projects and major holders to bribe or even buy tokens to stake, this driving force comes from the external; this is the external cycle.
Let’s add another layer: mining pools are the basic gameplay of DeFi, usually involving token swaps between two project parties to incentivize traffic and user exchange. For example, if project A launches a mining pool for project B, then project B will also launch a mining pool for project A.
With the support of the veToken economic model, project parties need to collaborate with other projects on mining pools to increase the returns from locking ve tokens and make more users aware that the positive flywheel of veToken is a perfect veToken project!
In other words, with more mining pools, high locking yields, and high demand for purchasing and locking tokens, the token price rises, and more projects are willing to swap mining pools, with even other projects having higher confidence in this coin.
What? Will this token issuance keep increasing? Yes, but with more mining pools and increased earnings, the amount burned can also increase!
➤ Its continuation!
This is not the end; the extensibility of veToken is very high, and many 'improved versions' have emerged, but they only add some minor innovations on its foundation; the underlying logic cannot be fundamentally changed!
Countless projects adopt the veToken model, but few can fully utilize its potential. I love every project that fully realizes the potential of veToken!
This paper is dedicated to Curve for their contributions to DeFi, honoring the innovations of Web3! 🫡