veNFTs: A New Epoch of Governance
How Dyson is Building the Next Piece in Sphere’s DeFi Meta-Governance Puzzle
Since the very beginning, Sphere Finance has been a sleeping giant in the DeFi space.
Everyone who has experienced the Sphere Ecosystem and its branches knows just how ambitious the project is. And with Dyson’s recent launch, Sphere is now poised to become a meta-governance Kingpin of DeFi, such that $SPHERE carries within it voting power over an expanding suite of DeFi projects — and all the lucrative trappings that come with that.
Dyson’s Liquid Market solutions play a vital role in accomplishing this goal of meta-governance, but in order to fully understand these liquid wrappers, we first need to understand the importance of vote-escrowed (or ve) tokens.
What Are Vote-Escrowed Tokens?
Vote-escrowed tokens (veTokens) are one of the key innovations of the veGovernance model. First introduced by Curve Finance, it involves token holders locking their governance tokens for a predetermined amount of time and receiving veTokens in return. As a result, veToken holders can vote on certain proposals related to the protocol’s governance.
The amount of time token holders lock their governance tokens for varies from one week to four years, and generally, the longer holders lock their tokens for, the greater the voting power issued to them to incentivize their loyalty.
Let’s use Équilibre and their native token, $VARA, as an example for the purposes of this article (bear in mind, these concepts apply to virtually all ve(3,3) DEXs).
$VARA can be vote-escrowed into $veVARA,which is an NFT often referred to as a veNFT. veNFTs give users the governing power to vote on what are called liquidity pool gauges.
Voting occurs once per week, where one week is considered one Epoch. This is important because $VARA token emissions for liquidity providers are distributed to liquidity pools proportionally to the amount of veNFT voting power that those pools receive via the liquidity pool gauges.
Voting power is a function of how much $veVARA a user has, and the amount of $veVARA a user has is, in turn, a function on the duration of the time $VARA tokens are locked for, as stated above.
For example, if a user locks one $VARA for four years, then they will receive one $veVARA; however, if that user decides to lock one $VARA for only one year, then they will receive 0.25 $veVARA, so the voting power of locked $VARA is directly proportional to the time lock up to a certain maximum.
Feeling a bit lost? Things will get clearer as we move forward.
How Do veTokens Affect Liquidity Providers?
The veGovernance model benefits many people at different levels within the model. In particular, liquidity providers find themselves in a unique position to capitalize on the liquidity they provide.
For liquidity providers, the token yield emissions schedule is such that:
The more $VARA is locked, the fewer $VARA emissions there stands to be. Similarly, the less $VARA that is locked, the more $VARA emissions there stands to be.
This may seem counter-intuitive, but think of it this way…
If the majority of the circulating supply of $VARA tokens are locked into veNFTs, then there will be fewer $VARA emissions per week and, therefore, less inflation.
This combination of less circulating supply and fewer weekly emissions brings more scarcity to $VARA tokens, and that scarcity increases the more that $VARA is locked.
How Does This Attract Other DeFi Protocols?
With $VARA tokens holding value, other protocols become interested in using Équilibre to yield farm liquidity. This also gives them two options:
- Buy $VARA tokens and vote lock them, or
- Simply offer bribes to attract veNFT holders to vote on specific liquidity pool gauges.
The more bribes offered, the higher the likelihood that a pool will receive votes and, therefore, $VARA emissions for yield farmers. Typically, bribing is actually profitable for a protocol or a user, such that $1 spent on bribes will usually result in enough veNFT votes to bring back more than $1 to liquidity providers in the form of $VARA emissions.
The protocol then benefits from a higher TVL, as greater emissions incentivize more liquidity providers to deposit into the liquidity pool.
spTokens: The Dyson Factor
Now that we understand what veTokens are and how liquidity providers and other protocols benefit from them, let’s dive into how Dyson is revolutionizing the space.
Sphere’s Liquid Market through Dyson is building spTokens.
These are permanently-maximum-locked versions of veNFTs.
Going back to our Équilibre example, for $VARA, Dyson has created the liquid wrapper, $spVARA. When $VARA is used to mint new $spVARA, that $VARA is locked by Dyson for four years, and as soon as that lock expires, it will automatically be locked for four years again
This creates two things:
- Potent protocol-owned governance,
- A powerful token emission black hole supporting both Sphere and Équilibre.
With that growing protocol-owned veNFT, Sphere is able to vote on liquidity pool gauges in Équilibre to incentivize liquidity pools up to the maximum boost, including the $spVARA/$VARA liquidity pool and other liquidity pools offered by Dyson.
Additionally, once Sphere is able to accumulate enough voting power, it can use that voting power to vote on other liquidity pool gauges within Équilibre that offer high bribe rewards from other protocols.
To sum it all up…
The more $VARA is perpetually locked within Dyson’s $spVARA/$VARA vault and used by Sphere to vote, the more Sphere is able to hold and lock its Équilibre liquidity sink. This means that existing individual lockers have access to a higher bribe APR, as voting power will be consolidated, becoming scarcer and being distributed to fewer voters.
Dyson continues to expand its Liquid Market with new liquid wrapper solutions, and as it expands, so too will Sphere’s meta-governance continue to grow alongside it, making Sphere the central hub of the yield farming world.
The Sphere Ecosystem is constantly evolving, and with the release of a few more protocols coming soon, a major shift will follow that will benefit Sphere, $SPHERE and, most of all, Sphereans.
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