A Comprehensive Analysis of Solidly ve (3,3): Revolutionizing the DeFi Landscape Part 1
In 2021, the DeFi industry witnessed a groundbreaking innovation with the emergence of Solidly, an invention by Andre Cronje.
Unlike traditional protocols, Solidly is an Automated Market Maker (AMM) that incorporates a unique model called the Ve(3,3) model. This article aims to provide a comprehensive understanding of the Ve(3,3) model and its significance in addressing some of the most pressing challenges in the DeFi landscape.
What is the Ve(3,3) Model?
The Ve(3,3) model is a complex concept derived from two sources: the “ve” (Vote-escrowed) model from Curve Finance and the (3,3) model from OlympusDAO. Let’s delve into these two terms to gain a better understanding.
- The Ve Model: Originating from Curve Finance, $veCRV stands for vote-escrowed $CRV. It represents $CRV tokens locked for a specific period, with longer lock times yielding more $veCRV. For instance, locking 1 $CRV for four years results in 1 $veCRV. Once $CRV holders vote-lock their $veCRV, they can participate in DAO proposals and pool parameter voting. $veCRV grants holders the ability to vote for their preferred pools and participate in governance.
- The (3,3) Model: Derived from OlympusDAO’s game theory, the (3,3) model presents users with three options: Staking (+3), Bonding (+1), and Selling (-1). According to this model, the most favorable position for both users and the protocol is staking. OlympusDAO has experienced exponential growth as the majority (87%) of its $OHM assets are staked.
Key Terminologies in Solidly:
Before diving deeper, let’s clarify some essential terms related to Solidly:
- Ve: Non-transferable tokens locked up by depositing base tokens into the voting escrow contract for a period ranging from one week to four years.
- veNFTs: Token IDs conferred to users who lock their tokens for their ve counterparts, representing their voting power.
- Bribes: Incentives used by projects to attract veLockers to vote for their pools.
- ve Lockers: Individuals who vote on which permissionless pools should be incentivized and accumulate all protocol fees.
- Total Supply, Locked Supply, and Circulating Supply: Represent the total token supply, the supply of ve tokens, and the difference between the total supply and locked supply, respectively.
Addressing Key DeFi Challenges with the Ve(3,3) Model
- Difficulties in Bootstrapping for New Projects:
New projects often struggle to bootstrap their initial liquidity and userbase while interacting with other protocols. Solidly addresses this issue by directing liquidity pools and LP tokens to the original protocol, allowing new projects to receive 100% of the trading fees and expediting product development.
- Fee Model:
Traditional fee models in DeFi protocols, which pay out fees in native tokens, can be volatile and negatively impacted by token price fluctuations. Solidly recommends providing fees in assets not correlated to the primary system asset, creating a more stable approach and allowing users to bet on future protocol fee growth.
- Fee Distribution:
Most AMMs rely on unsustainable farming rewards to incentivize liquidity providers. Solidly revolutionizes this approach by creating a market where everyone wins fairly. AMMs create their own liquidity pools and compete for ve(3,3) tokens. As users vote for pools, trading volume, and fees increase, resulting in a vibrant ecosystem where everyone benefits.
- Unsustainable Liquidity Mining
Traditional liquidity mining practices, which incentivize liquidity providers with rewards, often lead to sell pressure on the reward token, adversely affecting the project’s growth. Solidly addresses this challenge by adjusting weekly emissions based on the token supply, making the tokens scarcer and promoting a more sustainable approach to liquidity mining.
Conclusion:
Solidly, with its innovative Ve(3,3) model, is revolutionizing the DeFi landscape by addressing key challenges such as bootstrapping difficulties for new projects, fee model volatility, suboptimal fee distribution, and unsustainable liquidity mining. By fostering a fair and vibrant ecosystem where all participants benefit, Solidly is paving the way for a more sustainable and efficient DeFi future.
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