Introduction
In the ever-evolving world of decentralized finance (DeFi), innovation is the key to staying ahead. One remarkable advancement in DeFi tokenomics is the Ve(3,3) model, which was introduced by Andre Cronje, the founder of Yearn Finance. This model combines elements from Curve’s vote-escrow mechanism and OlympusDAO’s (3,3) staking, creating a groundbreaking approach to DeFi. In this blog, we’ll delve into the Ve(3,3) concept, its implications, and how it’s revolutionizing DeFi.
The Genesis of Ve(3,3)
The Ve(3,3) concept was brought to life by Andre Cronje, who initially introduced it with the release of Solidly Exchange. Despite his departure from DeFi in March 2022, this innovative approach to tokenomics continues to thrive. The co-founder of Fantom, Cronje, outlined his calculations on how the Ve(3,3) model could shape the future of DeFi.
Traditional DEXes and Their Challenges
To appreciate the significance of Ve(3,3) DEXes, we must first understand the limitations of traditional decentralized exchanges (DEXes). Traditional DEXes primarily generate yield through swap fees. However, to attract liquidity while demonstrating decentralization, they introduced governance tokens. These tokens enabled holders to vote on project proposals. But a significant drawback emerged — whales holding large amounts of tokens could wield disproportionate voting power, undermining the decentralization principle.
A clear example of this occurred when a crypto VC, held 15 million Uniswap tokens, giving them over 64% of the total voting share. This concentration of power raised concerns about the integrity of the governance process.
Moreover, governance tokens often faced a dilemma — either whales accumulate tokens at low prices or token prices remain low, potentially leading to token devaluation. This impacted liquidity pools, as high token prices attracted farmers while low prices led to liquidity drain.
Innovating DeFi Tokenomics
In response to these challenges, DeFi protocols began exploring new tokenomics models. Some introduced rewards in other tokens, driving token price appreciation and farm APRs. Others implemented lock-up periods to reduce selling pressure, compelling stakers to commit to holding their tokens.
Curve Finance took a unique approach by incentivizing the locking of governance tokens even more than farming for rewards. Stakers who locked their tokens received not only farming rewards but also governance rewards, creating a synergy that increased their incentives.
Governance Tokens with Emissions
This model gave rise to governance tokens with emissions. By locking their tokens, users gained voting power, directing governance tokens to specific LP pools. This concept spurred competition among protocols, with some resorting to bribes to secure more votes. Bribes, when compared to emissions, proved more capital-efficient.
The Birth of DeFi 2.0
Andre Cronje took inspiration from these developments and embarked on a quest to find a more equitable incentive structure for all participants in the DeFi ecosystem. He proposed a novel idea: what if locked tokens received a share of protocol swap fees only for the pools they voted for? This would encourage users to vote for productive pools, attracting liquidity and increasing swap volume.
The (3,3) model, influenced by Olympus and its forks, introduced the concept of dilution, which refers to a user’s share of the protocol. To combat dilution, anti-dilution mechanisms were introduced, ensuring that users who locked their tokens maintained their relative share of the protocol as new tokens were minted.
The Ve(3,3) Model
Ve(3,3) combines the principles of vote escrow (ve) with the game theory of (3,3). When users lock tokens, they gain voting power and secure their share of the protocol. This model aligns incentives among farmers, stakers, and the DEX itself.
Ve(3,3) DEXes have gained prominence in the DeFi landscape, offering attractive opportunities for users. Farmers can provide liquidity, farm tokens, and compound their earnings, capitalizing on these DEXes’ impressive token prices and high APRs.
ICHI’s partnership with Ve(3,3) DEXes
ICHI has recently partnered with Retro, a Ve (3,3) style DEX. By combining Yield IQ’s innovative single-sided liquidity strategy with Retro’s Ve(3,3) model, users gain newfound simplicity, efficiency, and enhanced rewards in their liquidity provisioning journey.
The ability to unlock $RETRO for Ve(3,3) participation, along with the introduction of Protocol Owned Liquidity (POL), positions Retro as a leader in sustainable and community-driven DeFi projects. With single-sided $RETRO pools now benefiting liquidity providers, users can enjoy boosted returns and voting rights without sacrificing valuable $RETRO tokens.
You can earn yield on $RETRO pools without depositing $RETRO tokens. Instead, use your $RETRO tokens for voting and deposit major assets like wMATIC, wETH, wBTC, USDC, USDT, $CASH, agEUR, MAI, LINK, or stMATIC against $RETRO. Our unique single asset deposit algorithm allows you to supply the supplementary side and start earning rewards. The $RETRO tokens that were previously locked for liquidity provision can now be freed up and locked for veRETRO, where you’ll enjoy boosted returns and gain voting rights.
Check out the available pools here.
Besides the partnership with Retro, ICHI is also partnering with Ramses, allowing even more users to enjoy this smart liquidity provision strategy. Ramses is the native liquidity layer on Arbitrum, redefining ve(3,3) DEX infrastructure. By intertwining the concept of concentrated liquidity with a proprietary Bribe Infrastructure, Ramses aims to unlock new levels of capital efficiency. You’ll soon be able to provide liquidity to a number of Yield IQ vaults on Ramses and experience smart liquidity provision.
Stay tuned.
Final Thoughts
The Ve(3,3) tokenomics model represents a significant step forward in DeFi by incentivizing liquidity provision and fee generation, reducing dependency on large liquidity providers. It aligns the interests of various stakeholders in the ecosystem, promoting long-term synergy. While playing the Ve(3,3) game may entail some risk, the potential for mid to long-term profitability and a healthier DeFi ecosystem makes it a game worth considering for DeFi enthusiasts and investors alike.
