Introducing Maverick Protocol’s Voting-Escrow Model
This post provides an introduction to the core utilities of the MAV token. The MAV token is a joint utility and governance token that can be used to stake, vote, and direct community and ecosystem incentives. All of these utilities are based on a voting-escrow model, under which MAV holders stake their tokens to receive a vote-escrowed MAV (veMAV) balance.
With Liquid Staking Tokens (LSTs) rapidly emerging as the next fundamental DeFi primitive, the stage is being set for another period of heavy competition like the Curve Wars, this time between liquid staking protocols. And just like veCRV in the Curve Wars, veMAV will have a critical role to play in the coming LST Wars.
The stakes of the LST Wars are similar to those of the Curve Wars: LST protocols need liquidity and volume for their tokens to gain traction, and they are already fighting with incentives to achieve their goals.
The Curve Wars were fought between protocols that now rank among the most recognizable names in crypto: FRAX, USDC, and USDT. The fighters in the LST Wars are already taking the field: well-established players like Lido, Rocketpool, and Frax, and smaller LST projects that are appearing every week. Every one of these protocols are competing for a part of the same addressable market, and every one of them is looking for an edge.
What Curve was to stablecoins, Maverick is to LSTs: an AMM uniquely engineered to provide a native environment for LST liquidity.
Maverick’s Dynamic Distribution AMM has already proven itself to be the perfect fit for LST liquidity, thanks to its native automation of liquidity movement that tracks the natural yield of LSTs over time. Since launching in March, Maverick AMM has already facilitated over $1bn volume of trading on wstETH and 30% of all wstETH trading in DeFi. The list of LSTs available on Maverick keeps growing, and currently includes wstETH, swETH, cbETH, and rETH.
With its high capital efficiency design, Maverick AMM is the best place for LST projects to build the liquidity and volume they need to participate in the larger DeFi infrastructure. And veMAV will be an important instrument in the competition to secure that liquidity.
What is a voting-escrow model?
The voting-escrow (ve) model was pioneered by Curve and later adopted by many DEXs. It provides a system for facilitating decentralized governance that assures voting power stays with users who are committed to a protocol’s long-term growth and development.
In a ve model, token holders are required to stake the protocol token (e.g. MAV) into a “ve” contract in exchange for voting power (in this case, a veMAV balance), and that voting power increases with the size and duration of their stake. The staker’s tokens remain locked in the ve contract until the staking duration ends. This mechanism prevents mercenary voting power from manipulating the governance process in a way that hurts the protocol’s users and community members.
Curve’s vote-escrowed token (veCRV) was the fuel for the Curve Wars. The Curve Wars came about because of two complementary innovations: first, Curve’s novel stableswap AMM achieved unique product-market fit with the emerging field of stablecoins; second, the veCRV system provided a mechanism with which projects could fight for an edge in the blossoming stablecoin market.
With veMAV, Maverick has a similar set of conditions to become the battleground for the LST Wars: first, Maverick AMM’s dynamic distribution mechanism is a native solution for LPing LST pairs, just as the stableswap AMM was for stablecoins; second, the veMAV system will provide LST projects with a new strategic option in their competition for liquidity in the AMM.
Why should I care about Maverick’s ve-model?
Maverick’s ve-based governance mechanics should be of immediate interest to liquid staking protocols and other projects who want to bootstrap liquidity, incentivize a price peg, or have other liquidity needs for their tokens. Since veMAV will be used to direct user incentives in the AMM, it will play an important role in attracting LPs to Boosted Positions and competing with other projects for liquidity.
Since projects will therefore have a vested interest in accumulating veMAV voting power, it is likely that they will explore providing further user incentives to veMAV holders to use their veMAV in a way that benefits their project.
In addition to Maverick AMM’s unique fit for LST LPing, Maverick’s ve model has a critical improvement over existing ve systems like Curve and Balancer. The issue in existing ve systems is that protocols are not able to target their voting power to a specific part of the AMM distribution. This means that other ve models are a very blunt instrument for incentivizing liquidity.
In Maverick, protocols can permissionlessly create a “Boosted Position” that is a specific distribution of liquidity in a given pool. Through the veMAV model, protocols will be able to drive incentives to a specific Boosted Position. This gives protocols surgical precision in their incentives and introduces a new concept for protocols: “incentive efficiency.” Through Maverick, protocols can maximize incentive efficiency to meet their liquidity goals with as little capital as possible.
Several metaprotocols such as Convex and Aura have already evolved to facilitate these dynamics in other ve-based systems, and it is likely that similar metaprotocol(s) will emerge for Maverick.
These metaprotocols simplify the voting and direction mechanism for ve holders, and attempt to maximize the utility of ve through aggregated market power. A common mechanism is that metaprotocols are able to attract incentives from protocols in order to direct voting power to a given position. These incentives ultimately flow back to MAV community members.
About Maverick
Maverick Protocol is a new infrastructure for decentralized finance, built to enable higher capital efficiency and greater capital control for traders, liquidity providers, DAO treasuries, and developers, powered by a revolutionary Automated Market Maker (AMM).
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