A Closer Look at ve(3,3)
ve(3,3) combines both the design of OlympusDAO (3,3) and vote escrow tokenomics (ve) of Curve
Overview
What is ve(3,3)?
First introduced by Andre Cronje, Founder of Yearn Finance, ve(3,3) is a tokenomics design that combines components of OlympusDAO’s (3,3) staking mechanism with Curve’s vote escrow (ve) model. It was first introduced to address the issues with liquidity mining, where protocols incentivized liquidity for their native token through emissions. This ultimately ended up causing unsustainable inflation rates and high sell pressure. Therefore, ve(3,3) was envisioned to help improve how token emissions issues are handled in AMM models, and at the same time, really focus on fee generation.
How Does Curve (ve) Work?
To really grasp the inner workings of ve(3,3), let’s first discuss the two key models it draws inspiration from, starting with Curve.
What sets Curve apart is its inherently competitive nature that has participants trying to acquire the most voting power. This voting power grants users the ability to influence the direction of CRV token emissions, determining which liquidity pools receive a larger share. What makes this such a desirable model is that when CRV token emissions are redirected toward a specific liquidity pool, the liquidity providers (LPs) are rewarded with higher returns. This incentivizes LPs to flock to these selected pools, further increasing liquidity.
Now let’s talk about veCRV. Essentially, veCRV is given when you voluntarily lock your tokens for a specified period in exchange for voting rights and a share of trading fees. This lockup period can be customized by the user, typically ranging from one week to as long as four years. However, the duration of the lock has a direct impact on the benefits you receive. By opting for longer lock periods, you gain increased voting power and higher rewards. This was specially designed to incentivize participants to commit to extended lockups, as they stand to gain greater benefits for doing so.
Currently, CRV has three main uses which all require users to vote lock their tokens:
Staking — You can stake (lock) your tokens to receive trading fees from the Curve Protocol. This will incur a 50% admin fee, however, those fees are collected and used to buy 3CRV — the LP token for the TriPool — and distributed to veCRV holders.
Boosting — Perhaps the main incentive for CRV is the ability to get up to 2.5x boosted rewards on the liquidity you are providing on Curve, simply by vote-locking your tokens.
Voting — In order to participate in any governance proposals and voting mechanisms, users are required to hold veCRV.
How Does OlympusDAO (3,3) Work?
Now that we have learned about the significance of vote-escrow and its importance, let’s have a look at where OlympusDAO’s (3,3) staking model comes into play.
At its core, the (3,3) game theory model showcases valuable insights into the actions users can take to achieve the best outcome. This model (as seen below) clearly outlines a range of actions that can lead to beneficial results, such as staking and bonding, while also highlighting the potential negative impact that selling can have on both the user and the ecosystem.
There are multiple different outcomes for users when they bond, stake, and sell. Let’s break this down further to fully understand the mechanics here:
- The best possible outcome for both the user and protocol is if everyone stakes (3,3).
- If one user stakes and the other bonds, this is also extremely positive due to the token (in this case, OHM) being taken off the market, and bonding providing liquidity for the treasury (3,1)/(1,3).
- Now when one user sells and another stakes or bonds, the outcome would be more negative due to the fact that it undermines their efforts (1,-1)/(-1,1).
- Finally, as you can imagine, all users involved in selling creates the worst possible outcome due to the possible negative price movement that could be caused (-3,-3).
Solidly
Moving on, let’s take a look at how these concepts came to life in Solidly, a DEX originally built on the Phantom network (and now re-launched on Ethereum), that prioritizes trading fees over liquidity. Solidly’s tokenomics bear similarities to Curve, but also introduce unique elements that set it apart.
Here’s a breakdown of Solidly’s token design and its distinguishing features:
SOLID and veSOLID:
- SOLID, an ERC20 token, serves as the base currency of the Solidly protocol and holds governance capabilities.
- veSOLID represents the ve(3,3) token of Solidly, taking the form of an NFT that can be traded, providing enhanced liquidity options compared to Curve.
Staking SOLID for veSOLID:
- Users are required to stake their SOLID tokens to receive veSOLID tokens.
- The longer the lockup period, the more veSOLID tokens users can earn.
Trading Fee Incentives:
- Unlike Curve, Solidly highly incentivizes trading fees over liquidity.
- veSOLID holders earn 100% of the protocol’s trading fees and receive bribes from other protocols seeking liquidity on the platform.
- This incentivizes users to vote for pools that generate higher trading fees, maximizing their potential earnings.
Locking Incentives:
- Solidly offers an additional incentive for users to lock up their tokens.
- Owning veSOLID comes with the perk of 2.5x boosted rewards on provided liquidity.
- veSOLID holders have the power to vote for incentivized pools using SOLID emissions on a weekly basis. In return, they receive instant bribes.
- veSOLID holders also receive a share of SOLID emissions based on the circulating supply.
- As more users vote-lock their tokens, the amount of SOLID distributed to liquidity providers (LPs) decreases.
- Any increase in circulating supply through rewards leads to a proportional increase in the rewards received by veSOLID holders.
- This attractive value proposition encourages users to lock their tokens, as their lockup is not diluted by new SOLID emissions.
Summary
In summary, ve(3,3) represents a futuristic tokenomics design that combines elements of OlympusDAO’s (3,3) staking mechanism and Curve’s vote escrow model. By addressing the challenges associated with liquidity mining and aligning token emissions with the pitfalls of AMM models, ve(3,3) aims to incentivize both liquidity provision and fee generation, resulting in a more beneficial system for all participants.
Curve’s vote escrow model enables participants to influence CRV token emissions and rewards liquidity providers in selected pools. By voluntarily locking tokens for voting rights and a share of trading fees, users gain increased voting power and higher rewards. Meanwhile, OlympusDAO’s (3,3) staking model introduces game theory principles that encourage beneficial actions such as staking and bonding, while discouraging selling.
