An Alternative Implementation of veToken Economics

APR 19, 2022 • 21 Min Read

DISCLOSURE: MEMBERS OF OUR TEAM HOLD CRV & CVX. THIS STATEMENT IS INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

Key Takeaways

  • veToken economics incentivizes liquidity providers to become long-term stakeholders in the DEX protocol. This is accomplished by granting increased rewards and governance powers to those who lock the underlying token.

  • Curve and Convex created a powerful flywheel that sent both token prices and TVL soaring in the second half of 2021. This created significant hype around the veToken model and brought out both supporters and critics. This piece looks to examine those criticisms in detail.

  • We have used our extensive studying of the Curve/Convex relationship to develop an alternative approach to the veToken model. This alternative approach is illustrated via a hypothetical token called “GOV” that is discussed throughout this piece.

  • The aim of our recommendations is to reduce centralization while still maximizing the core properties of veTokens: rewarding the most long-term and dedicated participants without excluding contributors that cannot take on the illiquidity risk that comes with traditional veToken economics.

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