🌟VE(3,3)+ on Veplus
Ve(3,3) original mechanics reflect a combination of two DeFi concepts:
Vote-Escrow — first introduced by Curve to strengthen incentives for long-term token holders
Staking/Rebasing/Bonding or (3,3) game theory — designed by Olympus DAO
1. What is the ve(3,3)+ model on VEPLUS?
The ve(3,3)+ mechanism has been meticulously designed to navigate the multifaceted challenges of incentivizing liquidity providers (LPs) and ensuring revenue growth for holders of decentralized exchange (DEX) governance tokens. At the heart of this novel approach lies the distinguishing 'buyback and burn' feature, a standout component of the ve(3,3)+ model.
The 'buyback and burn' feature serves as a self-perpetuating mechanism, adeptly balancing incentives and rewards. It functions by strategically utilizing a portion of the revenue to purchase tokens from the open market and subsequently removing, or "burning," them from the total supply. This process reduces the overall token supply, creating a scarcity that, in turn, enhances the value of the remaining tokens in circulation.
Simultaneously, it aids in combating inflation, a common concern in the crypto world, by ensuring a controlled and diminishing supply of tokens over time. This dual functionality serves not only to motivate LPs and governance token holders through potential value appreciation, but also fosters sustained growth and stability in the long haul.
In sum, the 'buyback and burn' feature forms a critical element of our commitment to building a robust, balanced, and thriving DeFi environment.
2. Overcoming Traditional DEX Challenges
Traditional decentralized exchanges (DEXs) such as Uniswap encounter challenges related to revenue distribution for governance token holders and providing adequate incentives for liquidity providers (LPs).
Firstly, the trade fees generated on these platforms are often insufficient to attract LPs, leading to the implementation of liquidity mining programs that involve the issuance of native tokens. However, over time, these token emissions can have a negative impact on token prices, which is unfavorable for projects seeking to incentivize liquidity.
Secondly, governance token holders face difficulties in redirecting revenue away from LPs towards the DEX. This is because any attempt to decrease the rewards for LPs could cause them to withdraw their liquidity, resulting in reduced trade volumes. This poses a significant challenge for the sustainability of the DEX.
To address these issues, the ve(3,3)+ model introduces a unique fee and incentive structure:
All trade fees are directed towards veVEP voters. This ensures that those who hold and lock the VEP token (veVEP voters) receive a share of the trade fees as rewards.
LPs are incentivized through VEP emissions. By issuing VEP tokens to LPs, the DEX provides them with additional rewards, encouraging liquidity provision.
Protocols have the ability to directly incentivize veVEP voters by offering them a portion of the token emissions in exchange for voting in their favor. This allows projects to attract more attention and support by leveraging the influence of veVEP voters.
The VEP token's emissions are supported by transaction revenue and utility. This ensures that the emissions are backed by the DEX's operations and usage, enhancing the token's value and utility.
By implementing this fee and incentive structure, the ve(3,3)+ model aims to provide substantial utility and rewards for holding and vesting the VEP token. This, in turn, helps to maintain the necessary liquidity on the DEX, addressing the challenges faced by traditional DEXs.
3. Participants:
The ve(3,3)+ model brings together the interests and incentives of all participants within Veplus, including veVEP voters, liquidity providers, traders, and protocols.
Liquidity providers are motivated to contribute liquidity to pools that offer the highest VEP emissions. Additionally, the maturity-adjusted return model encourages LPs to commit their liquidity for longer periods to maximize their rewards. This alignment ensures that the Total Value Locked (TVL) remains sustainable and promotes the long-term health of the project.
veVEP voters are incentivized to vote in favor of directing incentives towards pools with high trading volumes and significant bribes. This is because these pools generate a substantial amount of fees, resulting in higher rewards for both veVEP voters and liquidity providers.
Traders benefit from the ve(3,3)+ model as it ensures low slippage and improved exchange rates due to the availability of ample liquidity.
Protocols also reap benefits from this model by leveraging a public liquidity layer. They have the ability to attract more incentives and, consequently, more liquidity to their pools by offering bribes to veVEP voters. This creates a mutually beneficial ecosystem where protocols can easily incentivize liquidity provision.
Overall, the ve(3,3)+ model aligns the interests of all participants in Veplus, providing incentives for liquidity providers, favorable trading conditions for traders, and opportunities for protocols to attract liquidity to their pools. This creates a sustainable and thriving environment for the entire ecosystem.
4. Efficient Liquidity Sourcing:
Projects aiming to incentivize liquidity for their tokens can directly offer bribes to veVEP voters, receiving a share of emissions in return. This strategy not only provides an additional income source for veVEP token lockers but also enables projects to efficiently acquire liquidity without solely relying on high native token emissions.
5. Maintaining a Balance between Demand and Equilibrium
As the price of VEP decreases, the Annual Percentage Rate (APR) for locked veVEP tokens increases, making them more appealing to investors. This mechanism plays a crucial role in sustaining demand and counteracting downward price trends. Gradually, an equilibrium is established where the yield obtained from purchasing and vesting VEP tokens helps safeguard the price. Consequently, liquidity providers (LPs) enjoy a consistent and sustainable source of yield through VEP emissions.
The ve(3,3)+ model exhibits elasticity, allowing it to adapt to various liquidity and market conditions. In periods characterized by higher liquidity and trading volumes, the price of VEP naturally rises to a level that adequately sustains liquidity, primarily due to increased revenue generated from trade fees. Conversely, when liquidity decreases, the price adjusts accordingly. This flexible nature enables the system to harmonize through natural market forces, ultimately benefiting all participants involved.
In summary, the ve(3,3)+ model effectively balances demand and equilibrium by adjusting the APR for veVEP tokens in response to the VEP price. This ensures a sustainable yield for LPs and mitigates downward price pressure. Moreover, the system's elasticity enables it to respond to changing market conditions, facilitating a harmonious environment that benefits all participants.
Summary
To sum it up, ve(3,3)+ plus presents a compelling solution to the dilemmas traditionally associated with decentralized exchanges (DEXs). It masterfully achieves this by harmonizing incentives, rewards, and demand, offering a robust and enduring answer for DEXs, liquidity providers, and Veplus token holders. The unique buyback and burn feature of the ve(3,3)+ plus model creates a controlled and diminishing supply over time, enhancing the value of remaining tokens and mitigating inflation. This brings about a more vibrant, efficient, and enticing ecosystem, enhancing the experience for all participants involved.
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