Understanding ve & ve3,3

The Noble Art of Token Locking

The Essence of ve-Tokenomics

Imagine, if you will, a grand feast in the Monarch's castle. The longer you commit to staying at this feast, the more influence you have over the menu and the larger your share of the banquet's bounty. This, in essence, is how ve-tokenomics works in the realm of DeFi.

Ve-tokenomics, short for "vote-escrowed tokenomics," is a governance and incentive model that rewards long-term commitment and active participation in a protocol.

The Key Components of the ve-Model

1. The Token: This is the basic currency of the realm, similar to gold coins in a medieval economy.

2. The Lock: Users can choose to lock their tokens for a period of time, typically up to four years. This is akin to pledging your loyalty to the kingdom for a set duration.

3. The ve-Token: When you lock your tokens, you receive ve-tokens in return. These are not transferable and represent your voting power and claim on protocol rewards. Think of them as a noble title - the longer you've pledged your loyalty, the higher your rank.

4. Decay: The power of your ve-tokens gradually decreases over time, encouraging users to either extend their lock or lock more tokens to maintain their influence.

The Mechanics of Power

The amount of ve-tokens you receive is calculated based on two factors:

1. The number of tokens locked: The more tokens you commit, the more ve-tokens you receive.

2. The lock duration: The longer you lock your tokens, the more ve-tokens you receive per token locked.

This can be represented by the formula:

$$veTokens = tokensLocked * (timeLocked / maxLockTime)$$

Where maxLockTime is typically 4 years (208 weeks).

The Benefits of the ve-Model

1. Governance Rights: Ve-token holders can participate in protocol governance, often by voting on various proposals or directing token emissions to different liquidity pools.

2. Enhanced Rewards: Many protocols offer increased rewards to ve-token holders, such as a share of protocol fees or boosted yields on liquidity provision.

3. Aligned Incentives: By encouraging long-term commitment, ve-tokenomics helps align the interests of token holders with the long-term success of the protocol.

Ve-Tokenomics in Action: The Curve Finance Example

Curve Finance, a pioneer in implementing ve-tokenomics, uses this model to great effect:

1. Users can lock CRV tokens to receive veCRV.

2. veCRV holders can vote on which liquidity pools should receive CRV emissions.

3. The more veCRV a user holds, the more voting power they have and the larger share of trading fees they receive.

The Evolution: ve3,3 Tokenomics

An advanced form of ve-tokenomics, known as ve3,3, takes these principles further:

1. It makes ve-token positions into non-fungible tokens (NFTs), allowing them to be traded.

2. It tightens the alignment between different stakeholders (hence the "3,3" game theory notation).

3. It often includes mechanisms for bribes or incentives to influence voting.

The Role of Monarch Finance

In this grand ecosystem of ve-tokenomics, Monarch Finance serves as a unifying force. We aggregate governance power across multiple ve-tokenomic protocols, optimizing yields and enhancing liquidity. Our Vassal DAOs work with individual protocols, while our overarching strategy ensures that the entire ecosystem thrives.

By understanding ve-tokenomics, you grasp the very foundation upon which our realm is built. In the following chapters, we shall explore how Monarch Finance builds upon these principles to create a thriving, interconnected DeFi kingdom.

May your tokens be ever locked, and your yields ever bountiful!