👨🏫ve33 Explained
ve33 presents a unique approach to on-chain governance and liquidity coordination. It is vital to break down its components and understand how they interact to fully grasp the system.
The first ve33 model was introduced by Solidly. Solidly is primarily recognized for its innovative token model that incentivizes liquidity on an automated market maker (AMM). This token model draws inspiration from platforms such as Curve Finance and Olympus DAO. The system's native token is SOLID, and holders can lock this token for up to four years to acquire veSOLID (voting power) without being diluted by SOLID emissions to gauges.
Once SOLID tokens are locked into veSOLID, holders gain the ability to vote on various gauges. These gauges retain the Solidly AMM LP tokens, deposited by farmers. The global vote dictates the distribution of SOLID emissions to each gauge, resembling the model used by Curve Finance.
In earlier models like Curve, swap fees accumulated by an AMM LP auto compound for the farmers. However, Solidly introduced a new way to manage the swap fees. Instead of auto-compounding swap fees in LPs, Solidly proposed that the swap fees should be redirected to the veSOLID holder that voted for those gauges. In Solidly:
Farmers deposit LP tokens in gauge contracts.
The LP tokens generate swap fees from traders on the Solidly AMM.
These fees are then claimed by the gauge contract and sent to a bribe contract.
veSOLID holders who voted for the particular gauge earn these swap fees from the bribe contract.
The setup essentially bridges the gap between LP volume and governance. The more profitable a gauge is in terms of swap fees, the more incentivized a veSOLID holder is to vote for it. That is why ve33 is a liquidity coordination system, that coordinates among these three entities:
Liquidity Providers: Their primary goal is to profit from their assets. They deposit LP tokens in gauges and in return, earn SOLID tokens.
Governors (veSOLID Holders): Responsible for decision-making, such as which liquidity pools to incentivize. With Solidly's model, they are motivated to vote for gauges that produce higher swap fees.
Traders: Seeking to experience minimal slippage on trades, traders depend on adequate liquidity. As such, if a specific pair witnesses high volume, it's in the best interest of governance to increase emissions to that pair, increasing liquidity, and enhancing the trader's experience.
ve33's real achievement is not its AMM but the coordination system it established for liquidity providers, governors, and traders. The platform's approach ensures real-time feedback and direct effects from governance actions, making it a dynamic and responsive system. As platforms like v33-X aim to expand on this model, it's evident that the future of on-chain governance lies in fluid, instantaneous decision-making mechanisms.
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