The veToken concept is a big development for certain project tokenomics. The fundamental concept behind veToken is the locking up of its native currency and granting of voting rights, resulting in decentralized governance to maximum advantage. We’ll walk you through the history of veToken’s creation and explain how decentralized Web3 society uses it.
What is veToken?
Governance tokens are distributed by a number of DeFi projects to allow user engagement and decision-making. Yet, many users are more interested in jumping between projects in an effort to locate the most lucrative chances rather than being committed to the long-term goal of any one protocol. As a result, since these yield farmers usually sell the tokens they earn on the open market right away, the price of the project’s token is continually under selling pressure.
In order to address this problem, Curve Finance developed a new tokenomic model that urges users to lock up their CRV tokens for specified periods of time to fully benefit from governance involvement. Users of Curve have the option of locking their CRV in exchange for (vote-escrowed) veCRV; longer locking durations result in higher veCRV. The decrease in market-available CRV supply boosts the value of the token, and holders of veCRV are more interested in the protocol’s long-term success. The non-transferability and lack of an inherent economic worth are the two main properties of veToken.
How does veToken work in decentralized governance?
It is theoretically possible for a blockchain project to succeed without a token. Yet if you wish to have a decentralized project and promote participation in it, you need a token. Let’s utilize the CRV token example once more as that is where the veToken initially appeared.
veToken firmly asserted itself when the Curve Wars began in 2021. Curve Finance created a permissionless factory pool so customers may build liquidity pools related to their projects while inheriting the liquidity from Curve Finance. Each pool will receive a portion of the CRV tokens, which originate through emissions, protocol fees, etc. In the governance process, veCRV decided how much CRV should be delivered to each pool.
One must compete in Curve Wars and battle for access to veCRV in order to reach the largest cake. Many DeFi projects are competing in the veCRV race, and many protocols have been created solely to gain an advantage in the Curve Wars. Because to veToken procedures, there are a lot of participants involved in this power struggle, thus compared to most decentralized finance tokens, it offers much more advanced governance systems.
veToken: Is it reliable and secure? Will it help improve the transparency of the Web3 community?
As previously stated, veToken aids in bolstering long-term treatment adherence. The fact that tokens are locked for up to several years encourages users to make decisions that are in the protocol’s best interests rather than their own.
As you can see from Curve Wars, in terms of security and dependability, not all players are able to sell their tokens, and there aren’t many tokens available on the open market. As a result, obtaining more than 50% of the tokens to carry out a governance takeover is very challenging.
Even though veToken is not perfect, it is a considerably more complicated model than the majority of other tokenomics. The veToken’s utility makes it possible to align everyone’s interests, and it also provides incentives that are far more consistent with the real finance sector. Phemex, a CEX that prioritizes transparency, will research a range of potential methods including veTokens for the benefit of its users.