On January 26, Ve(3,3), a new project initiated by AC, the founder of Yearn Finance, announced that it will be launched soon and renamed Solidly.
From the naming point of view, Ve(3,3) can be disassembled into two parts: Ve&(3,3). Ve comes from Curve's Ve CRV model, and (3,3) comes from OlympusDAO's 3v3 game. The combination of the two attempts to balance the holders and traders in the supply, bringing more protocol income to the projects (especially the initial projects) joining the Ve(3,3) protocol, and at the same time increasing the lease liquidity. Efficiency of reward.
So, what inspiration did Ve(3,3) draw from the CRV and OHM projects respectively? What improvements and combinations have been made? Is it worth participating?
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First, let's review Curve's AMM mechanism and VeCRV model. Curve provides three incentives for Liquidity Providers (LPs):
50% transaction fee in the liquidity pool
CRV Rewards
Stablecoin reward exchanged for the remaining 50% of the handling fee
Ve is the abbreviation of Voting Escrow (voting escrow), which is the step of replacing Curve's governance token CRV with VeCRV's pledge and lock-up to get more rewards as LPs. VeCRV is a proof of stake, with which you can accelerate the accumulation of LP's CRV rewards (2) with the same LP pledge amount. At the same time, it can also be used to obtain stablecoin rewards (3). In addition, the proof can also be voted to determine the proportion of the total weekly reward (reward) for each liquidity pool in (2), and the project party can use VeCRV to vote for more CRV rewards for their pools (emission) , to attract more LPs. Finally, the amount of stake and the remaining time are used to quantify how much equity is conferred on this proof.
Most of the current AMMs (automatic market makers) are encouraging people to increase the liquidity of the pool, but the subsidy for liquidity is actually an act of increasing liabilities. The project party hopes that the liquidity of the subsidy is long-term rather than temporary lease. Once other pools have higher subsidy, the liquidity will be withdrawn, which will bring downward pressure on the price of tokens used for subsidy. A price war is not a long-term solution. In this case, it is better to leave the decision to stakers, let them decide where the subsidy should be given, and give corresponding rewards.
As a result, Solidly made the following modifications to the Ve model on the basis of VeCRV:
The incentive release plan is changed to release every week according to the inflation rate according to the circulation to compensate the locker's inflation risk
In order to encourage staking and voting, SolidlySwap will compensate users for the inflation risk caused by lock-up, and make up for the additional tokens issued in the emission for lockers to ensure that VeToken will not be diluted.
For example, the total amount issued is 20M tokens, 50% of which is locked, and the remaining 10M is used for incentive distribution. In this 10M, 1M is added to the supply every week, that is, the tokens in the hands of the locker will be diluted by 5% every week (1M/20M). Correspondingly, according to the rules, the locker needs to be filled with 5% inflation: 0.5M (10M*5%)
The token used for incentives is changed from homogenization to non-fungible tokens (NFT)
Solidly has two tokens, one is the emission for issuing rewards, we temporarily call it EMI, which is a homogenized token. The other is the VeToken generated after SLD pledge. Since the amount of each pledged EMI and the lock-up time are different, in order to facilitate management with one address, each lock is packaged into an NFT to store data such as the amount and time of lock-up. There is a similar approach in Olympus V2 - holding bonds in the form of NFTs, giving liquidity to pledged assets and reducing time costs.
We speculate that Solidly may borrow some other ideas from Olympus V2 in the next step, such as adding an option for staking expiration.
ve(3,3) ouroboros
Similar to VeCRV, voting rights are quantified according to the number and time of VeToken pledged by lockers. In order for lockers to select the pool that can generate the most cash flow (Fees), Solidly will pay all transaction fees to voters. This is to help the protocol automatically find the best pool to issue subsidies, that is, a pool with more Fees has a larger transaction volume and a better depth, which can also generate more protocol revenue. Once the transaction volume drops, the protocol does not have to continue to waste subsidies.
But the difference is that Solidly is not a "big pot" like Curve when distributing Fees - no matter which pool you vote for, you can share the fee, while ouroboros is a "small stove" - lockers can only collect the pools they voted for transaction fee. That is, when the pool in which you vote does not generate any handling fees, this "small stove" cannot provide you with any income, nor will it distribute the handling fees generated by other people's voting pools to you. This approach is fairer, and makes voting closer to the vital interests of lockers, who are more cautious when voting.
Transaction fee settlement assets and third-party cooperation
The fees collected by the current AMM protocols (such as MakerDAO, Yearn) are mainly used to repurchase governance tokens, or sell them into stablecoins (Curve). And ve(3,3) directly distributes the collected fees to the Ve locker without generating transactions.
If a third party wants to access the liquidity pool, it can only provide incentives and no fee income in Curve. In Ve(3,3), the handling fee will be given to LP, and all handling fees will be obtained. To this end, the project party can add Liquidity to the corresponding pool.
The 3v3 of OlympusDAO is the result of the game between the two parties under different choices under the two incentive mechanisms of bonding and staking, showing how the participants should cooperate to achieve the maximum benefit. Similarly, the participants of Ve(3,3) choose between two incentive methods of locking (Ve) and providing liquidity, and they also show similar game results.
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Note: The above picture is drawn according to the author's understanding and does not come from official documents
Since Ve locker has both transaction fee income and inflation compensation, we set his income as +3;
If the lock-up amount increases and the relative reward expenditure decreases, the project's income will increase and the debt will decrease, which will greatly help the project's finances. If both parties in the game choose to be lockers, it is a win-win situation, and both parties are in the maximization of interests (3, 3).
Of course, it is not that the more tokens locked, the better. Both the protocol and the lockers need the LP pool to generate enough Fees to support cash flow. If all the circulation is locked in locks, there will be no tokens in the pool, the circulation is 0, and no transaction fees (Fees) will be generated.
Compared with Ve locker, the liquidity provider (LP) has only the liquidity incentive part (emission) of inflation compensation, and the benefit is relatively small (+1);
If all tokens are in circulation and are not in locks, then there will be no voting rights, the project cash flow will decrease, and there will be downward pressure on the price (-1).
The setting of the Sell behavior is the same as that of Olympus. Selling first has an advantage of +1, and on the contrary, it is at a disadvantage of -1.
Both parties sell their tokens at the same time, which is the worst option for both parties and the agreement: (-3, -3)
In general, the design of Ve(3,3) is mainly optimized for the protocol, optimizing the way of subsidizing liquidity, and allowing the initial protocol to have liquidity in more pools.
Due to the saturation of the AMM market, the way to make the idea of Ve(3,3) more widely adopted is not to restart an AMM project, but to build a Protocol to Protocol architecture on the basis of the original AMM to provide the existing AMM. Components and interfaces.
Note: The above is based on the analysis and speculation of the concept article published by the project. Since the project has not been officially launched, the details have not been announced, and there may be deviations from the real situation of the project.