The transition from ParaSwap's PSP to Velora's VLR is more than a simple rebrand; it represents a critical evolution in decentralized governance and tokenomics, driven by the lessons of early DeFi incentive models. This report provides a data-driven analysis of the historical context of the PSP token, including its complex, multi-layered staking mechanisms and the incentive misalignments that ultimately hindered broad and active community participation. We deconstruct the new VLR model, examining how its unified, revenue-driven design aims to solve the classic principal-agent problem by directly linking the financial success of token holders to the protocol's real-world usage. By analyzing the shift from inflationary rewards to a sustainable revenue-sharing framework, we conclude that the VLR token represents a deliberate and necessary maturation, trading complexity for clarity and aligning the distinct goals of users, solvers, and governors toward the singular objective of long-term protocol health.

Governance tokens are the bedrock of decentralization in the DeFi industry. In theory, they are a revolutionary tool, distributing power from a centralized team to a global community of users and stakeholders. This model promises a more democratic, transparent, and resilient future for financial protocols. The pros are compelling: token holders can propose and vote on everything from fee structures to major protocol upgrades, becoming true stewards of the ecosystem. However, the practical application of this ideal has been fraught with challenges.

The first generation of governance tokens often suffered from a series of predictable cons. Many relied on high inflationary rewards to incentivize participation, which created persistent sell pressure and diluted the value for long-term believers. Voter apathy became rampant, as many token holders were more interested in farming yield than engaging in the complex and time-consuming work of governance. This led to the classic principal-agent problem, where the financial incentives of token holders (the principals) were not aligned with the long-term health of the protocol they were meant to govern. The evolution of Velora's governance token from PSP to VLR is a direct response to these industry-wide challenges, offering a case study in how a protocol can redesign its economic engine for sustainable, long-term alignment.

To fully appreciate the strategic shift embodied by the VLR token, it is essential to first analyze the model it was designed to replace. Launched in 2021, the ParaSwap Protocol Token (PSP) was introduced with the clear mission to empower the community that had been instrumental in its growth. The core function of PSP was to grant holders the ability to participate in the ParaSwap DAO, enabling them to vote on crucial decisions such as protocol upgrades, treasury management, and fee parameter adjustments.

However, the tokenomic architecture built to foster this engagement, while well-intentioned, ultimately proved to be a double-edged sword. Its complexity created barriers to entry, and its incentive structure inadvertently prioritized passive yield generation over active, value-additive governance.

The initial governance framework was centered around a multi-faceted staking system that required users to navigate several options to participate and earn rewards. PSP holders could stake their tokens in two primary ways:

• sePSP1: A single-asset staking pool that served as the baseline for earning rewards and participating in governance.

• sePSP2: a more complex mechanism offering boosted rewards through a multi-layered architecture.

These models were designed to reward long-term commitment and were later enhanced with the introduction of PSP 2.0, which promised to distribute 80% of protocol revenue to stakers. Despite these ambitions, the system's inherent complexity became a significant hurdle for many users. The dual-token staking model, with its different requirements and reward calculations, created confusion and fragmented liquidity, making it difficult for the average token holder to understand how to best participate in the ecosystem. This complexity often meant that only the most sophisticated users could effectively optimize their staking strategies, leaving a large portion of the community on the sidelines.

Beyond its complexity, the fundamental flaw in the PSP model was a structural misalignment of incentives. The rewards distributed to stakers were primarily driven by inflationary token emissions and the mechanics of the staking pools themselves, rather than being directly and transparently tied to value-additive activities on the protocol, such as trading volume or active governance participation. This created a system where users could stake their tokens for yield without necessarily contributing to the protocol's core business or its long-term strategic direction.

This disconnect manifested in low governance participation rates, a common ailment in many DAOs. As noted in ParaSwap's own governance forum discussions, voter turnout often remained low when compared to the total number of PSP tokens staked, indicating a high degree of passivity among token holders. This dynamic is a classic illustration of the principal-agent problem in decentralized organizations. In this context, the token holders (the principals) were incentivized by yield, an interest that could diverge from the optimal long-term outcome for the protocol (sustainable growth and robust governance). Many participants behaved more like passive yield farmers than active governors invested in the protocol's future.

Furthermore, the reliance on inflationary rewards created persistent sell pressure on the PSP token, a common challenge for token models of that era that can dilute the value for committed, long-term stakeholders. The initial airdrop in 2021 also faced community criticism for its stringent filtering criteria, which distributed tokens to only around 20,000 of the 1.4 million unique addresses that had used the protocol, leaving many early users feeling excluded. These factors combined made it clear that for the protocol to successfully transition into its next phase as a leading intent-based architecture, its economic and governance engine required a fundamental redesign.

The transition to Velora and the VLR token was not a unilateral decision but the result of a deliberate, community-driven process. It was the culmination of "Project Miró," a DAO-led initiative to overhaul the protocol's brand, governance, and token model in preparation for its future as a premier intent-based architecture. The core mandate from the DAO was clear: move away from the complexities and misaligned incentives of the past and build a more transparent, simplified, and sustainable economic model for the future.

The team's stated goal was to "consolidate its model into a single asset and better align incentives with real protocol usage". This represented a significant philosophical shift, moving away from the prevailing model of attracting users through high inflationary rewards and toward a system where the token's value and its holders' rewards are directly linked to the protocol's real-world economic activity. This DAO mandated evolution laid the groundwork for the VLR token, aiming to create a durable financial infrastructure where the incentives of all participants users, solvers, and governors are aligned toward the common goal of long-term protocol health.

The VLR tokenomics were engineered from the ground up to address the shortcomings of the PSP era. The new model is built on three core pillars designed to create a virtuous cycle of growth and participation: simplifying governance to empower token holders , creating a sustainable rewards model directly funded by protocol activity , and aligning the incentives of all stakeholders with the long-term success of the protocol.

The VLR model's first order of business was to dismantle the barriers to entry that had fragmented participation in the PSP era. The confusing and cumbersome sePSP1 and sePSP2 systems have been completely replaced by a unified, single-asset staking mechanism. This consolidation dramatically simplifies the user experience, eliminating the need for complex calculations and allowing any token holder to participate in governance and rewards through a single, straightforward process.

To further reduce friction, the entire staking hub has been unified on Base, an Ethereum Layer 2 network known for its low transaction costs. The migration process itself was thoughtfully designed to be gasless, allowing users to convert their various PSP-era tokens (PSP, sePSP1, and sePSP2) to VLR at a 1:1 ratio without incurring any on-chain fees. To catalyze the transition and reward the most committed community members, an incentive program was introduced, offering to those who migrated before December 16th.

This simplified and accessible structure is designed to empower VLR holders to more easily and effectively exercise their primary function: governing the protocol. Through the Velora DAO, VLR holders will vote on the critical parameters that shape the ecosystem's future, including protocol fee structures, the integration of new blockchains, and the economic incentives that govern the solver network.

The most profound innovation of the VLR token is its direct and transparent link to protocol revenue. The new model completely abandons the reliance on inflationary emissions for staker rewards. Instead, rewards are now funded directly by the fees generated from the protocol's core economic activity: facilitating trades. Velora charges a small, competitive fee on swaps, and a significant portion of this revenue is distributed directly to those who stake VLR, creating a real-yield mechanism for token holders.

This design establishes a powerful and transparent value-accrual flywheel, where the interests of the token holders are intrinsically tied to the growth of the protocol:

1. Increased Protocol Usage: As more users and dApps integrate with Velora to take advantage of its superior execution, MEV protection, and cross-chain capabilities, the total trading volume on the protocol grows. The protocol has already demonstrated significant traction, having processed over $125 billion in cumulative volume and reaching a monthly all-time high of over $7 billion in August 2025.

2. Higher Protocol Revenue: This increased trading volume directly translates into more fee revenue for the protocol's treasury. With annualized fees already in the millions of dollars, the potential for substantial and sustainable revenue generation is clear.

3. Greater Staker Rewards: As the protocol's revenue increases, the rewards distributed to VLR stakers grow proportionally. This creates a direct incentive for token holders to govern the protocol in a way that maximizes its adoption and utility.

This revenue-sharing model is inherently more sustainable and economically sound than one based on continuous token inflation. It ensures that the value distributed to token holders is value that has been earned through real economic activity, not simply printed. This fundamental shift aligns the financial interests of token holders directly with the protocol's success, transforming them from passive yield-seekers into active stakeholders with a vested interest in the long-term health and growth of the Velora ecosystem.

By directly tying the power of governance and the potential for profit to the protocol's real-world performance, the VLR model provides a robust and elegant solution to the principal-agent problem that has long challenged decentralized organizations.

• Aligning Token Holders (The Principals): Under the VLR system, token holders are no longer just passive recipients of inflationary rewards; they are direct beneficiaries of the protocol's revenue. This creates a powerful economic feedback loop. A governance vote that leads to increased trading volume and revenue will directly increase their personal rewards. Conversely, a short-sighted or detrimental decision that harms the protocol's reputation or efficiency will lead to a decrease in revenue and, consequently, their own earnings. This direct link between their decisions and their financial outcomes incentivizes responsible, long-term-oriented governance.

• Aligning Solvers (The Agents): The VLR model also extends this principle of "skin in the game" to the protocol's most critical agents: the solvers. In order to participate in the competitive auctions for fulfilling user intents. This mechanism ensures that solvers have a direct financial stake in the integrity and health of the network they service. Any malicious behavior, such as providing suboptimal execution or attempting to censor transactions, could not only harm the protocol's reputation but also negatively impact the value of their own staked assets. This creates a strong economic incentive for solvers to act honestly and provide the best possible execution for users, aligning their profit motive with the user's desire for a fair and efficient trade.

Finally, the new tokenomics introduce a 2% annual inflation cap, a stark contrast to the less-defined and often unsustainable inflationary models of the past. These controlled emissions are specifically earmarked to incentivize liquidity providers, ensuring that all critical participants in the Velora ecosystem are aligned toward the common goal of sustainable growth and deep, reliable liquidity.

A well-designed token model is only as effective as the governance process that wields it. The Velora DAO operates through a structured, multi-stage governance framework designed to ensure that every proposal is deeply evaluated by the community before reaching a binding vote.

While the specifics continue to evolve, a typical proposal lifecycle begins with an open discussion on the official governance forum, followed by an off-chain Temperature Check to gauge community sentiment in a gasless environment. Proposals that gain sufficient support advance to a formal on-chain vote, where token holders make the final decision.

This process has already been tested through complex, real-world scenarios. A notable example is the ParaSwap DAO’s handling of a controversial proposal concerning the return of illicitly obtained funds. The governance forum debate was intense — members weighed the principle of “code is law” and decentralization against the ethical and reputational need to uphold integrity within the ecosystem.

Ultimately, the community voted to return the funds, a decision that directly influenced the protocol’s evolution and its subsequent rebrand from ParaSwap to Velora. This outcome showcased the DAO’s capacity to navigate ethical complexity, reinforcing that every token holder’s vote carries real, directional power.

Velora’s governance journey stands as a case study in decentralized accountability — where technical rigor meets moral judgment, and collective decision-making defines the protocol’s future.

The evolution from PSP to VLR represents a strategic shift in tokenomics philosophy. The following table provides a clear comparison between the two models across key governance and economic dimensions.

The evolution from PSP to VLR is a case study in adaptive governance. It reflects a deep understanding of the lessons learned from the first generation of DeFi tokenomics and a clear vision for the future of intent-based protocols. By replacing a complex, inflation-driven system with a simplified, revenue centric model, Velora has not just changed its token it has fundamentally upgraded its entire economic engine.

The VLR model is designed to be a durable system where power is accessible, profit is earned, and the health of the protocol is the shared priority of every participant. It directly confronts the principal-agent problem by creating a powerful alignment of incentives between users, solvers, and token holders. While the ultimate success of this new framework will depend on the DAO's ability to foster active participation and navigate the competitive DeFi landscape, the VLR tokenomics provide a robust and sustainable foundation. It is a model built not for a fleeting bull market, but for the long-term future of decentralized finance.

The transition from ParaSwap's PSP to Velora's VLR is more than a simple rebrand; it represents a critical evolution in decentralized governance and tokenomics, driven by the lessons of early DeFi incentive models. This report provides a data-driven analysis of the historical context of the PSP token, including its complex, multi-layered staking mechanisms and the incentive misalignments that ultimately hindered broad and active community participation. We deconstruct the new VLR model, examining how its unified, revenue-driven design aims to solve the classic principal-agent problem by directly linking the financial success of token holders to the protocol's real-world usage. By analyzing the shift from inflationary rewards to a sustainable revenue-sharing framework, we conclude that the VLR token represents a deliberate and necessary maturation, trading complexity for clarity and aligning the distinct goals of users, solvers, and governors toward the singular objective of long-term protocol health.

Governance tokens are the bedrock of decentralization in the DeFi industry. In theory, they are a revolutionary tool, distributing power from a centralized team to a global community of users and stakeholders. This model promises a more democratic, transparent, and resilient future for financial protocols. The pros are compelling: token holders can propose and vote on everything from fee structures to major protocol upgrades, becoming true stewards of the ecosystem. However, the practical application of this ideal has been fraught with challenges.

The first generation of governance tokens often suffered from a series of predictable cons. Many relied on high inflationary rewards to incentivize participation, which created persistent sell pressure and diluted the value for long-term believers. Voter apathy became rampant, as many token holders were more interested in farming yield than engaging in the complex and time-consuming work of governance. This led to the classic principal-agent problem, where the financial incentives of token holders (the principals) were not aligned with the long-term health of the protocol they were meant to govern. The evolution of Velora's governance token from PSP to VLR is a direct response to these industry-wide challenges, offering a case study in how a protocol can redesign its economic engine for sustainable, long-term alignment.

To fully appreciate the strategic shift embodied by the VLR token, it is essential to first analyze the model it was designed to replace. Launched in 2021, the ParaSwap Protocol Token (PSP) was introduced with the clear mission to empower the community that had been instrumental in its growth. The core function of PSP was to grant holders the ability to participate in the ParaSwap DAO, enabling them to vote on crucial decisions such as protocol upgrades, treasury management, and fee parameter adjustments.

However, the tokenomic architecture built to foster this engagement, while well-intentioned, ultimately proved to be a double-edged sword. Its complexity created barriers to entry, and its incentive structure inadvertently prioritized passive yield generation over active, value-additive governance.

The initial governance framework was centered around a multi-faceted staking system that required users to navigate several options to participate and earn rewards. PSP holders could stake their tokens in two primary ways:

• sePSP1: A single-asset staking pool that served as the baseline for earning rewards and participating in governance.

• sePSP2: a more complex mechanism offering boosted rewards through a multi-layered architecture.

These models were designed to reward long-term commitment and were later enhanced with the introduction of PSP 2.0, which promised to distribute 80% of protocol revenue to stakers. Despite these ambitions, the system's inherent complexity became a significant hurdle for many users. The dual-token staking model, with its different requirements and reward calculations, created confusion and fragmented liquidity, making it difficult for the average token holder to understand how to best participate in the ecosystem. This complexity often meant that only the most sophisticated users could effectively optimize their staking strategies, leaving a large portion of the community on the sidelines.

Beyond its complexity, the fundamental flaw in the PSP model was a structural misalignment of incentives. The rewards distributed to stakers were primarily driven by inflationary token emissions and the mechanics of the staking pools themselves, rather than being directly and transparently tied to value-additive activities on the protocol, such as trading volume or active governance participation. This created a system where users could stake their tokens for yield without necessarily contributing to the protocol's core business or its long-term strategic direction.

This disconnect manifested in low governance participation rates, a common ailment in many DAOs. As noted in ParaSwap's own governance forum discussions, voter turnout often remained low when compared to the total number of PSP tokens staked, indicating a high degree of passivity among token holders. This dynamic is a classic illustration of the principal-agent problem in decentralized organizations. In this context, the token holders (the principals) were incentivized by yield, an interest that could diverge from the optimal long-term outcome for the protocol (sustainable growth and robust governance). Many participants behaved more like passive yield farmers than active governors invested in the protocol's future.

Furthermore, the reliance on inflationary rewards created persistent sell pressure on the PSP token, a common challenge for token models of that era that can dilute the value for committed, long-term stakeholders. The initial airdrop in 2021 also faced community criticism for its stringent filtering criteria, which distributed tokens to only around 20,000 of the 1.4 million unique addresses that had used the protocol, leaving many early users feeling excluded. These factors combined made it clear that for the protocol to successfully transition into its next phase as a leading intent-based architecture, its economic and governance engine required a fundamental redesign.

The transition to Velora and the VLR token was not a unilateral decision but the result of a deliberate, community-driven process. It was the culmination of "Project Miró," a DAO-led initiative to overhaul the protocol's brand, governance, and token model in preparation for its future as a premier intent-based architecture. The core mandate from the DAO was clear: move away from the complexities and misaligned incentives of the past and build a more transparent, simplified, and sustainable economic model for the future.

The team's stated goal was to "consolidate its model into a single asset and better align incentives with real protocol usage". This represented a significant philosophical shift, moving away from the prevailing model of attracting users through high inflationary rewards and toward a system where the token's value and its holders' rewards are directly linked to the protocol's real-world economic activity. This DAO mandated evolution laid the groundwork for the VLR token, aiming to create a durable financial infrastructure where the incentives of all participants users, solvers, and governors are aligned toward the common goal of long-term protocol health.

The VLR tokenomics were engineered from the ground up to address the shortcomings of the PSP era. The new model is built on three core pillars designed to create a virtuous cycle of growth and participation: simplifying governance to empower token holders , creating a sustainable rewards model directly funded by protocol activity , and aligning the incentives of all stakeholders with the long-term success of the protocol.

The VLR model's first order of business was to dismantle the barriers to entry that had fragmented participation in the PSP era. The confusing and cumbersome sePSP1 and sePSP2 systems have been completely replaced by a unified, single-asset staking mechanism. This consolidation dramatically simplifies the user experience, eliminating the need for complex calculations and allowing any token holder to participate in governance and rewards through a single, straightforward process.

To further reduce friction, the entire staking hub has been unified on Base, an Ethereum Layer 2 network known for its low transaction costs. The migration process itself was thoughtfully designed to be gasless, allowing users to convert their various PSP-era tokens (PSP, sePSP1, and sePSP2) to VLR at a 1:1 ratio without incurring any on-chain fees. To catalyze the transition and reward the most committed community members, an incentive program was introduced, offering to those who migrated before December 16th.

This simplified and accessible structure is designed to empower VLR holders to more easily and effectively exercise their primary function: governing the protocol. Through the Velora DAO, VLR holders will vote on the critical parameters that shape the ecosystem's future, including protocol fee structures, the integration of new blockchains, and the economic incentives that govern the solver network.

The most profound innovation of the VLR token is its direct and transparent link to protocol revenue. The new model completely abandons the reliance on inflationary emissions for staker rewards. Instead, rewards are now funded directly by the fees generated from the protocol's core economic activity: facilitating trades. Velora charges a small, competitive fee on swaps, and a significant portion of this revenue is distributed directly to those who stake VLR, creating a real-yield mechanism for token holders.

This design establishes a powerful and transparent value-accrual flywheel, where the interests of the token holders are intrinsically tied to the growth of the protocol:

1. Increased Protocol Usage: As more users and dApps integrate with Velora to take advantage of its superior execution, MEV protection, and cross-chain capabilities, the total trading volume on the protocol grows. The protocol has already demonstrated significant traction, having processed over $125 billion in cumulative volume and reaching a monthly all-time high of over $7 billion in August 2025.

2. Higher Protocol Revenue: This increased trading volume directly translates into more fee revenue for the protocol's treasury. With annualized fees already in the millions of dollars, the potential for substantial and sustainable revenue generation is clear.

3. Greater Staker Rewards: As the protocol's revenue increases, the rewards distributed to VLR stakers grow proportionally. This creates a direct incentive for token holders to govern the protocol in a way that maximizes its adoption and utility.

This revenue-sharing model is inherently more sustainable and economically sound than one based on continuous token inflation. It ensures that the value distributed to token holders is value that has been earned through real economic activity, not simply printed. This fundamental shift aligns the financial interests of token holders directly with the protocol's success, transforming them from passive yield-seekers into active stakeholders with a vested interest in the long-term health and growth of the Velora ecosystem.

By directly tying the power of governance and the potential for profit to the protocol's real-world performance, the VLR model provides a robust and elegant solution to the principal-agent problem that has long challenged decentralized organizations.

• Aligning Token Holders (The Principals): Under the VLR system, token holders are no longer just passive recipients of inflationary rewards; they are direct beneficiaries of the protocol's revenue. This creates a powerful economic feedback loop. A governance vote that leads to increased trading volume and revenue will directly increase their personal rewards. Conversely, a short-sighted or detrimental decision that harms the protocol's reputation or efficiency will lead to a decrease in revenue and, consequently, their own earnings. This direct link between their decisions and their financial outcomes incentivizes responsible, long-term-oriented governance.

• Aligning Solvers (The Agents): The VLR model also extends this principle of "skin in the game" to the protocol's most critical agents: the solvers. In order to participate in the competitive auctions for fulfilling user intents. This mechanism ensures that solvers have a direct financial stake in the integrity and health of the network they service. Any malicious behavior, such as providing suboptimal execution or attempting to censor transactions, could not only harm the protocol's reputation but also negatively impact the value of their own staked assets. This creates a strong economic incentive for solvers to act honestly and provide the best possible execution for users, aligning their profit motive with the user's desire for a fair and efficient trade.

Finally, the new tokenomics introduce a 2% annual inflation cap, a stark contrast to the less-defined and often unsustainable inflationary models of the past. These controlled emissions are specifically earmarked to incentivize liquidity providers, ensuring that all critical participants in the Velora ecosystem are aligned toward the common goal of sustainable growth and deep, reliable liquidity.

A well-designed token model is only as effective as the governance process that wields it. The Velora DAO operates through a structured, multi-stage governance framework designed to ensure that every proposal is deeply evaluated by the community before reaching a binding vote.

While the specifics continue to evolve, a typical proposal lifecycle begins with an open discussion on the official governance forum, followed by an off-chain Temperature Check to gauge community sentiment in a gasless environment. Proposals that gain sufficient support advance to a formal on-chain vote, where token holders make the final decision.

This process has already been tested through complex, real-world scenarios. A notable example is the ParaSwap DAO’s handling of a controversial proposal concerning the return of illicitly obtained funds. The governance forum debate was intense — members weighed the principle of “code is law” and decentralization against the ethical and reputational need to uphold integrity within the ecosystem.

Ultimately, the community voted to return the funds, a decision that directly influenced the protocol’s evolution and its subsequent rebrand from ParaSwap to Velora. This outcome showcased the DAO’s capacity to navigate ethical complexity, reinforcing that every token holder’s vote carries real, directional power.

Velora’s governance journey stands as a case study in decentralized accountability — where technical rigor meets moral judgment, and collective decision-making defines the protocol’s future.

The evolution from PSP to VLR represents a strategic shift in tokenomics philosophy. The following table provides a clear comparison between the two models across key governance and economic dimensions.

The evolution from PSP to VLR is a case study in adaptive governance. It reflects a deep understanding of the lessons learned from the first generation of DeFi tokenomics and a clear vision for the future of intent-based protocols. By replacing a complex, inflation-driven system with a simplified, revenue centric model, Velora has not just changed its token it has fundamentally upgraded its entire economic engine.

The VLR model is designed to be a durable system where power is accessible, profit is earned, and the health of the protocol is the shared priority of every participant. It directly confronts the principal-agent problem by creating a powerful alignment of incentives between users, solvers, and token holders. While the ultimate success of this new framework will depend on the DAO's ability to foster active participation and navigate the competitive DeFi landscape, the VLR tokenomics provide a robust and sustainable foundation. It is a model built not for a fleeting bull market, but for the long-term future of decentralized finance.