This system is designed to give projects the ability to use option tokens for bribes and/or rewards. Options tokens generate revenue directly for the community of Liquidity Providers(LPs) that provide to a project's token liquidity pools(LP).
For the sake of this article, we will use TOKEN to represent the project token. The utility of this TOKEN will differ based on the project that created it and will not be described below.
For an audio-visual understanding, feel free to check out the following video. If you would rather not watch, you can continue reading.
Projects that wish to utilize this model, should reach out the the Velocimeter team via the discord. The team, and community, are able to answer any questions that might be had.
Let's start with describing the different type of exercise options that these tokens have built into them.
Exercise() - This option allows users to convert oTOKEN to TOKEN. Usually this option is the most expensive.
ExerciseLP() - This option allows users to convert their oTOKEN to an LP token, which are automatically deposited into reward gauges on Velocimeter with a scaling lock time. This lock time Min and Max are determined by the project before the oTOKEN is deployed. The cost of this option scales with the selected lock time by the users. However, a project that wants, can elect to simplify this and have a constant lock time. Furthermore, users will need to bring enough of the other token in the LP to produce the LP, but these tokens are in still theirs.
ExerciseVE() - This options is only used for project that utilize the veNFT model. However, it allows users to convert their oTOKENs into a veNFT. This is usually the cheapest option.
When a user converts their oTOKEN using a selected option above, they have to pay a fee that is a percentage of Time Weighted Average Price of their TOKEN in the liquidity pool. As highlighted above, this "discount" on the market price will vary based on the choice, but all three options can be set to 0-100% discount.
The fees are in the other token of the TOKEN/othertoken LP. For example in a TOKEN/WETH pool, the oTOKEN fees will be in WETH.
The majority of the fees are sent as rewards to the same gauge that ExerciseLp() users are in, as well as people that provide liquidity without ever having oTOKENs. A small amount, usually 10% of the fee, is sent to Velocimeter to be used for bribes and rewards for other LPs or voters.
The fees not taken by VM are used to boost the rewards for TOKEN LPs. This is in addition any oVM token rewards that are on the gauge via Velocimeter's ve33 voting system or manual rewards.
We wont describe this here, but you can watch this video if you want to understand the ve33 model
Here is a visual representation of the model with an example.
We can see the project is CEAZOR token with USDC in an LP.
oCEAZOR is produced and has CEAZOR tokens inside them. They are used to bribe voters (Grandma below) as well as given to LPs.
DollarBill (the man in the suit) uses ExerciseLP() and joins the project in the CEAZOR/USDC LP gauge.
BoostedBill (the crazy man) uses Exercise() and pays USDC to all the LPs in the gauge.
As mentioned above, the first step is to reach out to the team and ask for integration. The VM team will guild the project thru the followings steps.
Make sure there is a TOKEN LP setup with any token.
Make sure the TOKEN LP has a gauge
Customize and deploy the oTOKEN
Use the oTOKEN to bribe, incentivize Liquidity, or put to use anywhere ERC20s are accepted.
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