The ve(3,3) Incentive Model
The
ve(3,3) incentive model is a mechanism used primarily by decentralized exchanges (DEXs) to align incentives between liquidity providers, traders, and token holders through governance and emissions
1. It is based on the Solidly protocol's design
1.
Core Mechanism
The ve(3,3) model is an incentive mechanism that rewards investors for locking their native tokens within a protocol for a set period of time
23. This locking process creates a vote-escrowed token (veToken), such as staking the native token DYST for veDYST in the Dystopia DEX
23.
Key features of the model include:
- Incentive Alignment: The model aims to balance liquidity rewards and governance incentives to promote efficiency and sustainability within the protocol 1.
- Governance and Rewards: By locking tokens, investors gain governance opportunities and earn rewards from the protocol, which incentivizes their contribution to liquidity 23.
- Emissions Lock: The mechanism introduces an emissions lock where token holders lock their tokens to vote on directing liquidity incentives 1.
- Reward Split: Rewards are split between liquidity providers and emissions governance 1.
Application in Decentralized Finance (DeFi)
The ve(3,3) model represents an evolution in DEX design, moving beyond simpler models like Uniswap, which allocates 100% of fees directly to liquidity providers (LPs)
1.
- DEX Trilemma: The ve(3,3) model addresses the "DEX Trilemma" by attempting to balance the interests of Liquidity Providers, Traders, and the Token (governance incentives) 1.
- Examples:
- Dystopia, a DEX on Polygon, was the first platform on that network to use the ve(3,3) model 234.
- The model is also implemented for governance and fee sharing in platforms like Rootswap, an Automated Market Maker (AMM)-based DEX for swapping NFTs 5.
The ve(3,3) mechanism is designed to provide liquidity incentives and align incentives through token governance
1.