Explain ve(3,3) tokenomics
Applying ve(3,3) tokenomics has become standard for DeFi protocols looking to both attract liquidity while also retaining long term ecosystem value, but what does it actually mean for a token model to be ve(3,3)?
Let’s break it down into its base components, ve(3,3) is the combination of veTokenomics popularized by Curve and the (3,3) game theory meme popularized by Olympus DAO. The combination into ve(3,3) was popularized by Andre Cronje of Yearn Finance.
veTokenomics
The idea behind veTokenomics (vote escrow token economics) is simple, it aims to align voter incentives with long term protocol incentives by requiring that voters not only hold the protocol token, but also lock it up. The longer that the user locks up the token for, the greater their voting power. In this way, those who have the greatest voting power also feel the long term impact of their decisions, since they cannot sell their tokens until long after the decisions have been implemented.
(3,3)
The idea behind (3,3) is that building a system where all users are incentivized to stake rather than sell results in better outcomes for all participants.
ve(3,3)
So putting it all together, ve(3,3) describes a set of tokenomics where the protocol is controlled by users who lock up their tokens for more votes, and whose design incentivizes most users to stake their tokens rather than selling them.
A simple example would be a DEX with a governance token, the token only grants votes when vote escrowed, and the longer you lock it up the more votes you get. You can then use your votes to adjust parameters like trading fees, token emission incentives, and other incentive gauges to drive volume towards certain trading pairs. Liquidity providers who also staked tokens would earn a larger share of protocol revenue, adding a (3,3) component. We see a virtuous cycle emerging, liquidity providers are attracted to yield opportunities, thus they buy the protocol token and vote escrow it to participate in protocol revenue while providing liquidity. They are now also incentivized to pick trading pairs which they think the broader market will want, which increases protocol revenue, and attracts more liquidity providers.
Something big coming
Follow me on Twitter/X to see ve(3,3) in action, coming soon to a chain near you.
Further readings
Another good explainer on ve(3,3) https://medium.com/vesperfinance/a-closer-look-at-ve-3-3-522add01b4b5
A funny read that illustrates why (3,3) failed, a lesson on behavioral economics, and why theoretical game theory only works… in theory https://forum.olympusdao.finance/d/993-straying-from-the-33-path
