🔄Understanding ve(3,3) Economic Model
The ve(3,3) economic model presents a self-sustaining solution that addresses the challenges of incentivizing liquidity providers (LPs) and ensuring revenue accrual for decentralized exchange (DEX) governance token holders. This innovative approach balances incentives and rewards, promoting long-term growth and stability.
Addressing Challenges in Traditional DEXs
Traditional DEXs, such as Uniswap, face issues related to providing adequate incentives for LPs and ensuring revenue accrual for governance token holders. Trade fees are often insufficient to attract LPs, resulting in liquidity mining programs with native token emissions. However, these emissions can have negative effects on token prices over time for projects aiming to incentivize liquidity. Additionally, governance token holders struggle to redirect revenue away from LPs to the DEX without causing LPs to leave, which reduces liquidity and overall trade volumes.
Unique Fee and Incentive Structure in the ve(3,3) Model
The ve(3,3) model addresses these challenges through a distinctive fee and incentive structure that includes:
Allocating all trade fees to veSLNA voters
Encouraging LPs with SLNA emissions
Permitting protocols to directly bribe veSLNA voters for a share of emissions to incentivize their tokens
Sustaining SLNA emissions through transaction revenue and utility
This structure ensures high utility and rewards for holding and locking the SLNA token, helping maintain liquidity.
Participants and Incentives
The ve(3,3) model aligns the incentives of all participants in the Chronos protocol, including $veSLNA voters, liquidity providers, traders, and protocols:
Liquidity Providers: Encouraged to contribute liquidity to pools with the highest $SLNA emissions and incentivized to commit their liquidity for longer durations for maximal rewards, ensuring TVL alignment with the project's long-term health and sustainability.
$veSLNA Voters: Motivated to vote to direct incentives to high-volume and most bribed pools, as these pools generate the most fees.
Traders: Benefit from reduced slippage and improved rates due to increased liquidity.
Protocols: Enjoy a public liquidity layer and can easily bribe voters to attract more incentives and liquidity to their pools.
Efficient Liquidity Sourcing and Balancing Demand
Projects can efficiently source liquidity for their tokens by directly bribing veSLNA voters, who receive a portion of emissions. This method offers a secondary income source for veSLNA lockers. Additionally, as the price of SLNA decreases, the APR for locked veSLNA increases, making it more attractive to investors and helping maintain demand. This equilibrium protects the price and ensures LPs have a sustainable yield in the form of SLNA emissions.
The system is elastic, adapting to various liquidity and market conditions. As liquidity and trade volumes increase, the price of SLNA will naturally increase, sustaining liquidity through increased revenues from trade fees. This process benefits all participants through natural market forces.
In Conclusion
The ve(3,3) economic model creates a flywheel effect that balances incentives, rewards, and demand, providing a sustainable solution for DEXs, liquidity providers, and SLNA token holders. By addressing traditional DEX challenges, the ve(3,3) model establishes a healthier, more efficient, and attractive ecosystem for all involved parties.
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