Do veTokenomics make sense?
A quick thread 🧵
A quick thread 🧵
Token economic systems in DeFi are meant to redistribute value accrual of the open-source protocols back to the community and stakeholders.
By stakeholders, I mean those who provide key roles in each protocol, like LPs and users. Passive token-holders who stake may not fall in that category. Without them, the system still functions.
Too many projects are adopting veTokenomics without really giving an actual deep thought on what are their protocol’s stakeholders, what behaviours they want to incentivise with the token and what value accrual can be shared with the stakeholders.
veTokenomics designs motivate the lockup of token supply, moving it from the open-market to the staking pool, which is good in theory...
But in reality, it encourages whales and crypto institutions to pile up and play the ponzi game. The more they lock up, the more they can vote to increase emissions and direct them where they want.
The small fish get inflated away and just see slightly more value accrued to them if they LP, but they can’t LP enough to influence the emissions process. It helps the big players but not the end user and the protocol’s sustainability.
Circular economies are bad design. Relying solely on emissions of the native token is beneficial in the short term but at some point it must stop or else it risks devaluing the entire token economy (unless you endlessly keep pushing folks to lock more token).
The incentives should line up between the value accrual of the protocol (revenue, users, knowledge etc.) and the sharing of the value with the stakeholders. Don’t give more native token to stakers, give them revenue, benefits, features.
If growth is dim, stakers get less APR. If they help the protocol grow, they get more APR. Skin in the game. Locking up of tokens is good if it’s meant to increase stability of the token and lets everyone get access to the growth of the protocol.
So, think twice when trying to pitch veTokenomics for your protocol...All right, these are some late night thoughts, gn y’all!
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