Analyzing Four Token Economic Models: Ve, Ve (3,3), Es, Lending

Analyzing Four Economic Models: Ve, Ve (3,3), Es, Lending

Research institution Dr. DoDo has published 10 value flow case studies, analyzing four token economic models and introducing methods for drawing value flows.

1) Vote-escrowed model: In the ve model, users lock protocol tokens in exchange for veTokens. Only users who hold veTokens are entitled to a share of the protocol fees, token appreciation, and voting rights. Voting rights determine the allocation of token issuance, which is closely related to the profits of veToken holders.

2) ve (3,3): (3,3) represents the most favorable state – achieved only when all participants choose to stake protocol tokens. At this point, both participants and the protocol are in a win-win situation. ve (3,3) combines the ve model with (3,3) to improve the allocation of protocol fees, with users only able to enjoy the transaction fees generated by the pool they vote for, encouraging users to vote for the most liquid pool. Based on Olympus’ classic rebasing mechanism, subsequent projects such as Velodrome reduced the rate of issuance rewards for ve token holders, while Chronos completely eliminated the rebasing mechanism.

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3) es Model: The key design in the es model is the introduction of unlock barriers. To attribute value to esTokens, users need to pledge a higher number of protocol tokens. If a user decides to exit the game, unattributed esTokens will remain in the protocol, “saving” the release of protocol tokens.

4) Lending: In DeFi lending protocols, tokens are primarily used for governance and collateral. In AAVE, users are incentivized to stake $AAVE in the safety module to receive security rewards and protocol fees.

How to draw a Value Flow? To extract key information related to Tokenomics, three questions can be asked: 1) How are protocol fees and token issuance distributed? 2) Who are the recipients of these incentives (LP, locker)? 3) Is there a flywheel, and how is it formed? Tips: Mark the generation of protocol fees/token release and connect them to different recipients; connect participants and results (e.g. veToken holders -> token release); use different colors to represent Pools, Tokens, and participants.

Reference: https://twitter.com/dodoresearch/status/1678236293128675329

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