Ve Governance Custodial Track: Combining Equity and Returns

IntermediateApr 03, 2024
The article deeply discusses the Ve governance custody model, which is an economic model that combines equity and revenue. It encourages users to participate in governance by locking tokens and revenue sharing, enhancing the decentralization and transparency of the project. The Ve model obtains non-tradable veToken by locking the native Token, thereby obtaining governance rights and benefits. The article analyzes the advantages and disadvantages of the Ve model, discusses its application in different DeFi projects, such as Curve, Velodrome, etc., and looks forward to the potential impact of the Ve governance custody model on the development of decentralized finance.
Ve Governance Custodial Track: Combining Equity and Returns

Forward the Original Title‘一文读懂权益与收益结合的 Ve 治理托管赛道’

The Ve governance custody model, through locking and revenue sharing, well coordinates the interests of all parties, thereby allowing participants to add more motivation to raise real problems for the project and contribute to the long-term healthy development of the protocol.

In the current Web3 era where decentralization is the main theme, the transparency and requirements for decentralization are getting increasingly higher. As a result, DeFi has attracted the attention of many crypto promoters, such as investment institutions, Web3 entrepreneurs, and the coming Web2 experienced entrepreneurs and users. It further accelerates the influx of capital exposure and market talents. With the widespread adoption of decentralized applications, data is permanently stored transparently on the blockchain, underlying technologies are open-sourced, and the governance of economic models and protocols through voting further matures and thrives in the market. Within this landscape, the DeFi sector serves as both the holy grail and the perpetual motion machine of the industry, enabling financial capital to achieve greater circulation and returns. The core operational model of DeFi relies on its healthy economic model and reasonable equity governance. This involves utility, returns, equity, governance, and value expiration of tokens. The most reasonable and healthy approach to decentralization and economic models is the integration of returns and governance. In addressing the governance and returns issue, the Ve (custodial governance) emerges to drive the development of the new era of Web3 and decentralization. Let’s explore the practicality and potential of Ve custodial governance together!

1. What is Ve (Custodial Governance)

Ve voting custody is an economic model that integrates transaction fees (revenues) and governance rights; its model was proposed by Curve Finance. The core is a protocol to obtain voting custody veToken by locking the token for a predetermined period of time. In return, the veToken obtained cannot be circulated and traded. For example, $CRV holders can lock $CRV for a certain period of time to obtain veCRV. The locking time can range from 1 week to 4 years. The longer the locking time, the more rewards; at the same time, the more voting rights are obtained (corresponding to the proportion of locked tokens). During the locking period, the locked Tokens cannot be traded and sold, and their tokens are released linearly during the locking period until the escrow tokens are reduced to 0 at the end of the locking period.

The core business model is divided into two parties: users and project teams.

  1. Users: When users participate in transactions and lock tokens, they can obtain governance rights of the protocol, including token inflation and deflation models, whether tokens will be issued in the future, liquidity pool trading parameters, the proportion of earnings for a particular liquidity pool LP, and the platform’s trading fee sharing ratio.
  2. Project teams: They can increase the visibility and user base of their platform, further increasing the platform’s TVL and other metrics. Additionally, they can reduce the circulating supply of the project’s platform token, promote the healthy development and value appreciation of the token. They can also enhance the decentralization of the project, increasing market recognition and security.
  3. In summary, Ve voting custody obtains custody tokens by locking native tokens, and increases users’ governance rights and revenue channels for the platform.

2. Technological Innovation, Advantages and Disadvantages of Ve Governance Custody

The core of Ve governance custody is to obtain veToken by locking native tokens. In order to better improve user retention and token liquidity, it differentiates the diversified benefits and rights of vetoken holders, such as business sharing, governance voting rights, increase in liquidity pool rewards, etc.; among them, the most controversial issues in the model are the decision-making right to list the currency and the allocation right of liquidity incentives. While gaining project governance rights through vetoken, you also gain stable dividend income from the platform. In this process, various projects are competing for the game and involution. Page indirection has created dependence and continuous demand for the platform that supports the Ve model. The platform can steadily increase the value of the native currency and support it at the same time. Use platform market making APY to attract more liquidity and form a closed-loop model.

As veToken’s complex vote-buying ecosystem based on veCRV continues to cover and develop, we can also see that vetoken’s governance custody model has achieved value innovation and market development. The summary of innovation points can be divided into:

  1. Provide more efficient token allocation and release logic for different protocols
  2. Using the veNFT model, the liquidity of veToken will be optimized
  3. Effectively stimulate the positive development of liquidity pool trading volume
  4. Integrate governance and revenue structure to enhance the rights and interests of users in participating projects and the degree of decentralization of the project itself

Through the core innovation paths brought by the Ve governance model above, the grassroots technology and solutions have been optimized. At the same time, let’s take a look at the specific advantages and disadvantages of improving grassroots technology.


(1) Optimize the ratio of income to risk: veToken holders can enjoy a series of income such as fee sharing and increased APR, and coordinate the interests of liquidity providers, traders, token holders, and the four parties of the protocol to reduce participation in risks and increase user benefits.

(2) Native Token value preservation: Reducing the liquidity of native tokens also reduces the power of selling, which helps rise and develop the project value.

(3) Governance and income: Governance rights are linked to income distribution, and users’ motivation to hold currency is enhanced, which helps to increase governance participation. At the same time, long-term staking users have greater governance weight, which also increases the motivation to make better governance decisions; the time- and quantity-based weighting reflected in the governance weight currently seems quite reasonable.

(4) Degree of decentralized incentives: At present, the attractiveness of many DAO governance to users is sluggish. Users only focus on the income ratio issue. In Ve governance, user governance rights and interests are first improved, and the rights and interests can affect the personal income ratio, and also avoid malicious proposals and decisions.


(1) Hard lock-up: Lock-up is a way to participate and obtain profits, but it is also because of the hard lock-up that many users are deterred. Lock-up is a fixed restriction for users and an uncertainty factor for the future. It also creates a threshold problem.

(2) Matryoshka governance: Although governance rights and interests are dispersed into the hands of users, malicious users will inevitably vote through multiple accounts and multiple rights shares in the capital market, resulting in a more concentrated situation of governance rights and interests at any time.

(3) Bribery problem: Newly launched liquidity pools on the platform have limited funds and liquidity, while newly launched projects can encourage users to vote through bribery or activity models, disrupting market stratification; at the same time, if a malicious project is encountered It will affect the security of users’ locked funds;

Through the above advantages and disadvantages, we found that although projects or models with many innovations and advantages will have risk issues, investment requires multi-faceted analysis and investigation, and specific calculation of profit and loss ratios. Of course, in short, the continuous development and iteration of the industry, and new model technologies are all positive improvements for the industry.

3. Competitive Landscape and Differentiation of Ve Governance Custody

The Ve governance custody model further accelerates the development of the protocol, and the core of it is its economic model. The Ve governance custody optimizes the existing economic model. Based on the business logic of different projects, the DeFi economic model can be divided into three main categories: DEX, lending, and derivatives. According to the characteristics of the incentive layer of the economic model, it can be divided into four modes: governance mode, stake/cash flow mode, voting custody “including ve and ve(3,3) mode”, and es mining mode. Let us take a closer look at the competitive landscape of Ve governance custody for different economic models;

  1. Governance model: Token only has the governance function of the protocol; such as the early $UNI, which represents the governance rights of the protocol. Uniswap DAO is the decision-making body of Uniswap, where $UNI holders initiate proposals and vote to decide decisions that affect the protocol. The main governance contents include managing the $UNI community vault, adjusting handling rates, etc.
  2. Staking/cash flow model: Token can bring continuous cash flow; such as 1inch, PancakeSwap, etc., quickly attract liquidity by allocating their tokens to early LPs and traders. In addition, Uniswap, which was updated some time ago, will reward the protocol income to the stakers in proportion.

Ve voting custody: mainly divided into ve mode and ve(3,3) mode.

(1) ve mode: The core mechanism of Ve is that users obtain veToken by locking the token. veToken is a non-transferable and non-circulating governance token. The longer you choose to lock in the token, the more veToken you can obtain. Based on its veToken weight, users can obtain the corresponding proportion of voting rights. The voting rights are partly reflected in the ownership of the liquidity pool that determines the rewards for additional tokens, thus having a substantial impact on users’ immediate income and enhancing users’ motivation to hold currency.

(2) ve(3,3) model: The VE(3,3) model combines Curve’s ve model and OlympusDAO’s (3,3) game model. (3,3) refers to the game results of investors under different behavioral choices. The simplest Olympus model includes 2 investors. They can choose to stake, bond, or sell. When both investors choose to stake, the joint income will reach the maximum (3,3), which can better encourage cooperation and staking.

In addition, the Ve(3,3) model cycle can be divided into three steps:

  1. First: LPs contribute to the enhancement of token market liquidity. By providing tokens to liquidity pools, LPs lubricate the entire market, leading to increased trading volume. This increased trading volume results in higher workload for protocols serving the market exchanges, and an active market implies higher token prices.
  2. Second: Increased trading volume boosts veToken voter rewards. The surge in trading volume resulting from enhanced liquidity means higher transaction fees within the limited “computational power” of transactions. Therefore, veToken voters receive more rewards from transaction fees.
  3. Third: High-quality markets attract more external investors, completing a positive cycle for the market. In a favorable market environment, more external investors are attracted to swap their tokens for staked tokens, providing further support for token prices. Additionally, since LP earnings are strongly correlated with token prices – higher token prices result in higher LP earnings – LPs are encouraged to contribute more tokens to liquidity pools, initiating a secondary cycle.

ES Mining Model: The core of this model reduces the cost of protocol subsidies by lowering the threshold for unlocking, and enhances its attractiveness and inclusiveness by incentivizing genuine user participation. The supply of esToken is adjusted according to rules; for example, when the token price rises, the protocol increases token supply to stabilize prices, and when the token price falls, the protocol decreases token supply to boost prices. In the ES model, users can earn high yields and rewards by staking or locking up tokens to receive ES Token rewards. However, due to the existence of unlocking thresholds, users cannot immediately cash out their earnings, making it difficult to accurately calculate real profits, thus adding complexity and unpredictability. Compared to the ve model, the ES model has an advantage in terms of the cost of protocol subsidies because its designed unlocking threshold reduces subsidy costs. This makes the ES model closer to reality in the game of distributing real profits, as it incentivizes genuine user participation; for example, users cannot earn rewards if they unstake, but they can earn esToken rewards if they continue to stake. Rewards are distributed by controlling the spot ratio of staking or locking and the unlocking period, with tokens being unlocked in a curve manner.

Understanding the different DeFi economic models described above, it can be seen that continuous optimization in different models amplifies user incentives and liquidity issues, reflecting that the core elements in DeFi are users and liquidity. In terms of economic models, the most easily acceptable for users are typically regular governance models or staking/cash flow models, which greatly reduce user capital risks by providing the ability to deposit and withdraw at any time. Compared to the ES governance model, the ve governance model has some advantages, as it provides more detailed information on earnings. If one has a long-term bullish view on a project, the ve model is undoubtedly the most suitable option.

4. Application scenarios of Ve governance hosting

4.1 Curve

Official website:

Twitter: @CurveFinance

Curve is a decentralized liquidity pool exchange on Ethereum, facilitating the exchange of stablecoins and pegged assets, and providing highly efficient stablecoin trading. It ranks among the largest marketplaces in terms of asset trading and liquidity market operations.

Its core business is to provide decentralized exchange (DEX) services based on the Automated Market Maker (AMM) model. Stablecoins, wrapped assets (such as wbtc/renbtc), and LSD assets (such as stETH) are its main trading categories, primarily serving the bill market. Another core aspect is liquidity acquisition, distribution, and management, which is also the main business that sets Curve apart from Uniswap.

Its core feature is ve economic model, where users lock tokens to receive non-transferable and non-circulating governance tokens called veTokens. The longer the lock-up period, the more veTokens one can receive. According to their veToken weight, users can earn corresponding proportions of rewards and other benefits (locking 1 CRV for 1 year yields 0.25 veCRV, and locking for 4 years yields 1 veCRV). Additionally, the protocol coordinates business and participant interests through the ve economic model. On the business side, it coordinates various business demands such as trading, liquidity acquisition and distribution, governance, market value management, and ecosystem expansion cooperation. Among investors and participants, the protocol coordinates the interests of traders, liquidity providers, liquidity acquisition users, and token holders.

Furthermore, the protocol is optimized based on the AMM (Automated Market Maker) mechanism. It adopts an AMM trading mechanism between constant sum (x+y=const) and constant product (Uniswap xy=const) functions. Specifically, this mechanism creates a relatively flat curve near the balance point of the curve, similar to the constant sum function, to maintain price stability while allowing for more slippage at both ends, similar to the constant product function, so that liquidity can be provided at every point of the curve. The core implementation achieves low slippage, low trading fees, and low impermanent loss risk, meeting the demand for massive stablecoin trading.

In summary, Curve, as a protocol that introduces the ve governance model, has a diversified business system and product architecture, including stablecoins, ve governance model, Swap, multi-chain support, etc. It is one of the top projects in the DeFi sector, with a current TVL of $2.7 billion, offering significant attraction to both project parties and users, providing continuous platform earnings, and is still in a state of continuous growth, worthy of long-term attention.

4.2 Velodrome

Official website:


It is a native AMM-style DEX on Optimism, launched by the team behind veDAO, and inspired by Solidly introduced by Andre Cronje. Its token design combines the veToken model and Solidly’s (3,3) mechanism.

The platform trading fee is 0.02%, and its protocol’s veVELO is not only in NFT form but also has voting governance functionality. Holders of veVELO can receive all fees and bribes from the liquidity pool they vote for, as well as receive anti-dilutive Rebase on a weekly basis. The token model mainly utilizes native tokens VELO and veVELO for utility and governance. VELO is mainly used to reward liquidity providers, while VELO token holders can choose to lock tokens to obtain veVELO. This locking relationship is linear; for example, locking 100 VELO for 4 years can yield 100 veVELO, while locking for 1 year can yield 25 veVELO. veVELO holders can also vote to decide which liquidity pools receive VELO rewards and receive transaction fees and bribes as rewards for participating in voting for the pool trading pairs.

Furthermore, individuals holding a certain proportion of veVELO can initiate voting to add tokens for others to vote on. The team has set up mechanisms for the voting function, where 7 members of the Velodrome team and a judiciary committee from the Optimism community have the authority to disable malicious voting or veto whitelist requests, ensuring the stability and security of the system.

In summary, as a leading native DEX on Optimism, the project has a TVL of $139 million, with decent data performance. Its token model utilizes the ve(3,3) governance model, attracting attention and recognition from market users. It has consistently maintained its position as the top DEX on Optimism, and its token model and economic system have brought new perspectives and considerations to the entire sector.

4.3 Chronos

Official website:

Twitter: @ChronosfiS

It is a decentralized exchange (DEX) based on Arbitrum, aiming to provide more stable and sustainable liquidity through the maNFT LP model and ve(3,3), with the opportunity to become the primary liquidity layer for Arbitrum.

Its core mechanism introduces the concept of Maturity-Adjusted (MaNFT), which provides additional $CHR rewards to LPs who provide long-term liquidity, further promoting the advantages of Ve(3,3) and stabilizing the TVL value. This also makes the TVL more stable. MANFT is a special type of fNFT that tracks the time horizon of the tokens provided and self-staked LP tokens. Over time, MaNFTs can increase $CHR output, reaching up to double after 6 weeks. Additionally, the platform changes the lock-up periods to only 6 months (0.25 veCHR) and 2 years (1 veCHR). chrNFTs are also issued, with 5555 in total. Users staking chrNFTs can receive 10%-20% of the liquidity pool’s trading fees. The sales revenue from chrNFTs will be used for the protocol vault, CHR liquidity, and protocol development.

The mechanism benefits from continuous and predictable liquidity for the protocol, requiring liquidity providers to carefully weigh their choices between short-term incentives and long-term profit potential. Additionally, the project can directly purchase mature LP positions—maNFTs—from the secondary market to increase protocol-owned liquidity.

For liquidity providers, they will benefit from increased profit multipliers over time and may potentially sell mature liquidity positions at a premium on the secondary market.

For $veCHR holders, profits from bribery will increase. Due to the high opportunity cost of liquidity in the short term, projects seeking initial liquidity need to invest more funds in bribery, further incentivizing projects to direct more incentives to their liquidity pools to attract LPs.

In summary, chronos is a core infrastructure of the Arbitrum ecosystem with innovative mechanisms. It utilizes the ve(3,3) model and adds an NFT staking component, leveraging users for transaction circulation. However, the project has moderate market recognition and needs continuous development, such as adding new dynamics and user incentives to the ve model, to more effectively drive growth.

4.4 Thena

Official website:

Twitter: @ThenaFi_

It is the native liquidity layer on the BNB Chain, which simplifies the process for the launch of new and existing protocols through capital-efficient liquidity guidance.

Its product supports multiple types of platforms, including Swap, perpetual contracts, cross-chain, fiat-to-token purchases, and staking. The staking incentive measures are determined through weighted voting, with the platform divided into weekly periods. Individuals who convert $THE into veTHE tokens can vote on the output level. The output is distributed proportionally at the end of each period, with the weighted voting mechanism featuring a bribery market, where the protocol can bribe to obtain support for its metrics from veTHE votes. At the end of each period, voters who approved the related measures can claim the associated bribes.

Additionally, improvements have been made based on the Solidy bribery model, allowing voters to appropriately compensate liquidity providers for impermanent losses. Moreover, when aligned with the core goals of the protocol, additional fees can be generated to further incentivize holder voting behavior. An NFT system has been introduced on this basis, where NFT stakers can receive 10%-20% of the trading fees.

In summary, Thena is deployed on the BNB Chain with a current TVL of $42.7 million. While its model still references Curve, optimizations have been made in reward distribution, with rewards being claimed in the n+2 week for the n week rewards, requiring re-voting each week to mitigate selling pressure. Furthermore, increasing revenue is expected when protocols are selected. The project is currently progressing slowly, and continuous operation and action are necessary to maintain long-term attention.

4.5. Pearl

Official website:

Twitter: @PearlFi_

It is a decentralized exchange (DEX) based on Polygon, utilizing the ve(3,3) governance model, with deep liquidity for tokenized RWAs and high-quality digital assets. Driven by a bribery model, supported by USDR, which is a stablecoin paired with a metric token, Pearl collects native yields from USDR and redirects them to the bribery pool.

At its core, the model incentivizes through Solidly’s bribery model, similarly allowing users to obtain vePearl by staking the platform’s token, Pearl. During this process, voters can bribe after which they receive stablecoins, USDR. The algorithmic stablecoin, Tangible, is a basket of tokenized revenue-generating real estate-backed stablecoins. Pearl collaborates with Tangible, leveraging their stablecoin $USDR, allowing for automatic bribes using the Solidy model. USDR is backed by tokenized real estate, offering an 8% annual interest rate from rental income. The protocol incentivizes LPs with unlocked governance tokens, distributes trading fees to veToken holders, and allows for uneven protocol bribes to be released to pools, bribing locked token holders for voting.

In summary, established on the Polygon Chain, in partnership with Tangible, Pearl connects RWA assets, realizes bribery funds, and obtains real estate revenue rates. With the current integration with RWA, it marks an innovative step forward. However, the implementation of RWA requires sustained effort over a long period. From another perspective, the platform’s core remains centered around providing efficient utility and rewards through holding and locking governance tokens, as well as maintaining continuous liquidity development.

5. Conclusion and Future Prospects

With the continuous growth in market volume, maturing technology, and the accelerating development of the decentralized finance era, the DeFi economy is increasingly demonstrating substantial utility and a healthy ecosystem. The Ve governance custody model mentioned in this article, through locking and profit sharing, effectively aligns the interests of all parties, motivating participants to identify real issues with projects and contribute to their long-term health. The innovation of Ve governance protocols has provided practical utility to the market, contributing iterative solutions from different dimensions. Different protocols, through their optimizations and improvements, have increased confidence among industry core developers and practitioners, inspiring innovative intentions.

From the cryptocurrency industry ecosystem, it is evident that the Ve voting custody model is moving in the right direction. Additionally, as market participants become more influential in token design and realize the risks of holding illiquid positions, addressing issues such as malicious governance and hard locking through the Ve governance model can break users’ resistance to locking while combining lending and derivatives structures to achieve diversified utility for veTokens.


  1. This article is reprinted from [Foresightnews]. Forward the Original Title‘一文读懂权益与收益结合的 Ve 治理托管赛道’.All copyrights belong to the original author [FreeLabs]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
  2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
  3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.
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