History & Evolution

History and Evolution of Vote Escrow Model

Vote Escrow (VE) is a significant innovation in the DeFi landscape, primarily aimed at enhancing community governance and incentivizing long-term holding behaviors. This section provides a brief overview of the VE model, tracing its origin, evolution and inspiration that have shaped StellaSwap’s VE model.

Origin

Vote escrow emerged in response to challenges faced by governance mechanisms in decentralized platforms, particularly around token holder engagement and alignment of interests. Initially popularized by Curve Finance in 2020. VE model was designed to encourage users to lock their tokens for extended periods in exchange for governance rights and rewards. This approach solved key issues in relation to concentration governance power and incentivizing long term holders in return strengthening the token.

Evolution of VE Across DeFi

With time, the vote escrow model evolved to include more complex systems that strengthen token utility and value-accrual for tokenholders. Here’s a look at the progress:

Key Projects and Evolution

1. Curve Finance: Pioneer of the VE model, Curve introduced the mechanism where users could burn their CRV tokens and lock their LP for a period between one week to four years. Gaining voting power and native token rewards proportional to the length of their lock

2. Olympus DAO: Notable project that led the DeFi 2.0 movement, introducing an innovative approach called game theory (3,3) aiming to increase holders value by incentivizing long term holding and staking. However, it had faced significant challenges keeping its OHM token stable. Yet, the community engagement and the innovation made everyone in the space take note.

3. Solidly: Developed by renowned developer Andre Cronje, further illustrates the evolution of the VE model; it expands on principles established by Curve and Olympus DAO. It aimed at creating the most efficient DEX by utilizing the VE model. It integrates two core components that further strengthened the VE model:

   1. Linear Decay: Unlike Curve’s VE model, Solidly is in-built with decay, meaning that one’s voting power decreases in value with time. Users need to constantly lock to ensure they maintain their voting power.

   2. Direct-Pool-Earning: Voters in Solidly earn fees only in the pools they vote, unlike Curve where overall revenue is distributed to all tokenholders. Under Solidly’s model, holders are incentivized to vote for pools with high fee generation to maximize their earnings. Rewards allocation is much more efficient this way, and addresses the structural mis-alignment of incentives under Curve’s model.

4. Velodrome & Aerodrome: Building on previous innovations of the VE model, Velodrome and Aerodrome emerged with the most polished and mature versions of VE that are hugely successful. In contrast to other platforms; Velodrome made VE the single most important feature of the DEX and tied every other function around it, expanding to emissions and farming.

In designing our new VE model, we draw upon lessons learned from these pioneering projects while also refining and innovating the approach to meet the needs of StellaSwap users. The experience of Curve, Olympus DAO, Solidly, Velodrome and Aerodrome has paved the way for a sustainable and vibrant StellaSwap ecosystem where we aim to cultivate loyal holders who are incentivized to contribute to the long-term success of StellaSwap.