veTokens were invented by Curve as a governance tool to align interests between protocols and their stakeholders.

Basically, they are non-transferrable for a certain period to reward long-term commitment from users.

Non-transferrable voting-escrowed tokens opened a whole new design space, which has a long road ahead.

For example, Vitalik recently shared his interest for soulbound tokens, non-transferrable NFTs.

Many protocols, including Angle, got attracted by this innovation and started implementing Curve veTokens model.

But, why would people want to lock their valuable governance tokens for four years?

Well, veTokens essentially provide holders with three advantages:

1. voting power

2. a share of the fees generated by the protocol, and

3. a boost on rewards for their funds staked

Obviously, a lot of users don’t want to commit for such a long time, and prefer to keep the ability to sell the tokens if needed. This is where enter “liquid lockers”.

They come from the simple idea that if something is non-transferrable, it can be placed in a smart contract and make the property of the smart contract transferrable. Hence "liquid" lockers.

Curve knew this would come at some point and protected itself with a "whitelisting" mechanism.

In that way, liquid lockers need to be approved by the DAO and are somehow constrained in their design choices.

The first to try and succeed in building a liquid locker on top of Curve was Convex. How does it work?

The main idea is simple: users lock their CRV for a transferrable cvxCRV token that can notably be sold on a Curve cvxCRV/CRV pool.

The CRV are then locked into veCRV by the protocol, and their voting power redistributed to CVX holders.

By locking CRV on behalf of their users, Convex managed to split the incentives given to veCRV holders in three ways:

Convex inconvenient

Convex were the first to innovate on top of Curve with this new use case.

As veCRV was the only veToken at the time, they couldn’t really anticipate the need for a wide liquid locker encompassing multiple protocols.

Almost all CVX were distributed to Curve users, preventing new protocols that could have been integrated in the future from keeping voting power on their DAO by locking their tokens.

This left a wide spot open for competitors that can easily integrate multiple protocols … 👀 🐘

But at this point it’s important to take a step back.

On-chain decentralized governance is still in its infancy. While token-governance has so far become the consensus, the space is only beginning to experiment with new models and trade-offs in how to best encourage positive feedback loops between protocols and their stakeholders.

veTokens were an interesting innovation in this area, and liquid lockers went even further with this experimentation. But we’re far from endgame here and the next years should be full of new ideas and primitives emerging for decentralized (or not) governance.

Angle implemented a veANGLE tokenomics back in January.

But its governance is still agile in the sense that it needs to be structured to give the DAO the best chances to arrive to its long term goal of building an incensorable and decentralized money layer for DeFi and beyond

Next week, we’ll keep exploring new governance innovations, with among other things one we’re very familiar with at Angle: Stake DAO’s liquid lockers!