If you haven’t read last week’s thread, you can catch up here first.

Since Curve and Angle, other DAOs have been thinking about how to improve the veTokens model.

One idea shared in Yearn’s YIP-65 is to implement a withdrawal penalty to be redistributed to the protocol or the other veToken holders.

It allows veToken holders to get out if they want to, while benefitting the DAO.

Alchemix is planning to implement this, along with Balancer’s idea with veBAL of locking 80/20 BAL/ETH tokens instead of BAL, a way to build up liquidity.

After Solidly, Velodrome is also experimenting with a new veModel for AMMs on Optimism.

Instead of giving fees to LPs, veToken holders receive the fees generated by the pools they voted for, while LPs earn the token incentives.

This ensures that veToken holders vote for the most active pools, and not just the ones they are being bribed for.

veYFI and veALCX are still under development, but it’s amazing to see new teams experimenting with different gov token mechanisms.

It’s this kind of unbounded research that leads to breakthroughs, pushing the ecosystem forward.

Liquid lockers was one such breakthrough made by Convex, and Stake DAO’s version of LL with sdTokens is another recent one.

In our previous Angle Explains, we mentioned that Convex understandably didn’t manage to anticipate the need for lockers that would involve multiple veTokens.

Stake DAO spotted the opportunity and quickly released their sdTokens liquid locker. They chose to leave voting power in the liquid sdTokens, allowing for an easy integration of new protocols.

Compared to Convex where the voting power was concentrated in locked CVX, sdTokens can be staked to keep the voting power of their underlying veTokens and earn incentives.

It started with sdANGLE, sdCRV and sdFXS (Angle, Curve, and Frax), and has already expanded to Balancer with sdBAL.

To summarize, sdANGLE and sdTokens:

These make sdTokens a very good value proposition for users.

Some particular aspects of sdTokens are also important to keep in mind:

1. Voting power can be boosted by multiple factors: a. holding veSDT b. redistribution of sdANGLE voting power from i) liquidity providers on Curve and ii) other non-voting sdANGLE holders

As these sdANGLE are not voting, they redirect the veANGLE they control to the voting sdANGLE. For example, if 100 sdANGLE control 100 veANGLE, but 25 sdANGLE are not used to vote, 1 sdANGLE now controls 1.33 veANGLE votes (100/75)!

1. sdANGLE holders votes need to be registered manually every 2 weeks, and not only once like in the traditional ve model. This looks like a small change, but could have an important impact with the transfer of voting power to voters.

2. a. sdANGLE and other liquid lockers tokens like cvxCRV are not pegged to their original versions by design. The exchange rate is solely maintained by the Curve pools balances. They can be monitored here: https://dune.com/tuta/sdtokens

3. b. This is very important, as it means that if liquidity in the pool were to dry up, these “liquid” lockers would become very much illiquid. Liquidity in the pool is here because it is being incentivized by CRV rewards, sometimes at a high cost.

Finally, some governance attack concerns were raised about having liquid equivalent of veTokens destroying their purpose. After discussing with the community, Stake DAO decided to implement a TWAVP (time w. avg voting power) for sdTokens.

You can read the very interesting discussion on Curve: https://gov.curve.fi/t/proposal-to-add-sdtokens-tokens-pools-to-the-gauge-controller/3637, and the vote on Stake DAO’s side: https://lockers.stakedao.org/governance/0x02418c6d7dc30f15a4f635c85bd135d1b86a640cb8e5bf2ba7d8576cb8b44f98.

veTokens veTokenomics in their original form were the first intent to better align the interest of stakeholders and their protocol. However, it comes with significant trade-offs and might not be an optimal approach.

Convex Convex brought a useful improvement by taking the long-term locking risk on behalf of users, and redistributing the advantages differently.

Stake DAO liquid locker Stake DAO’s sdTokens added a more direct redistribution of advantages for users, and the opportunity to integrate new protocols with veTokenomics to their liquid locker.

The future A lot of experimentation is still happening around token-based governance and veTokenomics specifically. More research and experimentation are needed to get closer to an ideal gov. model.

At Angle we’re experimenting as well.

For example, we’d be interested in exploring having multiple locking options for users. It would offer them different trade-offs, create interesting game theoretic behaviors, and widen Angle’s user base.

As long as they don’t undermine Angle’s governance, the protocol is always open to ways of improving its governance and decentralization.

In our threads, we’ve mostly focussed on token-based governance. While this is the most widespread model right now, there is nothing obvious in that.

There are also harsh critics about token-based governance.

Governance tokens usually give all holders voting power and incentives alike, when most are not concerned or fitting for the responsibility. https://twitter.com/hasufl/status/1532702820410998785?s=20&t=1Pzdbbd24Qtr5IUhg5A1tw

The end game is for protocols to find ways to have a decentralized base of stakeholders with a well-balanced influence over their governance that lead to the best path forward. Finding such governance models is crucial for DeFi, but not only!

Decentralized governance models could lead to social breakthroughs that reinvent the way humans work together and organize society.

Many think that power centralization is an issue, whether it’s coming from government or big tech companies. There might be a solution laying somewhere in crypto…

Keep buidling!