Locking ANGLE into veANGLE brings users value through three different aspects:

• Voting power, the possibility to influence the protocol’s future through governance

• Boost on ANGLE rewards

• Distribution of interests generated by the protocol

Today, the protocol is governed by ANGLE holders. Though it has been working fine until now, this puts great power in the hands of people that have not made any strong commitment to the protocol. They might not have the protocol’s best interests at heart, or just not be concerned by its governance. Shifting this voting power to veANGLE holders committing to the long-term ensures that all voting power has skin in the game and is concerned by governance.

Looking at it the other way, it pushes ANGLE holders concerned with the

future of the protocol to lock tokens to take part in its governance.

A very important part of governance is voting on the distribution of rewards between the different gauges. Angle has a liquidity mining program (details here), for which a vote is held each week to share the distribution of ANGLE rewards between the different staking contracts (called gauges after the upgrade). Currently, all ANGLE holders can vote on these proposals. After the upgrade, veANGLE holders will become the ones voting each week on how these rewards will be shared between gauges. This very important financial responsibility in the protocol is an incentivize for people to lock their ANGLE into veANGLE.

This voting power is what started the bribing of CVX holders. Through their great product for both CRV holders and Curve LPs, Convex was able to attract a very big share of CRV and locked them to maximize their veCRV balance and voting power. Now that they have the biggest say on which pool get CRV rewards, protocols are starting to pay Convex (CVX holders) to vote for their specific gauge. It is probable that a similar system happens on Angle, though the dynamics at play for such a stablecoin protocol are very different, in particular concerning the incentives directed to Hedging Agents.

To incentivize locking ANGLE, the distribution of rewards is shifted in favor of stakers holding a certain amount of veANGLE by distributing up to x2.5 more rewards than non-veANGLE holders. This means that an APY of 30% for non-veANGLE holders can grow up to 75% by holding enough veANGLE 👀

People’s veANGLE balance applies to all the pools they are staking on, and people’s boost for a specific pool depends on their share of veANGLE balance applied on this pool.

Thanks to that boost, a time commitment is required to maximize rewards, and only stakers that hold veANGLE can receive the maximum quantity of ANGLE. Even though people are still able to dump instantly the tokens they receive, they are financially incentivized not to. As some people will inevitably lock their rewarded tokens, it is in everyone’s best interest to do so if they want to share an increasing, or at least steady, piece of the rewards. If not, they risk seeing their APY decrease over time, as the following diagram illustrates.

!https://miro.medium.com/max/1400/1*AM9WF_X3HJOniS8Bri1Kyw.png

This aligns the incentives of LPs with the future of the protocol by incentivizing them to lock their ANGLE the longest to get the maximum number of veANGLE possible.

One great side-effect of this boost on rewards for veANGLE holders is that a bigger share of governance tokens are distributed to long-term stakeholders of the protocol. This helps the protocol limit unnecessary dilution of its gov token to outsiders not interested in taking part in governance.

Currently, the protocol invests most of its idle funds into yearn-like strategies to earn yield on top of its capital. The interests generated there is being shared between the protocol and SLPs, and is what allows them to get increased yield on their deposits.

After the upgrade, the protocol will start sharing these interests with veANGLE holders as well. This is a way for the protocol to share its profit with stakeholders committed to its long-term success.

!https://miro.medium.com/max/1400/1*JiX9avmOpV-Jv6q-Ig1esQ.png

Angle’s redistribution model is slightly different than other protocols’ profit sharing structures. In Angle’s case, the profit is not directly linked to the actual volume or usage of the protocol, but to its TVL and the yield it can earn on other DeFi platforms. Of course, this will grow with usage and volume on the platform, but it won’t stop there. If we imagine a scenario where agTokens have become the biggest stablecoins in town and are not growing as rapidly as before, veANGLE holders will still receive interests from the yield generated by all the capital in the protocol, which will still be there despite the decrease in growth. In a model where revenue is only linked to volume, a decrease in growth would mean a decrease in revenue as well.

APR coming from profit sharing for holding each veTokens ranges between 8% and 14% depending on the governance token price.

In Curve’s case, veCRV holders are entitled to 50% of the fees generated by the protocol. This represents an average of around $1.4M per week since the beginning of September. This is $72.8M per year, for a native APY of around 6% at current CRV price of $4.

If we imagine that 50% of ANGLE circulating supply (around $12m at current prices) is locked, and that 30% of the protocol interests is being redistributed to veANGLE holders (extrapolated at $4m 1 year after launch at current run-rate). They would get a yield of around…

Obviously this is an extrapolation that is very unlikely to hold, as many fluctuating variables like token price, inflation, and TVL need to be accounted for. However, these numbers are still promising and not that unrealistic. We are still in the very early days of the protocol, and this tokenomics change will bring real value to the ANGLE token as well as greatly benefit the Angle protocol.

Voting power, boosted ANGLE rewards, and a share of the interests generated by the protocol are the three core pillars that should incentivize ANGLE holders to lock their tokens and commit to the long-term success of the protocol. These three aspects give very significant advantages to veANGLE holders within the protocol. In return, veANGLE holders are expected to behave in their best interest, which is now tied to the protocol’s.

In a future post, we will detail how this all work in practice for the end users. If you’re interested to know more about the technical details of this, head over to the docs section about veANGLE or check our contracts in the angle-core repository.

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This article is not intended to provide legal, financial or investment, or other advice and we recommend that you do not rely on, and do not make any financial or other decision based, on this article.