VeToken Gains Popularity

2022-03-30, 03:19

1.The VeToken model is growing in popularity

2.Voted escrowed tokens allow for easy participation in DAOs

3.VeTokens can be considered the future of DeFi

What is VeToken?

The world of crypto is an exciting place to be. Every day ushers in some promising new developments that seek to transform the whole landscape. The vote escrowed model has been making rounds for a while and it appears as if its time to emerge in the limelight has finally arrived. Vote escrowed may be seen as the next evolution of game theory in the world of crypto and as with previous implementations of game theory that we witnessed in other protocols, there is always a possibility of it being exploited by bad actors.

Nevertheless, Ve Tokens are increasingly becoming popular in the DeFi world and offer some practical benefits as opposed to traditional DeFi models. Here, we take a quick look at what Ve Token is all about.

Understanding Vote Escrowed Tokens

The simple logic behind the functioning of vote escrowed tokens is that the token holders select a time frame for which they will lock-in the token. The longer the locking period is, the more rewards and weight in governance voting the token holder gets. Usually the locking period for vote escrowed tokens is between 1 to 4 years. This long period ensures that the holders are making a long term commitment to the protocol and thus their decisions are oriented towards the long term interest of the platform as opposed to seeking short term benefits.

Source: https://vetoken.finance/

Traditional DeFi vs Ve Tokens

In comparison to traditional DeFi models, one of the major advantages of vote escrowed tokens is that the general interests of the community aligns in favor of long term gains. This greatly improves the decision making and the protocol has a better chance of succeeding in the longer run.

Another advantage is that the unique characteristics of this tokenomics approach results in better supply and demand. This in turn improves the price growth trajectory. Due to the locking mechanism, tokens are removed from the open market and this keeps the high inflation rate in check. On the other hand, the greater token privileges cause an increase in the demand for the token. Overall, this maintains a good balance of both supply and demand.

Are Ve Tokens the future of DeFi?

An ever-increasing number of DeFi projects are moving towards the vote escrowed model. The following table gives a brief list of some of the projects that are currently using this model along with others that are making the shift in the near future.

Source: https://docs.vetoken.finance/vetoken-finance

One of the major reasons that DeFi projects are opting to make this shift is the need for a long-term and sustainable model. Another reason is that as projects start to grow, they need a suitable DeFi protocol that can build on top of ve-models. This helps increase their liquidity while also raising the demand for their respective governance tokens. The usability of the products in question also gets a boost with this switch.

Ve-tokenomics are an encouraging development in the world of DeFi. While the full potential of Ve tokens will be evident in due time, they certainly appear to be a step in the right direction. In the future, we will certainly see new evolutions of the model that offer more benefits to DAOs as well as to the DeFi community.

Drawbacks of Ve Tokens

Critics of Ve tokens often point out that voted escrowed tokens continue to carry some of the drawbacks of traditional DeFi. The true essence of crypto technology is to provide a level playing field to all. On the contrary, Ve Tokens are not perfect in this aspect as whales can accumulate a large number of tokens and get a majority of the voting rights. Such whales do not need much liquidity so the longer lock-in period favors them while also giving them more control in decision making. Also, there have been instances where voting rights have been purchased. This goes against the ethos of Ve tokens and harms the cause.

Another drawback has been witnessed when after the lock-in period ends, users rush to liquidate. The one who is left holding the token is left with a lower price and has to incur a loss.

Conclusion

Despite these few drawbacks, the future looks promising for voted escrowed tokens. They promote participating in DAOs by giving users the ability to give their input in voting and governance. They also promote a healthy long-term interest in the protocol and also offer a much more stable supply and demand balance.

Author: Gate.io Researcher: Chuk. U
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