veTokenomics

The veTokenomics model originated with Curve Finance and its veCRV token. A holder locks the governance token for a minimum of one week and a maximum of four years: one CRV locked for four years equals one veCRV, while locked for one year it equals 0.25 veCRV, and the voting power decays linearly as unlock approaches. veCRV holders vote weekly on what percentage of emissions each pool receives through gauges, the contracts that distribute those emissions to liquidity providers. In return they receive a reward boost, a share of protocol fees and voting rights.

The design matters because it reduces selling pressure by locking tokens, aligns governance with a long horizon and creates an incentive market over the direction of emissions. From this emerged vote markets, where third parties pay voters to direct emissions to their pool, on platforms such as Votium and Hidden Hand.

Beyond Curve, the model was adopted by Balancer with veBAL, Frax with veFXS and the ve(3,3) variant of Aerodrome and Velodrome. Convex Finance abstracted the veCRV lock by letting users deposit CRV and receive liquid tokens without committing to four years, accumulating the aggregate voting power, which gave rise to the competition known as the Curve Wars. In the European Union, the treatment of governance tokens under MiCA depends on their nature and the rights they confer.