A fresh take on liquidity mining and bootstrapping for a healthier ecosystem
Breaking boundaries with ve(3,3): the heart of Chronos Finance
In the heart of the ever-evolving world of decentralized finance (DeFi), an unlikely love story unfolds—one that brings together cutting-edge technology, innovation, and fervour for sustainable financial growth. The tale is set against the backdrop of Chronos Finance, a pioneering decentralized exchange (DEX) and liquidity provider on the Arbitrum Layer 2 (L2) network. This narrative doesn't just involve lines of codes and tokens, but a deep affection for solving pressing challenges in the DeFi space and a shared dream of fostering sustainable liquidity.
The model used by Chronos is built around the Ve(3,3) approach. This concept combines the vote escrow tokenomics, known as "ve," from protocols such as VeChain, Curve, and Convex, with Olympus DAO's (3,3) design. In simple terms, "ve" means that a user typically has to lock up a project's tokens to receive the corresponding ve token, which can provide voting rights, fee rewards, or other benefits. The "(3,3)" portion comes from Olympus DAO's design, which yields a particular set of results for users as illustrated in the table below:
The goal of ve(3,3) design is to merge these two powerful tokenomics strategies to overcome the challenges presented by current ve gauges models, liquidity mining and the liquidity bootstrapping method employed by most DeFi projects. Some key aspects of a ve(3,3) model are:
Focus on fees incentives, as well as liquidity incentives (i.e. earn fees by locking the project’s token)*
Typically uses a dual token system
Capital efficiency
Sustainable liquidity
The novel ve(3,3) model balances the incentives of all stakeholders involved in the Chronos protocol, including $veCHR voters, liquidity providers, traders, and protocols. This harmonic structure fosters a virtuous cycle effect that balances incentives, rewards, and demand, leading to a healthier and more efficient ecosystem.
* The reader will get later in the article how Chronos implements a model that aligns emissions with fees and liquidity.