Recently, two of the most famous and talented developers in DeFi - Andre Cronje and Daniele Sestagalli, have partnered to release a brand new DeFi suite consisting of Solidly (AMM) and ve(3,3) (tokenomics). Since then, a new “game” has been created, which I will call Andre Game, or ve(3,3) war.
When there still remains insoluble problems in DeFi, it becomes clear that DeFi is getting saturated and no longer as appealing. With this innovative idea, will Andre be able to change the current situation of DeFi?
In this article, we will find out about Andre Game, its approach, and how it can solve DeFi predicaments.
Background of Solidly & ve(3,3)
Andre + Daniele shook hands to release a new product on Fantom. This includes Solidly as an AMM, and ve(3,3) as a new tokenomics model that Andre believes to possibly change the way a token will be designed in the future.
A few reasons for the recent explosion of ve(3,3) and its satellite projects:
1. The idea is truly creative and innovative.
2. The two founders have owned a strong community, hence being able to draw the communities’ attention even before the project details were announced.
3. DeFi is getting saturated:
- There is too much cash but there are not enough use cases for it to be used.
- The existing Liquidity Mining model is not efficient and we need a new way to address liquidity.
⇒ When there is a new innovative idea, it can really quickly attract attention + cash flow.
4. The layer 1 Narrative is still solid, but cannot attract a new cash flow. Instead, the existing cash flow now only moves between different chains. At the same time, while Layer 1 blockchains are facing multiple difficulties:
- Ethereum is too slow and expensive.
- Solana is congested.
- BSC is saturated.
- Polkadot has not deployed a smart contract.
Then Fantom is capable of capturing users’ faith thanks to:
- EVM-compatible ⇒ easy to deploy projects.
- Low transaction cost and speed.
- The ratio MC/TVL being low, meaning it is undervalued via this narrative.
- Attractive yields.
- Supported by a variety of developers and communities.
⇒ Solidly and ve(3,3) being developed on Fantom is a win-win situation, which will further boost the hype of both the product and the ecosystem.
5. The cash flow has been staying in Fantom to participate in DeFi activities (mainly for yields) for a while.
- $1.3B was transferred from Ethereum to Fantom in 3 days. The cash flow on Fantom is ready to join the ve(3,3) war.
- The cash flow can now move to Fantom more easily than ever through bridges and CEXs (Binance US, FTX, Huobi,...).
6. Fantom projects always fair-launch and do not fundraise: Most of the token allocation is given to the community, therefore there is no participation from VCs ⇒ High upside + potential for retail investors and speculators.
What problems do Solidly and ve(3,3) solve?
Solidly and ve(3,3) attempts to provide solutions for not only AMMs but also every other DeFi protocol. Some crucial problems are:
- Fee distribution is not optimal.
- Liquidity Mining is not sustainable.
- New projects have difficulties in bootstrapping.
The solutions Solidly and ve(3,3) offer
Fee distribution is not optimal
Problem 1: Fee model
Fees are an important factor of any model. To sustain a healthy work model (blockchain staking, AMM, lending,...), using Liquidity Mining as rewards should only be considered the initial bootstrapping method while fees should be the long-term incentive.
At the moment, most AMMs use farming rewards rather than fees as the incentive for liquidity ⇒ Unsustainable growth.
For example: Curve (SushiSwap) incentivizes users to provide liquidity, but 50% of the transaction fees will be distributed to veCRV (xSUSHI) holders ⇒ Liquidity Providers do not benefit much from transaction fees.
On the contrary, if the solution is simply for AMMs to incentivize fees instead of liquidity mining (farming rewards), wash trading will occur.
The ve (vote escrow) model from Curve has been pretty successful. However, there exists one problem: No matter which pool veCRV holders vote for boosting rewards, they will always receive 50% of all Curve’s transaction fees ⇒ veCRV holders are not voting efficiently as they can possibly vote on liquidity pools with low volume ⇒ boosting rewards will not be directed to the most efficient pools, therefore, Curve cannot incentivize rewards to the correct pools.
- Fees earned by the protocol should go to ve(3,3) lockers ⇒ Make voting a more serious task, encourage users to vote on pools with high trading volume ⇒ Solidly can incentivize rewards to the correct pools.
- Emission by the protocol should go to pools with the highest fees ⇒ Liquidity concentration.
- ve(3,3) lockers decide which pools receive emissions ⇒ Possibly create a war where projects can build on top of Solidly to extract the most out of its token emission.
⇒ This model seems to be more sustainable and decentralized, whereas the main incentive will be focused on fees rather than farming rewards (liquidity mining in other words) ⇒ The project can grow in a more healthy and long-term way.
This approach has also created an AMM war (or as I call, Andre Game) where other AMMs can build their products on top of Solidly and attempt to take as much token emission as possible (similar to what Convex did with Curve).
Flywheel: AMMs create their own liquidity pools on Solidly, at the same time attempting to hold a large amount of ve(3,3) tokens ⇒ They lock those ve(3,3) tokens and vote for their pools ⇒ Start incentivizing users to provide liquidity and trade in those pools ⇒ Create a massive amount of trading volume and fees ⇒ AMMs receive trading fees, distribute them to liquidity providers and traders ⇒ more users want to vote in those pools ⇒ The pools receive more token emission ⇒ Continue to use it to incentivize users to trade and provide liquidity.
When a project stands out, every ve(3,3) holder will want to vote for the token emission to go to the pools of that project ⇒ There will be a few winning protocols, so I expect that various AMMs will compete for these slots.
Moreover, any projects are free to apply this model to their project ⇒ There might exist multiple wars on Fantom, or a complex war with multiple layers/participants.
Problem 2: Fee distribution
At the moment, fees accrued by the protocol are usually used to buy back and distribute the native tokens to Liquidity Providers. At the surface, this approach seems to create buy pressure for the native token, hence increasing its price and helping the project grow.
However, it also means that the fees themselves have been directly correlated to the token’s price ⇒ It will work in case the token increases in price, but will devastate the fees value if the token’s price decreases.
Curve was the first to realize this shortcoming and started to distribute fees in Stablecoins. Even though it seems to solve the problem, it actually creates extremely high sell pressure. Considering decentralized Stablecoins like DAI or MIM, this can heavily influence their peg price.
Solutions: Fees will be distributed as the asset in which the fee was accrued.
Liquidity mining is not sustainable
Problem: Liquidity mining as an incentive for liquidity will create massive sell pressure and inflation for the reward token over time. Users will sell a lot of tokens that they have farmed => token price decreases, affecting the project’s growth.
- Weekly emissions are adjusted as a percentage of circulating supply ⇒ Make the token supply scarce.
For example: If 0% of the token is locked, the weekly emission would be 2,000,000. If 50% of the token is locked, the weekly emission would be 1,000,000. If 100% of the token is locked, the weekly emission would be 0.
- ve(3,3) lockers will receive ve(3,3) tokens relative to the token inflation.
For example: The weekly emission is 1,000,000 with a total supply of 20,000,000, and a locked supply of 10,000,000. This would mean that if 1,000,000 new tokens are minted and provided as incentives, the token inflation rate is 5% => ve lockers have their holdings increased by 5%.
- ve(3,3) token will be NFT ⇒ Make locked tokens more capital efficient and create more use cases for locked tokens.
⇒ Overall, this is a creative way to control the token’s inflation rate through incentives. Normally, token holders do not want to lock their tokens as their capital will be unavailable for a long time, which will possibly lose its value over time due to inflation. This problem has been addressed by the new token design Andre offers.
New projects have difficulties in bootstrapping
Problems: When a new project is built, it usually has to interact with other protocols (like SushiSwap, Curve,...) in order to bootstrap the initial liquidity and userbase. Nevertheless, when a new project incentivizes liquidity via others, it will not receive any trading fees ⇒ The project will have difficulties developing its products.
Solutions: Liquidity pools and LP tokens will be directed to the original protocol, hence helping it receive 100% of the trading fees, which can be used to develop its products more quickly through the initial stage.
TVL War and the players in this game
For Solidly and its token emission to start running, pools that are voted by ve(3,3) lockers must preexist. So initially, who will possess ve(3,3) tokens to vote?
Andre decided that the top 20 projects with the highest TVL in Fantom will receive the very first ve(3,3) tokens. Since then, a TVL War occurred when every project in the ecosystem wants to bootstrap their TVL as fast as possible so that they can get into the top 20 and earn ve(3,3) tokens, which will be the start for the Andre Game later.
Overall, the approach projects use to attract TVL is pretty similar: Fork contracts from popular protocols and enable staking/farming at a staggering APR.
- Users are incentivized to provide liquidity and help the project reach the top 20 TVL.
- After reaching the top 20, the project will receive ve(3,3) tokens and delegate governance rights to their users.
⇒ Similar to the game of Convex and Curve.
The TVL War has ended with the snapshot taken on 00:00 (UTC +7) January 24th, 2022. The top 20 projects will receive the number of tokens proportionally to their TVL at the snapshot time.
Now, let’s take a look at all the players in this game, and the forces behind them.
Project's twitter: https://twitter.com/_veDAO_
Work Model: Incentivize users to farm and stake at high APRs to attract TVL.
Token WeVE: Will be used to participate in the governance of ve(3,3) NFT.
- veDAO was the first protocol participating in the TVL war, hence being able to reach $2.7B TVL after only 2 days.
- FTMAlerts and Sid are the two most popular team members, while the other three are pretty much unknown. FTMAlerts got a strong community, while Sid represents SpiritSwap - one of the biggest protocols on Fantom.
- 10% of the token is allocated for the team, without any vesting announcement. 5% token will also have its usage decided by multisig members => The team has massive power in the governance of Andre’s NFT.
⇒ Overall, veDAO has the advantage of a first mover, but has let 0xDAO vampire attack for its flawed tokenomics whereas the community does not benefit 100%.
Project's twitter: https://twitter.com/0xDAO_fi
Work Model: Incentivize users to farm and stake at high APRs to attract TVL.
Forces behind: Spooky Swap, SCREAM, Revenant Finance (StakeSteak), Liquid Driver, RoboVault, Beethoven.
Token OXD: Will be used in the NFT governance.
- Different from WeVE, OXD will be 100% distributed to the community through farming.
- Nevertheless, the forces behind the project can totally deposit a large number of tokens into their own project in order to farm a huge amount of tokens, therefore gaining huge governance power in Andre Game.
- Big projects started to appear in the game.
- The project has received enormous support from the community thanks to its 100% token allocation for the community.
- It has quickly vampire attacked veDAO to reach twice as much as veDAO’s TVL after only 2 hours.
⇒ This will be a big player in the upcoming Andre Game, since it has had the right approach with the participation of multiple native protocols in the ecosystem. With various projects behind working together to incentivize and bootstrap 1 big pool, 0xDAO can totally become one winner in this war.
Radial Finance (launched)
Project's twitter: https://twitter.com/RadialFinance
Work Model: Increase the yields on Solidly, similar to what Convex does with Curve.
Forces behind: Unclear.
Token RDL: If Radial is able to reach the top 20 TVL, 5% of the token allocation will be distributed to LPs (Liquidity Providers). Otherwise, only 1% will be distributed.
- Radial has been able to reach to top 20 TVL. LPs will receive 5% of the token allocation, with the amount increasing proportionally to the liquidity providing time.
- The approach is similar to Convex. The project will hold as many Solidly’s tokens as possible and direct them to the correct pools for the highest yields possible.
- It might be able to do what has happened with Convex and Curve, when the project shows its deep understanding of this war and game, as well as how to benefit users the most.
Grape x Solidex (not launched)
Grape has announced its merge with Solidex, you can refer to it here.
Work Model: Increase the yields on Solidly, similar to what Convex does with Curve.
Forces behind: The project will receive ve(3,3) NFTs from other projects who receive it, instead of trying to participate in the TVL War.
Token SEX: Allow SEX holders to receive the project’s revenues + governance rights. The project will allocate a portion of its token to projects which are willing to delegate ve(3,3) tokens to them (maximum 15 projects).
- Solidex develops the code itself instead of forking like the aforementioned projects.
- Its work model is similar to Convex and Radial, however, its understanding of the game is not as deep as that of Radial. Instead, it has a strong relationship with various protocols and is able to accumulate a large amount of ve(3,3) tokens.
- The project will launch after Solidly and when they receive ve(3,3) tokens from other projects ⇒ It builds the protocol on top of other protocols and tries to take the ve(3,3) token allocation from them, rather than building on top of Solidly and trying to take part in the TVL War.
- It shows a massive ambition of dominating Solidly similar to how Convex did with Curve. If Solidex is able to execute its plan, it will steal most of the governance rights from Solidly. Nonetheless, if any project is to provide their NFT tokens to Solidex, they will lose control of those tokens ⇒ the community of those projects will have no reasons to support them or hold their tokens anymore ⇒ those projects cannot continue growing.
⇒ There can only be 2 possible situations:
1. Solidex was built directly by the native protocols and/or multichain protocols, hence receiving the NFT tokens from them.
2. Otherwise, it is unlikely for other projects to commit their NFT tokens, as those tokens have been used to incentivize LPs in the TVL War.
Yearn Finance + Iron Bank + Sushi + Popsicle Finance (Andre + Daniele)
Even Andre and Daniele do not want to stay out of this game. It is clearly seen that the 2 founders of the project also want to possess some ve(3,3) tokens for themselves, and their projects have shown that
- Yearn Finance added 7 new vaults on Fantom to boost the TVL.
- Iron Bank was revamped, deployed its token on Fantom.
- Sushi TVL increased dramatically in such a short period of time (which I believe was the money from Daniele. Who can deposit approximately $200M into a project, apart from someone adopting it himself like Daniele?)
Even Popsicle Ice - a project by Daniele, has had a drastic increase in TVL, despite not reaching the top 20 TVL.
At the moment, what has been happening is only the TVL War, which in my opinion is only the 1st phase. The 2nd phase of the game will be the ve(3,3) War, which will be the main focus when we will be able to see projects building on top of Solidly to benefit themselves.
The players in this game have become really diverse: From big native protocols in the Fantom ecosystem (SpookySwap, SpiritSwap, Liquid Driver,...), KOLs, outside players,... to even the project founders.
The TVL War has been interesting enough, but just wait till the ve(3,3) War kicks in. Every attention in the market will flow to ve(3,3) and Solidly, and Fantom will become more explosive than ever.
Nevertheless, there are some “missing” points I can see in this model:
1. Since this model will create one to a few winners (like the aforementioned flywheel), the liquidity, trading volume, and trading fees will focus mainly on some main pools. This will generally improve the trading experience, but will limit the number of available pools. This shortcoming can be devastating for AMMs when users can only trade in a few pairs.
2. Everyone locking all ve(3,3) tokens is actually not a good thing.
- The Token Emission will be set to 0, meaning that LPs will not receive any rewards from Solidly and they will stop providing liquidity ⇒ No liquidity, no trading volume, no trading fees ⇒ ve(3,3) lockers cannot make profits.
- This means that even if a project is to dominate Solidly and take all of its tokens for locking, that project will not even benefit anything ⇒ Users will benefit from using Yield Optimizers like Radial Finance or Solidex, rather than dominators like 0xDAO.
3. The best case will happen when 50% token is locked, and 50% is not.
- In this case, the token emission will be the highest while both LPs and ve(3,3) lockers can benefit from the project.
- If a large amount of Solidly tokens are held by Yield Optimizers like Convex (Radial, Solidex), they can balance the number of locked tokens and unlocked ones more easily, which leads to users benefiting the most.
- We have reasons to believe that Radial and Solidex can succeed by following this approach.
The future of Andre Game
Even though the ve(3,3) tokenomics is a fresh innovation from Andre, this model still possesses its limitations due to the fact that it creates a monopoly system. There is a high probability that some players will be able to dominate the game, limiting the number of pools being built, leading to a big drawback for an AMM who wants to apply this model.
Each player in this game has their own strengths, whether it’s the community, the forces behind, the approach,... As a result, it is nearly impossible to say which project will stand out in the main ve(3,3) War.
Wars, particularly governance and DAO wars, are being extremely hot at the moment. Starting from the Curve War, it can be seen that many wars have appeared on other projects and ecosystems. With a model like ve(3,3), wars of its kind are likely to appear on other DeFi ecosystems and attract the attention of the community back to them.
Especially when the token model of Andre is still monopolistic, any projects applying ve(3,3) after Solidly can become even more outstanding by making its project more community-driven ⇒ Attract more users and attention.