What Are Vote Escrow Tokens?

Crypto protocols rely on active user participation to remain decentralized and autonomous. One mechanism for encouraging this participation is the use of vote escrow tokenomics. In this model, users lock up their tokens for a specific period to gain voting rights or other rewards. This mechanism incentivizes long-term commitment from users and helps to prevent short-term speculation and volatility in token prices.

In this post we explain Vote Escrow tokens and how they work to incentivize governance and attract liquidity in DeFi.

The Beginning of veTokens

Curve Finance was the first protocol to pioneer the vote-escrow model. CRV holders can lock tokens for a period of time ranging from 1 week to 4 years. The longer the lock-up period, the more voting power the user gains. The voting power is calculated using a formula that takes into account the number of locked tokens and the length of the lock-up period. By locking up their tokens, users signal their commitment to the protocol and its long-term success. This incentivizes them to actively participate in governance decisions, as they have a greater stake in the outcome.

As a veCRV holder, users get various benefits. They receive inflation in CRV tokens from the protocol, earn fees from the protocol (half of the .04% fee goes to veCRV holders), receive bribes (payment for voting rights) on secondary markets, and have weekly votes on where to direct emissions. They also get up to a 2.5x boost in emissions in CRV when LPing (liquidity providing) depending on LP size and the amount of veCRV held.

However, this model also has its downsides. For instance, there is a high concentration of votes in the system, with DAOs like Yearn and Convex owning a lot of the locked CRV. Additionally, there is no secondary market for locked veCRV as it is not transferable.


Another variant of the vote escrow model is the ve(3,3) model, created by Andre Cronje with the first version of Solidly. This model is designed to improve upon the original vote-escrow model. The longer the lock, the more votes you have in the ve(3,3) system. The veToken locks are represented as NFTs that can be transferred and traded on the secondary market. VeToken holders also get rebases in token supply, which means that maintaining a constant 4-year lock does not mean emissions are dilutive for voters.

Unfortunately, there were flaws in the Solidly system (vampire gauges, negative voting creating bad incentives, and some others), and Andre Cronje quit from the project, causing Solidly to fail.

However, some early users decided to fork the protocol and move it to Optimism, giving birth to Velodrome. Velodrome made additional improvements to the ve(3,3) model based on the issues with the Solidly launch and failure. The protocol has since become the largest DEX on an L2 and one of the largest DEXs in the space.

Fixing Voter Apathy with veTokens

The concept of on-chain governance has been around for a while in the crypto space, but it gained more attention with the rise of DAOs (Decentralized Autonomous Organizations) in 2016. DAOs are organizations that operate through rules encoded as computer programs on a blockchain. They allow for decentralized decision-making and transparent governance, with the power to make decisions resting in the hands of token holders.

One of the primary issues with on-chain governance is voter apathy. Most token holders do not actively participate in governance decisions, leading to low voter turnout and centralization of decision-making power in the hands of a few. This is where vote escrow tokenomics come in. By locking up tokens for an extended period, token holders signal their commitment to the protocol and its long-term success, thereby incentivizing them to participate in governance decisions. Often this comes in the form of direct bribes by protocols looking to attract liquidity.

Vote escrow mechanisms also prevent short-term speculation and volatility in token prices. This is because token holders who lock up their tokens are less likely to sell them in the short term, reducing the supply of tokens in the market and increasing their value.

The ve(3,3) model takes this a step further by allowing the transfer and trade of the veTokens on the secondary market. This provides more flexibility for token holders and enables them to trade their locked tokens for other assets without having to wait for the lock-up period to end.

What’s Next for the veToken Model

In conclusion, vote escrow tokenomics is a mechanism used by protocols like Curve Finance and Velodrome to incentivize long-term participation and commitment from their users. While there are benefits to this model, there are also downsides, such as the concentration of votes and the lack of a secondary market for locked veTokens. There are a number of projects working to address these issues and experiment with novel mechanisms based on the original ideas of vote escrow tokens. Nevertheless, these mechanisms have been successful in attracting deep liquidity and becoming some of the top DEXs on various chains.


Integral Insights


February 1st, 2024

Integral Insights: January ‘24

Our initial launch with the ETH-RPL pool was a success, quickly elevating us to the second most utilized liquidity pool for this pair’s trading.


January 17th, 2024

Is Liquidity Fragmentation Really That Bad?

When the token evolves into a store of value, it attracts outside traders, focusing on trading costs and slippage. This is when concentrated liquidity truly shines.


January 2nd, 2024

2023 Review

At Integral, our focus remains on developing a sustainable product for on-chain trading, serving both traders and liquidity providers.


December 12th, 2023

Integral Now Rewards Liquidity Providers with Trading Fees on Ethereum Mainnet

This enhancement enables liquidity providers (LPs) to directly receive a portion or all trading fees from Integral pools.


December 6th, 2023

Integral Insights: November ‘23

During November, Integral processed an average of approximately 6 million in volume with around 1.5 million in TVL. The system’s overall capital utilization sits at around 350%. It is the 10th most used DEX on Ethereum.


November 28th, 2023

Integral Now Rewards Liquidity Providers with Trading Fees

This enhancement enables liquidity providers (LPs) to directly receive a portion or all trading fees from Integral pools.


November 15th, 2023

How Do University Blockchain Societies Gain So Many Votes?

Explore how university blockchain societies like FranklinDAO and Michigan Blockchain have grown into influential players in DAO governance, utilizing delegated votes and strategic partnerships to shape the future of DeFi protocols like Uniswap, Compound, and Aave.


November 6th, 2023

Integral Insight: October ‘23

We give an update for our work in October and highlight a profitable LP position from a long-term user.


October 26th, 2023

Understanding the Stakes in Lido’s Growing Share of Staked ETH

The community is arguing whether a protocol may have too much control over the Ethereum network. Lido controls a large percentage of staked ETH, which could have consequences for the network’s future security and neutrality.


October 14th, 2023

Changes to Staking and Farming

Looking back at our progress so far and to the future with new updates to staking and farming.


October 11th, 2023

Integral Insight: September ‘23

We give an update for our work in September with utilization going up on higher volume for our new pools.


October 11th, 2023

The Hottest Narratives of the Summer

What were the hottest narratives of the summer? Our DeFi research team delves into the growth of trading bots, RFV traders and more in this overview.


October 2nd, 2023

Uniswap Governance: A Deep Dive

Governance is considered a critical component for the decentralization and community-driven development of DeFi protocols. We take a look at one of the largest goverance ecostystems in DeFi, Uniswap. In this blog post, we'll discuss the landscape of Uniswap's governance, pulling data from empirical research to dissect the system's delegates and proposals, revealing some interesting findings.


September 19th, 2023

What is the DAI Savings Rate (DSR)?

Our research team takes a look at the DAI Savings Rate and its influence on various yield dynamics in DeFi.


September 15th, 2023

Integral Insight: August ‘23

We give an update for our work in August with cheaper gas fees and the launch of the Integral Relayer on Arbitrum!


September 7th, 2023

Integral Relayer Launches on Arbitrum

We are excited to announce the launch of the Atomic Relayer on Arbitrum. This will bring the efficient and tested system for atomic trades to the Arbitrum Layer 2 network!


August 26th, 2023

How CRV Got Sold OTC

In this post we cover how the Curve founder sold large amounts of CRV in over-the-counter trades in order to prevent a potentially catastrophic liquidation event in DeFi.


August 18th, 2023

Integral Insight: July '23

Sharing our progress in July: preparations for atomic swaps on Arbitrum, trading SIZE with lower gas fees and more.


August 4th, 2023

Can Real Yield Replace Token Incentives for LPs?

DeFi protocols have relied on the distribution of native tokens to incentivize liquidity providers (LPs). In a previous post, we delved into traditional liquidity incentives and the utilization of vote-escrow tokens. Now, we shift our focus to a fresh approach that has captured the attention of DeFi enthusiasts: concentrated liquidity methods.


July 29th, 2023

Post-Mortem Report: Precision Error for Actions in Integral SIZE

A potential vulnerability was identified in the Integral protocol via our Immunefi bounty program. We did not observe the exploit active in production and we have since deployed a patch and the system is back to running as normal. No user funds were lost.