ve(3,3) Is Everywhere
The More the Better for this Innovative DeFi Primitive
The original Solidly decentralized exchange, now known colloquially as ve(3,3) has captured a lot of attention in the DeFi arena over the past several months. It’s a compelling DEX innovation and design that provides a superior incentives system than the original automated market makers (AMMs) like Uniswap and Sushiswap. These ve(3,3) protocols require weekly or more frequent engagement between veNFT holders, partner protocols, and yield farmers in order to maximize yield, liquidity, or other goals (e.g. attention share).
Bear market forces and high emissions have created consistent downwards price pressure on the various ecosystem ve(3,3) DEXs. However, in the long run, I still believe the alignment between an engaged holder base and protocols will lead to a sustainable flywheel.
Regardless of the native token price, veNFT holders are raking in weekly bribes of >200% while ve(3,3) teams seek TVL, aggregator partnerships, and better order execution techniques to maximize volume and fees.
Is more ve(3,3) DEXs a bad thing?
Every new DEX seems like a ve(3,3) fork or adaptation. Guru Network built a nice comparison dashboard to keep track Comparision of the Best Solidly Visions!
According to DeFi Llama there are now 31 Solidly forks across the multichain, with Velodrome accounting for >35% of the TVL.
I don’t think this is a bad thing at all. Obviously, competition is always good for the market participants. Optimal order execution provides the best price for buyers and sellers, and DEX aggregators are making this happen (Firebird is my personal favorite - $FBA is a low cap gem). However, the majority of the forks won’t make it. Teams without a consolidated strategy, approach to BD, and community buy in will wither on the vine.
One of the paradigm shifting DeFi tenets pioneered by Olympus DAO is the concept of Protocol Owned Liquidity (POL). It’s now becoming extremely popular for new protocols because it generates revenue (capital efficiency).
ve(3,3) DEXs are offering great opportunities to teams to manage POL. Not only are DEXs handing out significant veNFTs that provide voting power for fees and emissions, they are also offering custom liquidity strategies. Solidly’s design space allows for modular improvements on top of the basic liquidity curves and staking contracts. For example, Thena has built concentrated liquidity with Gamma Strategies and Algebra to enables custom liquidity ranges and liquidity curves to maximize fees for specific asset types.
ve(3,3) DEX Differentiation
Building a ve(3,3) DEX is more than just secure smart contracts, a working UX, and novel token design. The mission/vision/values that contribute to a brand are becoming more important to attract the right partners. As the number of DeFi DApp teams grows, my prediction is teams will want their POL to be managed by a ve(3,3) DEX team with philosophical alignment, a track record for easy onboarding, and someone who can consistently and thoughtfully manage the relationship.
I have been advising an upstart ve(3,3) DEX called Solunea. They built a working protocol on zKsync, raised some ETH for POL, and launched their SLNA token before deciding to make a pivot to Arbitrum. Arbitrum has more mature infrastructure, deeper liquidity, and more useful DApps to partner with so it’s a good decision to make the move. Solunea is a small, humble team with a ‘community owned’ ethos. Community owned implies no VC investors, content, partnerships, and strategies are generated by members in the Discord, and 100% of the swap fees go to veNFT holders. This is a very cool, egalitarian project and I’ve recommended the team empower their community to go make deals with like minded projects in the Arbitrum ecosystem.
Future of ve(3,3) DEX
As these protocols continue to build TVL and strengthen partnerships with the various teams across each ecosystem, we’ll see the power of modularity atop the basic ve(3,3) DEX lead to greater fees and sustainability.
Here are some of the ideas I’ve brainstormed for the ve(3,3) builders who have all been grinding in the bear:
Launchpad for new projects’ tokens - This makes a ton of sense. The ve(3,3) team and veNFT holders performs DD/whitelists projects who use the DEX for an IDO. POL gets listed on the ve(3,3) DEX for a very seamless experience. These DEXs will build strong network effects because they bring an audience of well informed and motivated voters/investors who are watching weekly moves each epoch. Fundraising via ve(3,3) would be a win-win.
Treasury management. Many protocols manage a portfolio of assets and ve(3,3) DEXs can help assist with capital efficiency. With both concentrated liquidity and perps, delta neutral strategies can generate yield without risking impermanent loss.
ve(3,3) stablecoins backed by veNFTs and LP tokens. Why? We like capital efficiency and leverage in the future of finance. This would obviously require…
veNFT AMM (wen) to swap in and out of locked positions and for liquidations. Bug Finance is building a novel mechanism that allows for exiting veNFT positions and is worth reading about.
Self repaying loans for veNFT holders.
In conclusion, ve(3,3) is here to stay and it’s great to see the many adaptations/competitors in the DeFi game. My projection is we’ll see more and more large cap token liquidity migrate to ve(3,3) DEXs to be capital efficient and as market makers wind down their CEX operations. There will always be mercenary farmers moving their liquidity to the DEX providing the best yield, however, in the long term, the DEX that is most capital efficient and can generate the highest volume will benefit veNFT holders and be sustainable (numba go up).
My ve(3,3) picks:
Thena - Sustainable revenues from Fusion (concentrated liquidity), Alpha (perps parntership with Deus), forks and advisors across every ecosystem, strong front end designers, and great BD. BSC is a large ecosystem with plenty of upside.
Chronos - The best DeFi ecosystem is Arbitrum, and Chronos has a strong brand and team. Their maNFTs and no rebasing should lead to consistent TVL and locks as long as bribes come in. They have big brain strategists Unified and Levy.
Velodrome - The largest DEX on Optimism is well positioned to grow. With Optimisms Bedrock upgrade close, Coinbase launching Base gives Velodrome an opportunity to go stratospheric. Velodrome V2 is coming soon and will provide a much needed upgrade to generate fees for the protocol.
Solunea - The Little Engine that Could just launched on Arbitrum. Dynamic emissions should keep APRs steady for yield farmers (high locks lead to high emissions and low locks decrease emissions). They also are streaming bribes rather than releasing them in batches to smooth out volatility. Liquidity mining for SLNA starts today:
