Vote locking governance tokens are the new hot spot for decentralized financial protocols.
DeFi performed well in 2021, but the tokens behind the large protocol did not. DeFi tokens have been hit hard and many of their investors are wondering if they shouldn't buy and hold ETH outright.
Founders and DAOs are looking for ways to increase the value of their tokens. More seem to be following the lead of Curve Finance, which has required DAO participants to lock in their CRV tokens to participate in governance since the governance token was introduced in 2020.
Vote locking system
The community behind top earnings aggregator Yearn Finance recently decided to follow Curve's lead and move to a vote locking system, but this is just the latest in a growing list of projects.
Algorithm Stable Coin Project Flax Financial Switch to Voting lockout required A long time ago. Doing so "coordinates people's long-term outlook and lets them all lock up their tokens permanently for up to four years so people can see on the chain that a lot of people have bought this stuff and sunk costs into it," Sam Kazemian, founder of Frax, told The Defiant via Telegram. Defiant.
For users, pledging is attractive because it tends to lead to higher returns. For example, Yearn is already using its protocol profits to purchase its governance token, YFI, from the open market. Once Yearn's developers implement this new proposal, the purchased YFI will be distributed proportionally to all pledgers.
Several other protocols have opted for a revenue enhancing vote lock approach to governance.
The aforementioned Frax was very early. Another early adopter was Pickle Finance. Pickle is a revenue aggregator in the world of Yearn. It launched Own version Locked voting tokens Calling Dill 2021, in partnership with Andre Cronje, creator of Yearn. DILL holders share 45% of the profits obtained from the Pickle project and are rewarded with new PICKLE emissions.
Another revenue aggregator that y-axis has also shifted to voting lock Its third version It was launched late last year. Pledging YAXIS tokens provides voting rights and increases user rewards in different mining pools. It can boost them up to 2.5 times.
"We continue to see the percentage of YAXIS tokens locked up grow. It's now around 40%, with a bias towards longer lockups," Mr. Mister from the Y Axis team told The Defiant via Discord.
Vespa Finance is a passive augmentation protocol that also uses pledges to allow users to augment their native token VSP. To vote on a Vesper upgrade, users need to hold pledged VSP (vVSP). The pledged version can also receive profits from the protocol. All profits from other Vesper pools are converted to VSP via Uniswap and distributed to pledgers.
Not every protocol is tied to voting and earnings.
Barn Finance Provides an incentive to lock tokens, but it only increases voting power. Users can vote their BOND tokens without pledging them, and there is no gain from pledging. Similarly, Ribbon Finance is discussing implementing lock-in voting, but it does not share in Ribbon's agreed-upon profits, according to co-founder Julian Koh.
In any case, Kazemian believes that what really matters is the lock.
"As the ecosystem builds, communities can form and focus on specific protocols. This can have a compounding effect because it builds on itself and more and more people's attention is targeted," Kazemian said.