Unveiling ve(3,3) Tokenomics: Loxodrome’ Groundbreaking community-centric design

The world of decentralized finance is evolving at breakneck speed, unleashing innovations that are transforming the financial landscape. Blockchain technology has been the catalyst for this remarkable journey, enabling us to conduct transactions with unparalleled anonymity, transparency, and security. At the heart of this transformation lies the booming DeFi ecosystem, where assets can be traded without the oversight of centralized authorities.

To access this vibrant ecosystem, various models and protocols have emerged, offering a gateway to a multitude of services such as staking, lending, borrowing, and swaps. However, the challenge lies in how these protocols maximize their profits, stay ahead of competitors, and reward users effectively.

Enter ve(3,3), a groundbreaking concept born out of the brilliant minds of Andre Cronje and Daniele Sestagalli. In this article, we'll delve into the innovative ve(3,3) model and explore Loxodrome's unique approach to it, and how it's set to revolutionize liquidity in the DePIN sector on IoTeX.

Understanding ve(3,3)

ve(3,3) is an ingenious concept designed to address the challenges faced by traditional decentralized exchanges (Dex) in attracting liquidity to their platforms. Its core objective is to actively incentivize users to deposit liquidity into their preferred pools, rewarding them with protocol tokens that can be staked to compound interest, generating profits for all stakeholders - the protocol, liquidity providers (LPs), and users.

The name ve(3,3) is derived from Curve's "ve" (vote-escrowed) and OlympusDao's "3,3" (the win-win staking method). Liquidity providers deposit their assets into their chosen pools and receive protocol tokens, which they can opt to vote-lock. By vote-locking their tokens, users commit to keeping liquidity within the protocol and, in return, receive "ve" tokens. These "ve" tokens grant them governance rights, access to rewards from LPs, emissions from the protocol, and more.

Since its inception on Solidly by Andre Cronje and Daniele Sestagalli, ve(3,3) has witnessed various protocol iterations. In this article, we'll shed light on Loxodrome's innovative approach and its unique ve(3,3) model, particularly its focus on redistributing fees to users and fostering a community-centric ethos.

Meet Loxodrome

Loxodrome has been meticulously crafted with the shortcomings of traditional automated market maker (AMM) models in mind. One such challenge is the "curve war," where LPs offer increasingly attractive terms to attract more liquidity to their pools. While this is a novel approach, excessive emissions to LPs can result in significant selling pressure if not managed properly.

Another issue arises from yield farming, a strategy used to accumulate liquidity for protocols. Yield farmers stake their tokens, often stablecoins, in exchange for protocol fees. However, protocols offering sky-high annual percentage yields (APYs) without safeguards can fall victim to opportunistic farmers who farm the pool's protocol token and fees, only to dump a massive quantity of tokens onto the market. This sudden influx can trigger a chain reaction, depleting LPs and causing liquidity to dry up as farmers migrate to the next project.

Loxodrome's mission is to tackle these problems head-on. As a fork of Solidly, an innovative ve(3,3) protocol by Andre Cronje, Loxodrome aims to facilitate trading, voting, and liquidity provision for DePIN (Decentralized Physical Infrastructure Network) projects within the IoTeX ecosystem. With its innovative design, Loxodrome is poised to become the primary liquidity hub on IoTeX.

Let's explore some of the innovative features that set Loxodrome apart:

100% Fair Launch

Unlike some projects that allocate a significant portion of their token supply to the team, Loxodrome is entirely community-owned. There are no pre-mints or pre-allocations; instead, 1% of the weekly token emissions are dedicated to contributors, including developers, community members, volunteers, moderators, advisors, and marketing personnel. This unwavering commitment to a fair launch empowers the community and ensures transparency.

Innovative Tokenomics and Emission Mechanism

Loxodrome introduces a tokenomics model that rebases up to 10% to combat dilution of veLOXO voting power. This rebase is distributed per epoch to veLOXO holders. Protocols like Equalizer and Chronos offer no rebase mechanism for users, while Thena and Velodrome offer 30% rebase which can often lead to compounding of governance rights among early comers into the protocol thereby unfairly alienating latecomers. But by keeping the rebase at 10%, Loxodrome incentivizes early adopters while maintaining a level playing field for latecomers, promoting fair competition in the nascent DePIN sector.

Traditional, ve(3,3) models were designed in mind to reward veToken holders primarily with bribes, governance rights etc. This strategy was based on the fact that prioritizing incentivizing veToken holders will lead to increased votes on LPs which will equal increased liquidity for pools and the protocol.

As a community focused protocol, Loxodrome seeks to reward all active participants in the ecosystem and that sets it apart from other ve(3,3) model. The emission is set to reward traders, voters, liquidity providers, NFT stakers etc.

Unique Fee Redistribution Structure

Unlike traditional ve(3,3) models, Loxodrome distributes emissions to liquidity providers based on value and total votes accrued in the pool before the end of each epoch. This approach fosters a fair emission rate, incentivizes LPs to compete for users by offering competitive bribes, and ultimately boosts liquidity for both the pools and the protocol.

Pools/Fees

Similar to Velodrome's whitelist pools, Loxodrome also introduced whitelist pools/gauges. Velodrome's whitelist is open for applications and does not follow an on-chain governance process. Conversely, Solidly's emission application is permissionless, meaning that token incentives can be routed towards pools that don't generate any transaction fees with voting power. This can be detrimental to the health of the protocol, and to counter that Velodrome introduces an emergency “commissary” to terminate any gauge deemed detrimental to the larger ecosystem.

Loxodrome has adopted an innovative solution to counter this by making sure only whitelisted pools receive LOXO emissions. These pools will be identified and vetted based on specific criteria. This will ensure a fair and equitable distribution of emissions within the protocol and to ensure that pools with no voters or malicious pools receive LOXO emissions.

Additionally, the protocol will incorporate a swapping feature for whitelist tokens, thereby offering users increased trading flexibility and options. This will further drive liquidity to the protocol via token emissions to traders, and help sustain the protocol for the long-term.

Loxodrome also introduces volatile and stable liquidity pools. Volatile pools will include such tokens as $LOXO and $IOTX pairs, while stable pools attract stables such as USDC, etc.

Trading fees on Loxodrome are capped at 0.2 for sAMM pools, and 0.5 for vAMM pools. This is done to create a competitive trading edge for our users with little to no slippage. 80% of Loxodrome swap fees are redistributed to the protocol. This is done to contribute to the overall revenue and sustainability of the protocol.

Rewards

Loxodrome is designed to reward both protocol and users in the most win-win situation for all. With its innovative design approach, all users in the protocol are appropriately rewarded. Loxodrome rewards are primarily rebase, emissions, fees, and bribes.

Protocols like Chronos and Equalizer offer no rebase for their veToken holders, and instead opt for a fair distribution system. As an emerging liquidity marketplace for DePIN projects on IoTeX, it is imperative for Loxodrome to both incentivize both current DePIN players on IoTeX and also create a fair playing ground for future projects coming to IoTeX. Our rebase mechanism is set at 10% which is low when compared to Thena's 30. This will incentivize current DePIN projects while not allowing current players to get too much voting power, and cater for newcomers in the DePIN sector.

Bribes are incentives paid to voters by LPs for voting for their pool. In Solidly initial design, bribes can be claimed immediately after voting but with the upgraded Loxodrome design, bribes are distributed at the end of each epoch. veLOXO voters earn 100% of pool bribes and must cast their vote for each epoch to be able to earn bribes on that epoch.

Emissions

Clearly outlined in the emissions schedule are different emissions rate for all participants in the protocol. This is done to incentivize users, especially early supporters of the protocol, and to foster long-standing and sustainable development.

Traders get up to 10% LOXO emissions from epoch 15 proportional to their share of the trading volume while LoxoNFT stakers get 5% LOXO emissions for the first 15 epochs. veLOXO holders are entitled to 10% $LOXO emissions, which is increased to 15% after epoch 15 with a weekly rebase of 10% veLOXO tokens.

Liquidity providers hold the largest share of $LOXO emissions for providing liquidity to enable swaps on the protocol. Liquidity providers get 67% $LOXO emission which reduces to 62% after 15 epochs. Contributor emission is set at 1% until after epoch 15, it is increased to 3%.

Token

Loxodrome offers two tokens, $LOXO, the protocol used for fees payment and emissions, and veLOXO, the governance token of Loxodrome. veLOXO is obtained by locking your $LOXO token for a period with varying degrees with the max lock being 2 years.

$LOXO is the ERC-20 utility token of the protocol. It is used to distribute emissions etc.

$LOXO emissions currently have two key objectives that are to reach and maintain adequate liquidity to facilitate optimal trading conditions — $LOXO are emitted as farming rewards to incentivize deep liquidity

Encourage decentralized governance — $LOXO can be staked to get veLOXO which is used to participate in the governance of the protocol. The long-term goal is to achieve true decentralization.

veLOXO is the true heartbeat of the Loxodrome protocol. This token unlocks the full potential of the protocol offering users ways to get profits, contribute to the protocol, help secure liquidity, and support their favorite LPs. veLOXO holders hold voting power which they can use to vote for their favorite LP per each epoch (an epoch is a period of 7 days).

veLOXO is the vote escrowed version of $LOXO, and include such benefits as:

• vote for your favorite LPs to.

• earn 100% of bribes.

• earn 10% trading fees from pool voted.

• earn 10%, up to 15% weekly LOXO emission.

• obtain governance rights which can lead to votes on the direction of the protocol.

Traditional ve(3,3) like Solidly primarily had two tokens i.e the protocol token, used for emissions, and veTokens obtained via locking protocol token. These veToken are usually in the form of ERC-721 format. Loxodrome takes this model and further improves upon it. It introduces the standard ERC-721 token format in form of veLOXO explained above, and then LoxoNFT intended to serve as means of passive income for protocol users.

LoxoNFT is a limited edition NFT on the Loxodrome Protocol. Loxodrome challenges this. LoxoNFT is intended to serve as a means to get passive income for our users, access liquidity and support the protocol. The NFT will be capped at 5000, and will include a private and public sale. This is intended to maximize profit for all holders as limited supply means increased demand.

Additionally, LoxoNFT stakers will get access to 5% $LOXO emissions until epoch 15, 10% protocol trading fees, 2% on secondary sales, special protocol airdrop, and governance/voting rights. These benefits greatly outweigh other ve(3,3) models like Thena and Chronos NFT.

This incentivization of LoxoNFT holders to stake will further drive liquidity to the protocol and compound interest to holders.

CONCLUSION

Traditional ve(3,3) models were designed to compound liquidity within the protocol and Loxodrome takes this a step further by designing a complete decentralized, community-centric, and transparent protocol. One of our most noteworthy features is our fair launch which is designed with the community in mind.

DePIN is a rapidly booming sector in crypto and Loxodrome is pleased to be at the forefront providing liquidity needed for swaps, trades etc. Our protocol is designed to use our upgraded ve(3,3) model to continue to drive the adoption of DePIN protocols, attract investors to IoTeX, and become a key player in the DePIN sector.

To drive liquidity and become a key player in the liquidity marketplace on the DePIN sector, it is inherent to give powers to the community to decide performing pools per each epoch and to fairly distribute votes across each pool. This further builds on Satoshi's key fundamentals of crypto which is built on trust, transparency, and openness. Loxodrome is a true AMM with designs to adequately empower the DePIN sector.

Loxodrome innovative features are a key match for the IoTeX chain, and therefore our protocol is focused on bringing the upgraded ve(3,3) mechanics to the network. With several key metrics different from other ve(3,3) protocols, the IoTeX chain is about to witness a further drive in liquidity, adoption, and addition of new investors and users alike.