Voting Escrow (veToken) is a tokenomics model pioneered by Curve Finance, where users deposit and lock a protocol's native governance token (e.g., CRV) to receive a non-transferable, time-locked derivative token (e.g., veCRV). The core principle is time-weighted voting power: the amount of voting power granted is proportional to both the number of tokens locked and the duration of the lock, incentivizing long-term alignment. This mechanism transforms a liquid, tradeable asset into a commitment signal, directly linking a user's influence over the protocol to their vested interest in its long-term success.
LABS
Glossary
Voting Escrow (veToken)
A governance mechanism where users lock tokens to receive non-transferable voting power, with weight often proportional to lock duration.
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definition
DEFINITION
What is Voting Escrow (veToken)?
A governance and incentive mechanism where users lock their tokens to gain non-transferable voting power and protocol rewards.
The primary functions of a veToken system are governance and reward distribution. Holders of veTokens typically gain the right to vote on critical protocol parameters, such as emission schedules for liquidity pools or fee distributions. Furthermore, protocols often direct a portion of their revenue—such as trading fees or newly minted tokens—to veToken holders as a yield, creating a powerful incentive to lock tokens. This design aims to solve the "vote-and-dump" problem common in traditional governance by ensuring that the most influential stakeholders are those most committed to the protocol's future.
A canonical example is Curve's veCRV model. Users locking CRV tokens receive veCRV, which grants them the power to vote on gauge weights—determining which liquidity pools receive higher CRV emissions—and to earn a share of Curve's trading fees. Other prominent implementations include Balancer's veBAL and Frax Finance's veFXS. The model's success has led to the emergence of vote-locking marketplaces and liquid wrappers (e.g., Convex Finance for Curve), which allow users to delegate voting power or gain liquidity while still participating in the system, adding layers of complexity and financialization to the core escrow mechanism.
how-it-works
MECHANISM
How Voting Escrow Works
Voting Escrow (veToken) is a tokenomics model that aligns long-term incentives by locking governance tokens to grant amplified voting power and protocol rewards.
Voting Escrow (veToken) is a cryptoeconomic mechanism where users lock their native governance tokens (e.g., CRV, BAL) into a smart contract for a predetermined period. In return, they receive a non-transferable veToken (e.g., veCRV) that represents their locked position. The core principle is that voting power and reward distribution are weighted by both the amount of tokens locked and the duration of the lock, a concept known as time-weighted governance. This creates a direct alignment between a user's long-term commitment to the protocol and their influence over its future.
The mechanics are governed by a few key parameters. The lock duration is chosen by the user, often up to a maximum of four years. A longer lock grants a linearly higher multiplier on voting power and typically a larger share of protocol fees or incentives. The veToken itself is soulbound, meaning it cannot be sold or transferred, though the underlying locked tokens can be withdrawn only after the lock expires. This design discourages short-term speculation and mercenary capital, as the benefits of influence and rewards are gated behind a credible long-term commitment.
The primary utilities of a veToken are governance and reward distribution. Holders use their weighted voting power to direct emissions in liquidity gauge systems, deciding which liquidity pools receive the highest token incentives. They also often receive a share of the protocol's revenue, such as trading fees. A critical emergent behavior is vote-locking, where different stakeholders (e.g., liquidity providers, DAOs) lock tokens to form alliances and direct emissions to pools beneficial to them, creating a complex political economy within the protocol's governance.
key-features
MECHANICS
Key Features of veToken Models
Voting Escrow (veToken) models are a governance and incentive mechanism where users lock their governance tokens to receive non-transferable veTokens, which grant rights and rewards.
01
Time-Weighted Voting Power
A core innovation where voting power is proportional to both the amount of tokens locked and the lock duration. A user locking 100 tokens for 4 years receives more voting power than one locking the same amount for 1 year. This aligns long-term incentives and discourages short-term speculation by creating a time-value for governance.
02
Revenue Sharing & Fee Distribution
veToken holders are entitled to a share of the protocol's revenue, such as trading fees or borrowing interest. This transforms governance tokens into yield-generating assets. For example, Curve Finance distributes a portion of its trading fees to veCRV holders, directly linking governance participation to protocol profitability.
03
Gauge Weight Voting
Holders use their veTokens to vote on liquidity gauge weights, directing emissions incentives (like token rewards) to specific liquidity pools. This decentralized process, pioneered by Curve, allows the community to decide which pools are most critical for the protocol's health, optimizing capital efficiency and liquidity depth.
04
Non-Transferable & Non-Delegatable
veTokens are soulbound to the locking address—they cannot be sold, transferred, or delegated. This ensures that voting power and rewards are tied to committed, long-term stakeholders rather than mercenary capital. The only way to exit the position is to wait for the lock to expire, at which point the original tokens are returned.
05
Boosted Yield for Liquidity Providers
Users who provide liquidity (LP) can receive a yield multiplier on their rewards if they also hold veTokens. The size of the boost is calculated based on the LP's share of a pool relative to their veToken balance. This mechanism, known as vote-escrowed boosting, incentivizes LPs to become long-term protocol stakeholders.
06
Protocol-Owned Liquidity (ve(3,3))
A derivative model, popularized by protocols like Solidly, where protocol-owned liquidity is a central feature. Emissions and fees are directed to veToken holders who vote, and a portion of fees is used to perpetually buy back and lock the governance token, creating a self-reinforcing flywheel for the treasury and token price.
primary-use-cases
VOTING ESCROW (VETOKEN)
Primary Use Cases & Incentives
Voting escrow is a governance mechanism that aligns long-term incentives by locking tokens to grant voting power and protocol rewards.
01
Governance Power & Vote Weighting
The core function of a veToken model is to grant voting rights proportional to the amount and duration of a token lock. This creates a time-weighted voting power system where long-term stakeholders have greater influence over protocol decisions, such as directing emissions or adjusting fee parameters. This aims to prevent short-term speculation from dominating governance.
02
Fee Distribution & Revenue Sharing
Protocols using veTokenomics often distribute a portion of their generated fees (e.g., trading fees, loan interest) to veToken holders. This creates a direct revenue-sharing incentive. For example, Curve Finance distributes trading fees to veCRV lockers, and Aave distributes a share of protocol revenue to stkAAVE stakers (a related model).
03
Emission Direction & Gauge Weight Votes
A key application is allowing veToken holders to vote on liquidity gauge weights, which determine how many new token emissions (inflationary rewards) are directed to specific liquidity pools. This lets the community incentivize deep liquidity for desired asset pairs, a concept pioneered by Curve Finance's veCRV model.
04
Protocol-owned Liquidity & Flywheel
By locking tokens for long periods (often up to 4 years), liquidity is effectively removed from circulating supply, creating protocol-owned liquidity. This can reduce sell pressure and, combined with fee sharing, creates a flywheel effect: more locks → higher rewards & voting power → stronger incentives to lock.
05
Boosted Yields for LPs
Liquidity Providers (LPs) can increase their rewards in selected pools by holding veTokens. Protocols like Curve and Balancer offer a yield boost multiplier (e.g., up to 2.5x) on LP rewards for users who also lock governance tokens. This ties LP incentives directly to the protocol's long-term success.
06
Bribe Markets & Vote Delegation
A secondary market emerges where projects (e.g., other protocols) offer bribes (often in stablecoins or their own token) to veToken holders in exchange for their gauge weight votes. Platforms like Votium and Hidden Hand facilitate this, creating an additional income stream for lockers and a mechanism for protocols to attract liquidity.
ecosystem-examples
VOTING ESCROW (VETOKEN)
Protocol Examples & Implementations
The veToken model is implemented across major DeFi protocols to align long-term incentives and govern liquidity. Below are key examples of its application.
06
Key Implementation Variants
Protocols adapt the core model to their needs:
- Lock Duration & Decay: Fixed-term locks (Curve) vs. decaying balance models.
- Underlying Asset: Native token (CRV) vs. LP token (veBAL).
- Vote Delegation: Some allow delegation of voting power to smart contracts or representatives.
- Reward Mechanisms: Direct fee cuts, boosted yields, or external bribe marketplaces. These variations address specific protocol economics and user experience goals.
GOVERNANCE MECHANICS
veToken Model vs. Traditional Token Voting
A comparison of core design parameters between the voting escrow model and standard token-based governance.
| Feature / Metric | Traditional Token Voting (1T1V) | Voting Escrow (veToken) Model |
|---|---|---|
Voting Power Basis | Token balance at snapshot | Locked token amount * lock duration |
Voter Commitment | Transient (can vote and sell) | Long-term (tokens are locked) |
Sybil Attack Resistance | Low (buy votes, sell after) | High (costly to acquire long-term stake) |
Voter Turnout Incentive | Typically extrinsic (rewards) | Intrinsic (protocol fee distribution, boost) |
Governance Token Utility | Governance + transferable value | Governance + fee rights + incentives |
Liquidity vs. Control Trade-off | High liquidity, weak alignment | Reduced liquidity, strong alignment |
Typical Vote Weight Decay | ||
Protocol Revenue Distribution | Rarely direct | Common (e.g., fee sharing to lockers) |
security-considerations
VOTING ESCROW (VETOKEN)
Security & Game Theory Considerations
The veToken model introduces unique security trade-offs and game-theoretic dynamics by aligning long-term incentives, but also creates new attack vectors and governance complexities.
01
Whale Dominance & Governance Capture
The lock-up multiplier can centralize protocol control. A large token holder locking for the maximum period (e.g., 4 years in Curve's model) gains outsized voting power, risking governance capture. This can lead to:
- Proposal manipulation favoring the whale's liquidity pools.
- Stagnation if large holders become passive.
- Reduced decentralization as new participants cannot compete with established, locked positions.
02
The 'Locked Liquidity' Illiquidity Risk
While veTokens aim to create protocol-owned liquidity, they simultaneously remove the underlying governance tokens from circulating supply. This creates a systemic risk:
- Exit liquidity dries up for the base token, increasing price volatility if a major lock expires.
- A coordinated unlock event could crash the token price as locked positions mature simultaneously.
- The model relies on continuous new locking to offset unlocks, creating a potential Ponzi-like dependency on fresh capital.
03
Bribe Markets & Vote Manipulation
Delegating vote-escrowed tokens to gauges creates a marketplace for bribes. While incentivizing participation, this introduces manipulation risks:
- Vote buying where projects bribe veToken holders to direct emissions to their pool, distorting tokenomics.
- Sybil attacks on bribe platforms to split votes.
- Short-termism, where holders chase the highest bribe rather than the protocol's long-term health.
04
Smart Contract & Economic Attack Vectors
The veToken system expands the attack surface. Key vulnerabilities include:
- Flash loan attacks to temporarily borrow massive voting power, pass a malicious proposal, and repay the loan.
- Governance delay exploits where an attacker passes a proposal, then front-runs its execution.
- Time-based exploits targeting the lock/unlock mechanics or the merkle distributor for rewards.
- Oracle manipulation if gauge weights or rewards depend on external price feeds.
05
Game Theory of Lock Duration
The time-value of governance creates a strategic game. Rational actors model:
- Opportunity cost of locked capital vs. potential yield and bribes.
- Future discounting, where longer locks are only rational with high confidence in the protocol's future.
- Nash equilibria where all major holders lock for the max period to maintain relative power, creating a stable but rigid system. Early unlockers sacrifice influence, creating a prisoner's dilemma.
06
Mitigations & Evolving Designs
Protocols implement safeguards to counter veToken risks:
- Vote-locking instead of token-locking (e.g., veNFTs) to improve liquidity.
- Decay mechanisms where voting power decreases over time, reducing whale permanence.
- Quorums and timelocks on governance proposals to prevent snap attacks.
- Fork resistance through non-transferable veTokens or loyalty rewards.
- Layer-2 implementations to reduce gas costs for frequent gauge voting, improving decentralization.
VOTING ESCROW (VETOKEN)
Technical Implementation Details
This section details the core mechanics and implementation patterns of the Voting Escrow model, a critical governance primitive for aligning long-term incentives in DeFi protocols.
A veToken (voting escrow token) is a non-transferable, time-locked representation of a governance token that grants its holder amplified voting power and protocol rewards. The core mechanism works by allowing users to lock their base governance tokens (e.g., CRV, BAL) for a chosen duration, receiving a veToken (e.g., veCRV) in return. The voting power of the veToken is calculated as locked_amount * lock_time_remaining / max_lock_time, creating a direct incentive for longer-term commitments. This model aligns voter incentives with the protocol's long-term health by making governance power illiquid and duration-dependent.
VOTING ESCROW (VETOKEN)
Frequently Asked Questions (FAQ)
A deep dive into the mechanics, purpose, and common applications of the Voting Escrow token model, a core mechanism for decentralized governance and incentive alignment.
A veToken (voting escrow token) is a non-transferable, time-locked representation of a governance token that grants its holder amplified voting power and protocol fee rewards. The core mechanism works by allowing users to lock their base governance tokens (e.g., CRV, BAL) for a chosen period, receiving a quantity of veTokens proportional to the lock amount multiplied by the lock duration. This creates a direct alignment between long-term commitment and influence within the protocol's decentralized governance and reward distribution systems.
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