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ve(3,3): An Introduction into the New and Ambitious Solidly Exchange
A new protocol, being built by two of crypto's most well-known developers, aims to change the mold for how DeFi works.
Back on January 6th, which already feels like an eternity ago, a prominent developer by the name of Andre Cronje released a post on his medium simply titled: ve(3,3). Almost immediately, it took the crypto world by storm. Probably unbeknownst to Andre at the time, his 2-minute-long article announcing a new project called Solidly would unleash a multitude of forces on crypto. From billions in capital moving across chains, internet wars being fought over this unreleased project, and even a fallout from the revelation of a serial scammer close to one of the people behind Solidly, the ve(3,3) saga has been the most interesting thing happening in crypto over the past month. Buckle up readers, we got a lot to cover.
Welcome to the Average Joe’s Crypto and we hope you enjoy our introduction into Solidly Exchange. If you do, please give this post a share as it is greatly appreciated!
Also, this is only Part 1 of our two-part series on Solidly. Whereas this post will be a general overview of the protocol, the second post will be an in-depth evaluation and analysis of Solidly once it is launched. Subscribe to make sure you don’t miss Part 2!
With that out of the way, let’s get right into it!
Andre and Dani: Who Are They?
Before delving into the complexities of ve(3,3) and Solidly, we first want to give an overview of who its founders are. As any smart investor knows, the team behind the project is one of the most crucial factors for its long-term success. When we first wrote this section, we had high praises for both Andre Cronje and Daniele Sestagalli. However, that was before the revelation that one of Dani’s other projects, Wonderland, had a former felon and scammer running its treasury. This, of course, raises some serious questions and concerns for Dani. We could write a whole post about this situation, but we do want to keep this focused on Solidly. Here’s a quick debrief on the two men behind Solidly.
Andre has been at the forefront of DeFi since it really took off in the summer of 2020. His most successful project, yearn finance, has been a staple of DeFi since its launch in July of 2020. Boasting over $4 billion in total value locked and a market cap of over $800 million, the yield optimizer is truly one of the blue-chip DeFi products. Another one of Andre’s projects is Keep3r. Keep3r is a bit more complex than yearn, but it is essentially a protocol that fosters collaboration between protocols and developers. Between Andre’s two main projects of yearn and Keep3r, he has a proven track record of creating successful protocols.
Andre’s specialty is coding and how it intersects with finance. According to himself, there is only about five other people who he can have “deep technical conversations with about the nuances of smart contracts and their intersection with digital finance.” Based on his extensive track record, we have no reason to doubt he is telling the truth. To Andre, code is king. His aim is to develop protocols that eliminate the need for human interactions. Why? Because humans implement an additive layer of trust. Whereas smart contracts are immutable and remove the need for trust. With Andre at the helm of writing code for Solidly, we are confident the project’s code will be A+.
If Andre’s specialty is coding, then Dani’s specialty is community building. Over the past year, Dani has built an impressive crypto community known as Frog Nation. What is Frog Nation? Well, at is core, it is a group of DeFi projects and protocols that Dani is involved in. The core Frog Nation projects are Abracadabra, Popsicle Finance, and Wonderland. Additionally, Frog Nation incorporated SushiSwap into its ranks on January 25th. If we wrote this section just a mere few weeks ago, we would’ve continued to talk about the plans of the ambitious Frog Nation leader. Unfortunately, however, we must address the drama that Dani and Frog Nation have been embroiled in.
In a Twitter thread by @zachxbt, it was revealed that the person in charge of Wonderland’s treasury, 0xSifu, was actually Michael Patryn. In case you’ve never heard of him, he was one of the co-founders of Quadriga, a Canadian CEX that stole over $150 million from users. If that wasn’t bad enough, Sifu also has a criminal record involving running identify fraud rings. This revelation caused an absolute shitstorm, for lack of a better word. Obviously, this raises concerns about Dani and who he associates himself with. Although steps such as removing Sifu from Wonderland have been taken, we’re still closely monitoring the situation.
The whole Sifu debacle is obviously not good for Dani, and by extension, Solidly also. However, we see it more as a short-term nuisance than a long-term problem. In all honesty, it seems like Andre is the main one behind Solidly Exchange. He’s the one writing all the code and releasing announcements while Dani is just kinda… there. It seems like the purpose of this collaboration was to incorporate Frog Nation into Solidly, with Andre heading development and Dani building community around it. We will see how everything plays out, but as long as Andre is the one writing the code, we’re confident in a successful launch for Solidly Exchange.
The Basics: What Does ve(3,3) Even Mean?
If you’re not familiar with crypto lingo or not a lurker on crypto Twitter, you’ve been probably asking yourself: What the hell is ve(3,3)? And we don’t blame you. If it's your first time coming across ve(3,3), it looks like somebody just smashed their keyboard and that was the result. But in all actuality, ve(3,3) is a combination of arguably the two biggest developments in DeFi over the past year: ve and (3,3). Let’s break down each one individually.
Vote Escrowed- “ve”
If you’re a subscriber or familiar with our work, you’ve probably already been exposed to ve. In our Convex Finance post, we covered the subject pretty extensively as it is a crucial aspect of the success of Convex Finance. If not, allow us to explain. ve just stands for “Vote escrowed,” and it was introduced with Curve Finance. Curve is a DEX that is primarily used for stablecoin swaps. As far as ve goes, it is a crucial component of the tokenomics of CRV, the token that powers Curve Finance. Let’s break it down:
The token behind Curve Finance is CRV. It is liquid and easily transferable. BUT, owning CRV alone does not give you the right to two crucial things: 1) Fee revenues generated by the protocol. 2) Governance over Curve Finance.
How do you gain access to those things? This is where ve comes in. When you have CRV, you have the option to vote lock it. By vote locking CRV, you receive veCRV in return. veCRV gains you a share of revenues and governance rights.
The longer you lock your CRV, the more veCRV you receive. Once you lock your CRV for veCRV, it cannot be reversed before the expiration date, and it cannot be transferred.
ve-tokenomics, at its core, is just simply a mechanism to better incentivize long-term believers in a project. It does this through assigning more rights and benefits for those who lock their tokens for longer periods of time and taking tokens temporarily out of circulating supply, which effectively reduces selling pressure. When you think of ve, think of long-term incentives.
Game Theory- “(3,3)”
The other big DeFi development over the past year has been (3,3), introduced by the protocol OlympusDAO. Basically, (3,3) is the way in which OlympusDAO baked in an element of game theory into the tokenomics of their protocol. This may be confusing at first but try to stick with us.
Imagine there are only 2 participants in this game involving OHM, the native token of Olympus. They have the option of staking, bonding, or selling:
In order to stake, the participant increases the price of OHM because they must purchase the OHM off the market. By staking, the participant passively increases their OHM exposure through auto-compounding. This is beneficial for the protocol and the participants and assigned a value of (+2).
By bonding, a participant exchanges a certain amount of assets, typically stablecoins or LP tokens, for discounted OHM from OlympusDAO that vests over time. In theory, this shouldn’t affect the market price of OHM. However, it is beneficial to the protocol, so it is assigned a value of (+1).
Lastly, by selling, the participant decreases the price of OHM. This is negative for both the participant and the protocol as the value of OHM is now decreased. We assign this a value of (-2).
We can visualize this through a matrix provided by the Olympus FAQ:
Based on this, both participants are the best off if they both stake while they are the worst off if they both sell. This game with only 2 participants involved is obviously a gross over-simplification of how the OHM market works in practicality. Although in theory (3,3)/staking is the best option for participants, that is not always the case for a game that involves thousands, millions of participants. For example, if no more new money is flowing into the protocol (No more OHM buyers), the advantageous play for an individual participant would be to sell first before any of the other participants. As long as money is flowing into the protocol (New OHM buyers), the advantageous play is to stake.
Time to address the elephant in the room. Doesn’t this just seem like a Ponzi scheme? Well, to put it frankly, yes. The idea of (3,3) is flawed at its most basic level if new money is not being introduced to the system. However, we wouldn’t go as far and say that OHM itself is a full-fledged ponzi as its treasury does produce revenues (Making it a productive asset). Rather OlympusDAO incorporates “ponzinomics” into its tokenomics.
The important lesson to be learnt with both ve and (3,3) is that they do not create value for a protocol or an asset. This distinction is sometimes not well-understood. Curve does not create value when someone exchanges their CRV for veCRV, Curve creates value when somebody uses their protocol to perform a stablecoin swap and pays a fee. OlympusDAO does not create value when somebody stakes OHM, OlympusDAO creates value from owning its treasury that they can earn yield on. If you’re going to remember one thing from this section, let it be this:
ve and (3,3) are useful tokenomics that make protocols that create value have that value accrue to the native token of the protocol.
Solidly: What we Know About it so Far
Now that we’ve discussed what ve(3,3) is, perhaps it is time to talk about Solidly Exchange. Ever heard of business-to-business (B2B) products before? Well, that’s basically what Solidly aims to be! Rather than B2B, Solidly is a protocol-to-protocol (P2P) Automated Market Maker (AMM) for both swaps of correlated and uncorrelated assets built on the Fantom network. For those of you who are unfamiliar with the term AMM is, it is a type of decentralized exchange (Just think of Curve or Uniswap). The purpose of Solidly is for existing AMMs on Fantom (Spookyswap or Spiritswap for example) to:
“-integrate the new AMM into their own design, still accruing all fees to their own systems without losing out any fees, volume, or liquidity.” -Andre Cronje's Medium
Although the market for AMMs is pretty saturated, Solidly seems to be the first AMM designed with a P2P model in mind, giving it a unique market fit. The other key difference with Solidly compared to other AMMs is that the goal of Solidly is to incentivize fees rather than liquidity. Why is this a good thing? Ultimately, if you’re an owner of the Solidly token, the revenue you receive from it is the fee revenue from swaps on Solidly. By incentivizing fees, fee revenue should be maximized, in theory.
Now that we’ve given you a general overview of what it is, it’s time to get into the nitty-gritty details of Solidly. However, we must note that a lot of details are still missing or incomplete. For example, the details for the token still haven’t been posted on the Solidly GitHub! Pretty much all of the relevant information is from Andre Cronje's Medium, so we highly recommend checking that out!
Starting with its ve-tokenomics, Solidly behaves very similarly to Curve, with some major caveats. For Curve, veCRV holders receive 50% of fees no matter what gauges they vote for. This, of course, can be problematic as someone who owns veCRV could vote for a pool that generates no fees for Curve, yet they still receive 50% of the protocol’s aggregate fee revenues. Solidly attempts to solve this issue by making it that you only receive fees from the pools you vote for. Therefore, participants are incentivized to vote for the pools with the highest fees as that is the only way in which they receive cash flows from the protocol.
The other caveat has to do with emissions. For Curve, emission of future CRV tokens is based on a pre-determined release schedule. Every day, X number of tokens will be emitted according to the project’s code. Although how those tokens get emitted is based upon the incentivized pools, the aggregate amount of CRV tokens released daily is predicable for the foreseeable future. Solidly takes a different approach for how emissions should be done (From here on out, the token of Solidly will be referred to as ROCK).
Weekly emissions of ROCK are based upon how many existing ROCK tokens are locked as veROCK. Additionally, it is an inverse relationship. Let’s say a maximum of 2,000,000 ROCK is designated to be distributed over the next week. If no existing ROCK is locked as veROCK, all 2,000,000 allocated ROCK will be emitted. If all existing ROCK is locked as veROCK, none of the allocated 2,000,000 ROCK will be emitted. So if 50% of ROCK is locked as veROCK, we would expect emissions to be 1,000,000 ROCK.
Another caveat is an anti-dilution provision. Solidly aims to emit ROCK without diluting older holders of ROCK. It does this in a simple manner, actually. If you lock your ROCK as veROCK, you receive the necessary number of weekly emissions to maintain your previous share over Solidly. If your locked position amounted to 1% of Solidly, your position would remain at 1% even after any further emissions occur. In order to not get their % of Solidly diluted, ROCK holders are incentivized to lock as veROCK, thus ve(3,3)!
The last difference with the Curve ve system is that veROCKs are NFTs. By making them NFTs, it allows veROCK to be traded in secondary markets and used as collateral. Effectively, you do not lose out on the capital efficiency of ROCK by locking it as veROCK.
These, in our opinion, are the most important details we have to date so far on Solidly Exchange. If you wish to learn more about it, we recommend checking out both the GitHub and this Medium post by Andre highlighting some of the features of Solidly.
Proxy Evaluations Using WEVE and OXD
In this last section, we briefly want to touch upon how initial distribution was decided and how we can place a proxy price on ROCK through two protocols which spawned out of the Vamp Wars. On January 10th, it was announced that initial ROCK distribution would be based on the Total Value Locked (TVL) of the top 20 protocols on Fantom. This method caused an inflow of billions of dollars to the Fantom system as users rushed to try to get some exposure to Solidly exchange. Even after the snapshot of TVL was confirmed on the 23rd of January, much of the capital remained on Fantom.
An interesting result of the method for determining initial allocation was the creation of veDAO and 0xDAO, two DAO’s created with the specific intention of acquiring as much initial allocation as possible by gaining large amounts of TVL. This mad craze of protocols trying to acquire as much TVL as possible has been popularized as the Vamp wars. Protocols and users of Fantom were bending over backwards trying to gain as much Solidly exposure as possible. As a result of these Vamp Wars and the massive introduction of new capital into Fantom, the TVL snapshot was expanded to the top 25 protocols. Here is the list of protocols and their associated allocations:
Importantly, the protocols that received the initial distribution will represent 25% of Solidly in perpetuity. Because of the creation of veDAO and 0xDAO, we can actually calculate a proxy price for ROCK. Since we have pricing information on both veDAO’s token, WEVE, and 0xDAO’s token, OXD, we can backwards calculate the implied price of ROCK. If you take the market cap of each project and divide it by the % of initial ROCK it controls, that is an approximation of the market cap of Solidly. Here, we did the math for you:
Note: We used market cap rather than fully distributed value for WEVE and OXD as there are various governance proposals to reduce the total supply of their respective tokens.
From this, we can see that the market is expecting SOLID to launch somewhere near a market cap of ~$350 million. If you think that is undervalued to what you expect it to be, you could speculate by buying WEVE or OXD. Currently, WEVE gives you more exposure to ROCK per $1 spent. Lastly, differences in valuation could be due to simple market inefficiencies or because of differences in how the two DAO’s plan to use their ROCK. For example, veDAO has joined Solidex, alongside some other protocols such as Curve and Yearn, which aims to be the Convex Finance of Solidly.
Solidly Exchange is set to distribute the initial allocations on February 10th and begin emissions on February 17th. Personally, we are very bullish on this project and have built up exposure through both WEVE and OXD. What Andre and Dani are building over at Solidly seems special. There are tons of innovative ideas going into this protocol and we think it could truly be a game-changer by being a P2P AMM. The Vamp Wars and the rush for TVL was reminiscent of DeFi summer of 2020, and we believe that Solidly Exchange could bolster the whole Fantom ecosystem with it. These are truly some exciting times!
We hope you enjoyed our general overview of Solidly Exchange and ve(3,3). If you did, please feel free to give it a share! As you can tell, we put all this content out for free. Rather than paying us, all we ask is to help spread our posts! Also, don’t forget there will be a part 2 once Solidly launches. If you don’t want to miss it, make sure to subscribe!
Any concerns or questions? Please feel free to drop a comment, we’re more than happy to reply! Also, give us a follow on Twitter as that’s the best place to reach us! We hope you enjoyed this post!
Note: None of this should be deemed financial advice. It is purely for entertainment purposes only.