How does the new project Ve(3,3) backed by AC spark a TVL battle on the Fantom chain?

Author: Tangyuan

On January 24, DeFiLlama data showed that the total value locked (TVL) in crypto assets on the Fantom chain reached $12 billion, surpassing well-known public chains Solana (TVL of $7.7 billion) and Avalanche (TVL of $7.9 billion), entering the top four in the public chain TVL rankings. The top three are Ethereum (TVL of $1.16 trillion), Terra (TVL of $15.4 billion), and Binance Smart Chain (BSC) (TVL of $15 billion).

For a long time, the ecological development of the Fantom public chain has been tepid, with occasional blockbuster applications emerging but failing to create a market sensation. Why has its on-chain TVL surged this time? The competition for TVL rankings among on-chain applications has become an important reason, with Yearn (YFI) founder Andrew Cronje acting as a promoter in the TVL battle.

On January 6, Andrew Cronje, known as AC, announced a new project Ve(3,3) on Twitter, stating that the tokens of this application would be airdropped to the top 20 DeFi applications by TVL on the Fantom chain. Once the news broke, applications on the chain launched a TVL competition to qualify for the airdrop of Ve(3,3) application tokens.

As of January 27, the Ve(3,3) application has not yet been launched, and its related content consists only of basic information released by AC on Twitter and Medium. However, based on the information disclosed by AC, it is speculated that Ve(3,3) is an application that uses an AMM (automated market maker) mechanism to help DeFi applications issue and manage token assets.

Currently, the most tangible value of Ve(3,3) is its promotion of TVL growth on the Fantom chain. What exactly is it? How does it differ from other AMM-style DeFi applications? What is the status of the TVL battle on the Fantom chain? This issue of DeFi Hive will provide some answers.

Ve(3.3) Airdrop Ignites TVL on the Fantom Chain

According to the latest content released by Andrew Cronje (alias AC) on Medium on January 23, the real name of the Ve(3,3) application is Solidly. The abbreviation Ve(3,3) was used by AC when introducing the operational mechanism and characteristics of the Solidly application, and DeFi enthusiasts continued to use this abbreviation during dissemination.

Ve(3,3) was originally a new project co-built by AC and DeFi 2.0 application developer Daniele. In January 2022, the two announced on Twitter that they would launch a new project together. With two leading figures in DeFi at the helm, Ve(3,3) attracted the interest of DeFi enthusiasts in its conceptual stage.

Public information shows that Ve(3,3) is a token issuance mechanism based on the automated market maker (AMM) model, characterized by "better balancing the interests between developers and ecosystem participants."

It seems that AC believes that the current DeFi market has issues with uneven interests, where project applications often lose profits in users' "active participation," losing the capital to survive and even leading to failure. This is not alarmist; there is indeed a dilemma in the DeFi application market where some applications become popular for a time but cannot sustain development.

Most current AMM mechanisms are adopted by decentralized trading applications. It is a liquidity provision method that differs from the centralized exchange order book model, guided by incentives to encourage users to act as market makers, providing liquidity for "asset trading pairs" for users trading/exchanging tokens, ensuring that assets can be exchanged in a "decentralized" manner.

The AMM model was popularized in 2020 by the lending application Compound on Ethereum, and liquidity farming/mining became the mainstream model of DeFi. Due to the token rewards generated by application issuance, a large number of crypto asset users migrated to the chain to try out open finance, even "digging for gold" from it.

In the AMM model, users who provide liquidity to the asset exchange pool are called LPs (liquidity providers). They receive token rewards issued by the application, and the larger the amount of liquidity provided, the more rewards they often receive. However, the actual yield may not be higher, as it depends on the market price of the reward token, and the overall yield for LPs must also consider the impermanent loss formed by the "asset pair" during market fluctuations. Once the reward token depreciates, the yield will decrease, and if faced with high impermanent losses, LPs may end up worse off.

After experiencing various "liquidation" losses, LPs providing liquidity for asset pairs have formed a "mine-exit-sell" operational habit, leading to the devaluation of application tokens during sell-offs, which in turn reduces LPs' enthusiasm for contributing liquidity. LPs execute a "early entry, early exit" strategy, resulting in the consequence of DeFi applications being "mined and then dumped," making development difficult to sustain.

Based on this predicament, Ve(3,3) hopes to solve the distribution and management issues of DeFi application tokens through the locking mechanism of the stablecoin protocol Curve's "Ve-Token," namely VeCRV, combined with the "3,3" concept of the algorithmic stablecoin Olympus (OHM). It is important to note that Ve(3,3) is not a "decentralized exchange"; it has reconstructed the application on the AMM mechanism, attempting to allocate application tokens in a more refined manner.

Ve(3,3) utilizes the locking mechanism of the stablecoin exchange protocol Curve. In Curve, users can obtain VeCRV by locking the native token CRV. Currently, locking 1 CRV for 4 years yields 1 VeCRV. Holding VeCRV allows users to share in the revenue of the Curve platform, vote on which projects can be listed on Curve, and manage the yield rates of liquidity rewards.

In other words, if a project token wants to gain entry into the Curve asset pool or increase the rewards of the asset pool, it needs to hold enough VeCRV to vote. This, in turn, promotes the long-term locking of CRV. Ve(3,3) borrows this practice, requiring users to use the tokens of the Ve(3,3) application to determine the revenue distribution and reward speed for the asset pools it lists.

The so-called "3,3" concept of the algorithmic stablecoin Olympus (OHM) community means that users holding the native application token who participate in locking or staking can obtain maximum returns. Locking reduces the selling pressure on tokens, giving the application sufficient time to develop, ultimately benefiting users.

Ve(3,3) is essentially attempting to allow DeFi applications to adjust the inflation rate of their native tokens based on community governance rather than purely market forces.

Compared to Curve's stablecoin exchange function, Ve(3,3) places greater emphasis on Curve's stablecoin issuance function—if a new stablecoin project A is launched on Curve, this stablecoin A can directly achieve exchange functionality with mainstream stablecoins like USDT, USDC, and DAI within the application, quickly resolving the liquidity issues of the new application's tokens. However, new projects wanting to launch on Curve must pass the official whitelist review and gain support from VeCRV votes. Ve(3,3) has decided to be more open—allowing any DeFi application token to launch asset pools without review, but the distribution of rewards and yield rates will be based on the holdings of Ve(3,3) tokens.

Additionally, Ve(3,3) incorporates NFTs, minting locking certificates as VeNFTs, which can circulate in the secondary market, allowing users to access them at will and supporting VeNFT collateral, lending, etc., while enjoying voting governance rights.

It is important to note that the current Ve(3,3) is still in the conceptual stage, and the product has not yet been launched. The operational mechanisms visible are based only on the information disclosed by AC, and the specific functions of the product are still under market speculation. Whether it can become a blockbuster application remains to be seen once it is officially launched.

Anonymous New Project VeDAO Raises $800 Million in One Day

Ve(3,3) is still a concept, but an anonymous project named "VeDAO" quickly took the opportunity to launch, triggering a TVL battle among applications on the Fantom chain.

On the evening of January 19, an experiment called VeDAO initiated by an anonymous developer appeared, with the main goal of capturing enough TVL to break into the top 20 in the Fantom chain's TVL rankings to meet the requirements for the VeNFT airdrop reward snapshot. In simple terms, it is an "organization" that aims to attract funds by launching tokens to compete for the Ve(3,3) airdrop.

24 hours after its launch, VeDAO's locked funds reached $1 billion, making it the second application in TVL on the Fantom chain.

VeDAO's strategy for quickly increasing TVL is that users can earn governance tokens WEVE rewards by locking assets and participating in liquidity mining for four weeks. The VeDAO page is very simple, only featuring the asset locking function, accepting user inputs of ETH, FTM, USDC, stablecoin MIM, YFI, and other assets. Users can lock their assets to receive WEVE. Currently, single asset locking mining on VeDAO has been suspended, only allowing users to provide liquidity for the "MIM-WEVE" pool to earn WEVE rewards.

VeDAO Official Website

WEVE currently has no practical use. Public information shows that "WEVE holders will jointly manage VeNFT and decide on the distribution of VeNFT and mining reward earnings." This promise is quite risky because VeDAO itself is merely using the WEVE token to exchange for users' USDC, FTM, ETH, and other valuable assets locked in to increase its own application TVL. As for how the VeNFT will be distributed after obtaining it, the official has not made it clear. It is particularly important to note that VeDAO has not undergone an audit, the project is anonymous, and the risks are high; participating users should be wary of "exit" risks.

Old On-Chain Project "Lianheng" Forms 0xDAO to Counterattack

The rise of the anonymous project VeDAO has alerted established applications on the Fantom chain. Several project communities believe that VeDAO is a speculative entity that specifically siphons short-term liquidity from long-term builders of Fantom, ambushing the TVL of native applications on the Fantom chain. Participants are seen as opportunists from Ethereum, and once the VeNFT airdrop snapshot is over, these funds will withdraw liquidity from Fantom, which is not friendly to the on-chain ecosystem.

Thus, the counterattack began.

Decentralized exchanges (DEX) on the Fantom chain, such as SpookySwap, lending application Scream, and liquidity pool Liquid Driver, joined forces to form 0xDAO, aiming to reclaim their rightful TVL.

0xDAO raised its "battle flag," specifically targeting organizations that attract short-term liquidity from long-term builders of Fantom, proclaiming the slogan "ensuring user fund safety," but the tactics are similar to VeDAO—users can lock a single token or provide liquidity to earn governance tokens OXD rewards. Currently, the single assets supported for locking by users include FTM, ETH, USDC, DAI, etc., and the LP pool includes OXD-USDC.

0xDAO Locking Mining

0xDAO aims to "defeat magic with magic," with the advantage of a transparent team and long-term construction credibility backing it, making user participation relatively safe. After its launch, 0xDAO attracted locked funds of $1 billion within 4 hours, surpassing VeDAO in TVL, peaking at $4 billion.

Additionally, 0xDAO has longer-term plans, hoping to truly leverage the functions of a DAO, and has disclosed plans for after obtaining the VeNFT airdrop. Since Ve(3,3) will determine the distribution and yield rates of application tokens in the future, as 0xDAO's TVL grows, it is expected to obtain more VeNFTs, thereby gaining a voice in Ve(3,3). This indirectly encourages newly launched DeFi applications to seek support from 0xDAO, thus obtaining OXD voting support.

Compared to WEVE, OXD has preset longer-term uses. A large amount of funds has shifted from VeDAO to 0xDAO, and 0xDAO's counterattack against VeDAO has been successful, but the spotlight on Fantom has also dimmed.

On January 25, AC announced that the new project Solidly in the Fantom ecosystem had completed its snapshot on January 23 and released the list of 20 applications eligible for the VeNFT airdrop, including VeDAO and 0xDAO. According to the rules, projects that obtain VeNFT will have governance rights over Solidly.

This round of TVL battle has garnered significant attention and hype for the Fantom public chain, with various applications on the chain employing all means to compete for TVL rankings. However, as the battle concluded, the locked funds on the VeDAO and 0xDAO protocols also saw a significant outflow. Especially for VeDAO, as of January 27, the project's TVL had dropped to $21 million, and 0xDAO's TVL had also fallen to $386 million, with the former being less than one-tenth of the latter.

In fact, whether VeDAO or 0xDAO, both have speculative natures. Although the TVL battle has brought traffic and hype to Fantom, since the Solidly product has not yet been launched, it remains to be seen whether the functions can achieve the project's intended goals. The short-term increase in on-chain TVL is not necessarily an increment brought about by the public chain itself or improvements in the on-chain ecosystem, and whether on-chain DeFi protocols can sustainably support these funds is also questionable.