veVEC and vETH Bribes

Vector Reserve will introduce vote-escrowed VEC (veVEC) upon acquiring sufficient liquidity. This represents staked VEC within the VEC/ETH Liquidity Position (LP). These staked tokens are locked and serve a dual purpose: they not only contribute to the stability and liquidity of the VEC token but also hold the power to intake and distribute incentives, commonly known as bribes, in the governance of the protocol’s directing of liquidity.

Governance Role in Liquidity Allocation

• Directing LRT Liquidity: Holders of VEC tokens play a pivotal role in determining the allocation of LST and LRT liquidity that underpins the vETH Liquidity Position Derivative (LPD). This governance mechanism ensures that the liquidity is directed in a manner that aligns with the strategic interests of the Vector Reserve ecosystem and its participants.

• Bribery Mechanism: Through a well-structured bribery mechanism, external protocols can offer incentives to veVEC holders to sway the allocation of liquidity in their favor. These incentives are a way for other DeFi protocols to attract the robust liquidity provided by the Vector Reserve, enhancing their own liquidity and stability. This bribe mechanism has often been applied to DEXs such as Velodrome, Balancer, and most notably Curve, in order to sway incentives towards their liquidity pools - but never has it been applied towards an actual treasury of assets that can provide instant liquidity instead of mere incentives.

Strategic Outcomes of veVEC Governance

• Enhanced Liquidity and Stability: By effectively governing the direction of LRT liquidity, veVEC holders contribute to the overarching goal of the Vector Reserve: to enhance the liquidity and stability of the vETH LPD, thereby ensuring the long-term sustainability of the VEC token.

• Maximizing Yield for Participants: The strategic allocation of liquidity, influenced by the incentives received, aims to maximize yield for participants, creating a strong value proposition for holding and staking VEC.

• Strengthening DeFi Collaboration: The bribery and governance model promotes collaboration within the DeFi ecosystem, allowing protocols to share in the success of Vector Reserve’s innovative liquidity strategies and direct a higher liquidity weight allocation to there LRT.