The ve(3,3) Death Spiral

The Solidly model is designed with the assumption (and aiding mechanics) that governance tokens will become more valuable as the DEX establishes itself.

A death spiral would occur when the market loses faith that the DEX governance token will have future value, with more participants selling tokens instead of locking. This leads to a decrease in the value of emissions (token worth less, emissions worth less, APR falls) causing mercenary LPs to leave with their funds. Projects that aren’t aligned with the DEXs long-term success begin to reduce their bribes, resulting in even fewer users locking tokens to receive fees and bribes, which results in more token selling, accelerating the spiral to the graveyard.

Many new DEXs all seem to follow this same pattern:

• Initial excitement as token launches

• Low float and high inflation make emissions valuable for a few weeks

• Inflation eventually outpaces token demand

• LPs rush to the exits

Sadly this outcome is entirely predictable. So if all these forks are doomed to fail what makes Pearl different? What have we learned to ensure our success?

Explore these answers in the Pearl flywheel.