Ve Token Model "Tide Retreat": Why Are the Three Major Protocols Voluntarily Abandoning Their Former Trademarks?

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Original author: Pink Brains

Original translation: AididiaoJP, Foresight News

Over the past 12 months, three major DeFi protocols have, one after another, abandoned the ve token model.

Pendle, PancakeSwap, and Balancer had different trigger points, but the conclusions they reached are highly consistent.

The ve token model was once seen as the ultimate solution for DeFi tokenomics. Users lock tokens, gain governance rights, earn fees, and achieve long-term incentive alignment—all without centralized governance. Curve proved the model was viable, and between 2021 and 2024, dozens of protocols followed suit.

But this situation has already changed.

Within a single year in 2025, three protocols with total value locked (TVL) in the billions concluded that the mechanism does more harm than good. The problem was not a theoretical mistake, but an execution failure: low participation rates, governance rights being captured, emissions flowing into pools that are not profitable, and the token price collapsing even as usage increased.

Note: The ve token model (Vote-escrow Tokenomics) is vote-locked tokenomics, one of the most representative token economic models in DeFi. It was first proposed and successfully implemented by Curve Finance in 2020. By forcing long-term locking of governance tokens, it achieves deep alignment of incentives among users, liquidity providers (LPs), and the protocol. Put simply, users lock protocol tokens for a period of time (typically up to 4 years) in exchange for veToken, thereby gaining the right to vote on how new tokens are distributed, to enjoy higher yields, and to receive protocol fee/share distributions—aiming to achieve long-term protocol binding and reduce sell pressure.

Pendle: From vePENDLE to sPENDLE

What went wrong

The Pendle team disclosed that despite a 60x increase in revenue over two years, vePENDLE has the lowest participation rate among all veToken models—only 20% of the PENDLE supply is locked.

A mechanism originally used to align incentives ends up excluding 80% of holders. Even more decisive are the breakdown data for each pool: more than 60% of the pools receiving emissions are in a losing state.

A small number of high-performance pools subsidize the majority of value-destroying pools. Voting power is highly concentrated, causing emissions to flow first to where big holders keep their positions (typically wrappers), and only then to end users.

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For comparison, Curve’s veCRV lock rate is about 50% or higher. Aerodrome’s veAERO lock rate is about 44%, with an average lock duration of roughly 3.7 years; Pendle’s 20% is clearly too low. In a yield market, relative to the opportunity cost of capital, its lock incentive lacks appeal. Aerodrome had already distributed more than $440 million to veAERO voters as of March.

The alternative: sPENDLE

14-day withdrawal period, or pay a 5% fee for instant withdrawal

Algorithm-driven emissions, reducing about 30%

Passive rewards, only for voting on key PPP matters

Transferable, composable, and can be redelegated/re-staked

80% of revenue used to buy back PENDLE

sPENDLE is a liquid staking token, 1:1 pegged to PENDLE. Rewards come from income-funded buybacks rather than inflationary emissions.

The algorithmic model cuts emissions by about 30% while redirecting resources to profitable pools.

Existing vePENDLE holders receive an increase in loyalty (up to a 4x multiplier, decaying over two years starting from the Jan 29 snapshot).

An address associated with Arca accumulated more than $8.3 million worth of PENDLE over six days.

But not everyone agrees with this decision. Curve co-founder Michael Egorov believes that the ve token model is an extremely powerful incentive-alignment mechanism in DeFi.

PancakeSwap: From veCAKE to Tokenomics 3.0 (Burn + Direct Staking)

What went wrong

PancakeSwap’s veCAKE is a textbook case of bribery-driven misallocation. The vote system has been captured by Convex-style aggregators—especially Magpie Finance—which siphon off emissions with almost no actual liquidity brought to PancakeSwap.

Pre-shutdown data shows that for pools receiving more than 40% of total emissions, the CAKE burn contributed is less than 2%. The ve model spawned a bribery market: aggregators extract value, while pools that truly generate fees are under-incentivized.

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However, this shutdown was carefully orchestrated. Michael Egorov called it “a textbook governance attack,” arguing that PancakeSwap insiders erased the governance rights of existing veCAKE holders and might force unlock their own tokens after the vote.

Cakepie DAO, one of the largest CAKE holders, raised concerns about the vote violating rules. PancakeSwap provided Cakepie users with up to $1.5 million in CAKE compensation.

The alternative

100% of fee revenue used to burn CAKE

Emissions managed directly by the team

1 CAKE = 1 vote (simple governance)

About 22,500 CAKE/day, target lowered to 14,500

100% of fee revenue used to burn CAKE, with no revenue sharing

Target: 4% annual deflation rate; total supply reduced by 20% by 2030

All locked CAKE/veCAKE positions can be unlocked without penalty during a 6-month 1:1 redemption window. Revenue sharing is redirected to burning; the burn rate of key pools increases from 10% to 15%. PancakeSwap Infinity is launched in sync with the redesigned pool architecture.

Results after the transition

Net supply decreased by 8.19% in 2025

Deflation continued for 29 straight months

Permanently removed 37.6 million CAKE starting from September 2023

Burned more than 3.4 million CAKE in January 2026 alone

Cumulative trading volume: $3.5 trillion ($2.36 trillion in 2025)

The deflation strategy has performed well, but the CAKE price still is around $1.60, down 92% from its all-time high.

Balancer: Gradual shutdown of veBAL (DAO + Zero Emissions)

What went wrong

Balancer’s failure was a cascading result of governance capture, security vulnerabilities, and economic insolvency.

A struggle with large holders erupted first. In 2022, a large holder called “Humpy” manipulated the veBAL system, routing $1.8 million worth of BAL to a liquidity pool under its control (CREAM/WETH) within six weeks. During the same period, that pool only generated $18,000 in revenue for Balancer.

Next came an exploit attack. A rounding bug in Balancer V2 exchange logic was exploited across multiple chains, causing losses of about $128 million. TVL dropped by $500 million within two weeks. Balancer Labs again faced difficult-to-bear legal risks.

The alternative

100% of fees go into the DAO treasury

BAL emissions reduced to zero

100% of fee revenue allocated to the DAO treasury

Repurchase BAL at a preset price to enable exit

Key directions: reCLAMM, LBP, stable pools

Achieve a lean team through Balancer OpCo

The old DeFi model centered on token rewards is being phased out.

Despite tokenomics issues, Martinelli pointed out that Balancer is “still generating real revenue,” with more than $1 million over the past 3 months:

“The issue isn’t that Balancer can’t work, but that the economic mechanisms around Balancer can’t work. These are fixable.”

Whether a lean DAO can maintain $158 million in TVL without incentives remains an open question. Notably, Balancer’s market cap (about $9.9 million) is currently below its treasury (about $14.4 million).

Underlying mechanism analysis

The three exit cases above are just the surface; the structural problems are the root cause.

A recent analysis by Cube Exchange listed three scenarios in which the ve-token model could fail.

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Scenario 1: Emissions must retain value. If the token price crashes, emissions value falls → LPs exit → liquidity, trading volume, and fees decline → further sell pressure. This creates a classic reverse flywheel (seen in CRV, CAKE, and BAL).

Scenario 2: Locking must remain meaningful in reality. If locked tokens can be wrapped into liquid versions (such as Convex, Aura, Magpie), then “locking” loses its real meaning and generates exploitable inefficiencies.

Scenario 3: There must be a genuine allocation problem. The ve model is effective when the protocol continuously needs to decide where incentives should go (e.g., AMMs). Without this need, measuring-voting becomes an unnecessary overhead.

Diagnostic tests:

Does the protocol have a real and recurring allocation problem such that community-led emissions allocation can create measurable additional economic value compared to team-led allocation?

If the answer is no, then the ve token model only adds complexity without adding value.

Fee-to-emissions ratio

The fee-to-emissions ratio refers to the protocol’s dollar value fees generated divided by the dollar value of emitted incentives allocated.

When this ratio is higher than 1.0x, the protocol earns more fees from liquidity than it pays to attract it. Below 1.0x means it’s subsidizing in a loss-making activity.

Pendle’s exit revealed a subtlety: the overall ratio can hide the reality of individual pools.

Pendle’s total fee efficiency is above 1.0x (revenue exceeds emissions). But when the team breaks it down by pool, more than 60% of the pools are themselves loss-making.

A small number of high-performance pools (possibly large stablecoin yield markets) are subsidizing all the other pools. Manual vote allocation routes emissions to pools favorable to whales rather than to pools generating the most fees.

PancakeSwap shows a similar issue, specifically reflected in CAKE burn.

The liquidity locker paradox

The ve token model creates a problem: inefficient capital locking. Liquidity lockers solve this by wrapping locked tokens into tradable derivatives. However, while they fix the capital efficiency problem, they introduce governance centralization issues. This is the core paradox present in every ve token model.

In Curve’s case, this paradox leads to stable (even if centralized) results. Convex holds 53% of all veCRV. StakeDAO and Yearn hold additional shares.

With Convex, individual governance is effectively carried out via voting through vlCVX. But Convex’s incentives align closely with Curve’s success, and its entire business depends on Curve running well. This centralization is structural rather than parasitic.

In Balancer’s case, the paradox is destructive. Aura Finance became the largest veBAL holder and the de facto governance layer. But because there were no other strong competitors, a malicious whale (“Humpy”) independently accumulated 35% of veBAL and, using the rules of the vote-measuring game, extracted emissions.

In PancakeSwap’s case, Magpie Finance and its aggregators capture the vote measurement through bribery and route emissions to pools that create extremely low value for PancakeSwap.

The ve token model requires locking capital to function, but capital locking efficiency is low—so intermediaries emerge to unlock capital. In the process, they consolidate governance power that locking was supposed to decentralize. The model creates the conditions for its own capture.

Curve’s rebuttal: Why the ve token model still matters

Curve’s conclusion is that the amount of tokens continuously locked in veCRV is about three times the number of tokens that the comparable burn-based mechanisms would have removed.

Based on the structural scarcity of locking, it is deeper than scarcity based on burning, because it simultaneously creates governance participation, fee allocation, and liquidity coordination—not just a reduction in supply.

In 2025, Curve’s DAO removed the veCRV whitelist, expanding participation rights for DAO governance. The protocol metrics also performed well:

Trading volume grew from $119 billion in 2024 to $126 billion in 2025

Pool interaction volume more than doubled, reaching 25.2 million transactions

Curve’s share of Ethereum DEX fees increased from 1.6% at the start of 2025 to 44% in December, a 27.5x increase

But the counter-argument must be seen: Curve holds a unique position as a core pillar of stablecoin liquidity on Ethereum, and 2025 was a year of major stablecoin growth. There is a real, market-driven, organic need for routing that supports liquidity provisioning. Stablecoin issuers like Ethena structurally need Curve pools. This creates a bribery market based on real economic value.

The three protocols leaving the ve token model do not have this condition. Pendle’s value proposition is yield trading, not liquidity coordination. PancakeSwap is a multi-chain DEX. Balancer is a programmable pool. None of them has a structural reason to compete with external protocols for emitting incentives.

Conclusion

The ve token model is not universally failing. Curve’s veCRV and Aerodrome’s ve(3,3) are still developing in a healthy way.

But the model only works where emissions routed via voting can create real economic demand for liquidity. Meanwhile, other protocols are choosing income-backed buybacks, deflationary supply mechanisms, or governance tokens for liquidity as alternatives to the ve token model.

Perhaps DeFi has reached the point where it needs a new incentive mechanism—one that benefits both the protocol and token holders’ long-term interests.