In the governance model of cryptocurrency, the veToken (vote-escrowed) mechanism is seen as a remedy for the 'mine, withdraw, sell' problem. LorenzoProtocol (BANK) introduces this mechanism in an attempt to transform short-term speculative funds into long-term loyalty to the protocol. However, in the highly volatile crypto market, does forced locking actually build a moat for the tokens, or does it set up a liquidity trap that is difficult for holders to escape from?
Under the traditional linear incentive model, liquidity providers often act against the interests of the protocol: they only care about the current mining output and are ready to sell at any time. This shortsighted behavior leads to extremely unstable liquidity for the protocol, and the token price is often under pressure for years. How to make users willingly participate is the ultimate question facing all DeFi protocols.
The Lorenzo Protocol draws on the successful experiences of Curve to build a governance system centered around veBANK. Users must lock a certain amount of $BANK for a specified period to obtain veBANK, and the longer the lock-up period, the higher the governance weight and profit-sharing ratio obtained. This mechanism is essentially a 'time contract' that filters out long-term believers willing to advance and retreat with the protocol.
Through the veToken model, Lorenzo attempts to deeply bind governance rights with profit rights. veBANK holders can not only decide on the launch and parameter adjustments of OTF products but also directly share the cash flow captured by the protocol. This design logically transforms tokens from mere gaming chips into productive assets with dividend attributes, incentivizing users to shift from 'miners' to 'shareholders'.
The other side of the coin is the loss of liquidity. In the cryptocurrency market, liquidity often means a premium, while locking up assets means a discount. If the actual returns of the protocol cannot cover the liquidity loss caused by the lock-up, or if the market experiences a systemic collapse, veBANK holders will face a passive situation where assets cannot be liquidated. Once business growth stagnates, this lock-up mechanism will instead become a 'deadlock' preventing capital flight, accelerating the collapse of market confidence.
The success of the economic model depends on whether the protocol can continuously create Alpha returns that exceed the market average. Only when the dividend returns are attractive enough will users be willing to sacrifice liquidity for veBANK. Investors must distinguish it from other tokens with the same name to avoid losses due to confusion.
The attempt of veToken in the Lorenzo Protocol is a test of human nature. It tries to combat the short-sightedness of the market with interest binding, but what can ultimately retain users is always real returns, not complex lock-up codes.
In summary - the Lorenzo Protocol has established an on-chain federation for shared interests through veBANK, but the stability of this federation entirely depends on whether the OTF business can continuously supply resources.
Disclaimer: The above content is the personal research and views of 'carving a boat to seek a sword', intended for information sharing only and does not constitute any investment or trading advice.
