Vote-Escrow Mechanism

Elektrik introduces a vote-escrow mechanism to incentivize long-term token locking, thereby increasing voting power and rewards for token stability. The approach discourages rapid sell-offs and enhances liquidity pool stickiness, attracting more liquidity and reducing trade slippage. Let's look at these components in more detail:

Key Components of Elektrik's Vote-Escrow Tokenomics

Long-Term Stability

The mechanism encourages $ELTK holders to lock their tokens for periods ranging up to 4 years, in return for $veELTK tokens. The longer the lock period, the higher the rewards, creating a deterrent against pump-and-dump schemes and rapid liquidations. This leads to less price volatility and enhances market confidence in the protocol.

Enhanced Liquidity

By offering higher rewards for longer lock-in periods, the protocol ensures stickiness in liquidity pools, which in turn minimizes trade slippage and broadens overall utility. This acts as a great attraction for liquidity providers seeking robust, long-term yields.

Democratic Governance

The escrow mechanism grants weighted voting power to $veELTK holders, thus ensuring that governance decisions are made by stakeholders who are vested in the project's long-term success. This fosters an environment where decisions are more informed, deliberative, and beneficial for the ecosystem at large.

Strategic Resource Allocation

The $veELTK token holders have the power to vote on emissions allocation to various liquidity pools of their choice. This enables the community to steer capital towards the most efficient and value-generating pools, optimizing the protocol's resource allocation.

Reduced Centralization Risks

By emphasizing the influence of long-term, committed holders over short-term or speculative ones, the protocol dilutes risks associated with centralization of power and ownership, thus fostering a more decentralized and resilient ecosystem.

Ecosystem Alignment

The benefits of the model are shared across multiple stakeholders: liquidity providers, voters, and the protocol itself. This multiparty sharing ensures a stronger alignment of interests, contributing to the long-term health and sustainability of the ecosystem.

Internal Mechanics

As mentioned above, $ELTK holders can lock their tokens for up to 4 years, receiving $veELTK tokens in return, with longer lock periods offering higher rewards.

$veELTK Received=$ELTK Amount×(1remaining lock periodmax lock period)\$\text{veELTK Received}=\$\text{ELTK Amount}\times\left(1-\frac{\text{remaining lock period}}{\text{max lock period}}\right)

The equation can be interpreted as:

  • $veELTK Received: The quantity of $veELTK tokens allocated to a user.

  • ELTK Amount: The total number of $ELTK tokens that the user wishes to lock.

  • Remaining Lock Period: The duration, typically in years or epochs, that is left for the tokens to be locked.

  • Max Lock Period: The maximum allowable duration for token locking within the protocol, also expressed in years or epochs.

The equation is designed to be inversely proportional to the Remaining Lock Period when normalized by the Max Lock Period. This emphasizes that the longer a user decides to lock their $ELTK tokens, the higher their rewards.

Since $veELTK holders can vote on emissions distribution to different liquidity pools during weekly epochs, they can influence the amount of $ELTK tokens each pool receives. Voters are rewarded with a 40% share of trading fees from the pool they voted for, encouraging active participation in governing emissions.

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