🔫 Liquidity Wars: The Battle for Liquidity

🌐 Global concept and narrative

The concept of Liquidity Wars refers to the intense competition among decentralized finance (DeFi) protocols to attract and retain liquidity, using veTokenomics underlying projects.

The influence in these wars is determined by the quantity of veTokens a protocol or user holds, which directly impacts their decision-making power and share of the fees.

For users, it's a logical choice to participate in pools that offer the most rewards. This incentivizes protocols to find innovative ways to increase their voting power and attract users to their pools.

Early actors in this space, like Convex, understood perfectly that organizations, other protocols, and users are constantly seeking both liquidity and rewards. By amassing a significant amount of voting power, a protocol can strategically redirect the inflation of rewards towards his own liquidity pools (or its users), thereby becoming a major player in the DeFi landscape.

As a consequence of the Liquidity Wars, Votemarkets have been established. These platforms allow incentivizers to propose rewards in return for votes directed towards a particular pool. This provides an opportunity for users who are reluctant to commit their tokens for extended durations to still participate in the governance of the protocol by exchanging their voting privileges.