The Death of veTokenomics: What Pendle's Shift to sPENDLE Means for Curve, Balancer, and the Entire ve Ecosystem

General
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Pendle Just Fired the First Shot in the Post-veToken Era

Pendle’s decision to replace vePENDLE with sPENDLE is not just a protocol-level design change. It is a signal that could reshape tokenomics across DeFi. When the first major protocol publicly abandons the veToken model – citing measurable data (only 20% lock rate) as the reason – every other protocol running a ve model needs to ask: are we next?

Let me walk through what this means for the major ve protocols and DeFi governance more broadly.

A Brief History of veTokenomics

For context, Curve Finance invented the ve model in 2020 with veCRV. The core idea was brilliantly simple: lock your CRV tokens for up to 4 years, receive veCRV, and gain the power to direct CRV emissions to specific liquidity pools. Longer locks meant more voting power. This created alignment between long-term holders and the protocol, and it worked – for Curve.

The model was so influential that it spawned an entire ecosystem:

  • Balancer adopted veBAL in 2022
  • Frax Finance implemented veFXS
  • Velodrome and Aerodrome use ve(3,3) models on Optimism and Base
  • Pendle implemented vePENDLE
  • Dozens of smaller protocols followed suit

At its peak, the veToken model seemed like the default answer to DeFi governance. Then protocols like Convex and Aura emerged, building liquid wrapper layers on top of ve models – which should have been a warning sign that the market was rejecting the core premise of token locking.

What Pendle’s Data Reveals About the Entire Model

Pendle’s 20% lock rate was the lowest among major ve implementations, but the trend across the ecosystem is troubling for ve advocates:

  • Participation is declining across the board. Even Curve, which has the deepest ve ecosystem, has seen governance participation rates drop as the protocol matures.
  • Liquid wrapper dominance. A significant portion of veCRV is held through Convex (cvxCRV), not directly locked. When most of your governance participation is intermediated through a third-party protocol, the ve model has effectively been circumvented.
  • Bribe dependency. Many ve models have devolved into bribe markets (Votium for Curve, Hidden Hand for Balancer). Governance decisions are driven by which pool is offering the highest incentive, not by genuine stakeholder alignment. This is a mercenary governance dynamic that undermines the original thesis.
  • Voter apathy in mature protocols. As protocols age, the novelty of governance participation fades. The people who locked tokens 2 years ago may no longer be actively engaged, but their voting power persists – creating zombie governance positions.

Pendle was honest about these dynamics. Their data showed that the ve model was not achieving its goals, so they pivoted. The question is whether other protocols will be equally honest.

The Curve Question: Can veCRV Survive?

Curve is the most important test case because it invented the model and has the most entrenched ve ecosystem. Several factors make Curve different from Pendle:

Arguments for veCRV surviving:

  • Curve’s business model (stable swaps) aligns better with long-term governance commitment
  • The Convex/Curve symbiosis creates a functioning (if complex) governance meta-layer
  • veCRV holders derive real value from fee sharing and gauge direction
  • Changing the model would disrupt the entire Curve Wars ecosystem worth billions

Arguments for veCRV eventually shifting:

  • Governance participation among direct veCRV holders is declining
  • The model’s complexity creates barriers to new participants
  • Curve is effectively governed by Convex, not by individual veCRV holders – which undermines the decentralization thesis
  • If Pendle’s sPENDLE model proves successful, competitive pressure will mount

My assessment: Curve likely will not abandon veCRV in the near term because the Convex ecosystem has created too much path dependency. But I expect Curve to evolve the model significantly – perhaps introducing a liquid staking option alongside the existing ve model.

Balancer and veBAL: More Vulnerable Than Curve

Balancer is in a more precarious position. veBAL already faced criticism for concentrating governance power, and the protocol has struggled with participation. Aura Finance plays a similar role for Balancer as Convex does for Curve, but with less ecosystem depth.

If sPENDLE demonstrates higher governance participation and better capital efficiency, Balancer faces real competitive pressure to modernize its tokenomics. Balancer already iterates faster than Curve on protocol design – I would not be surprised to see veBAL evolution within the next 12 months.

Velodrome and the ve(3,3) Question

Velodrome and Aerodrome use a modified ve model combined with Andre Cronje’s (3,3) game theory. These protocols are interesting because their ve model is more tightly integrated with the core AMM mechanics – voting directly determines which pools receive emissions, and voters receive fees from the pools they vote for.

This creates stronger alignment between governance participation and economic incentive than pure ve models. However, the capital lock-up problem persists. If sPENDLE-style liquid governance proves viable, expect ve(3,3) protocols to face calls for evolution too.

The Broader Implication: Governance is Becoming Liquid

The most significant takeaway from Pendle’s move is the philosophical shift it represents. DeFi governance is evolving from:

Commitment-based governance (prove alignment through sacrifice) to Participation-based governance (prove alignment through active engagement)

This is a healthier model for several reasons:

  • It does not conflate capital lock-up with genuine interest in protocol outcomes
  • It allows governance power to flow to active participants rather than sitting with dormant locked positions
  • It makes governance composable with the broader DeFi ecosystem
  • It reduces the need for bribe markets and governance intermediaries

What Comes Next?

I expect the following timeline:

  1. Near-term (0-6 months): sPENDLE launches and participation metrics are closely watched. Other protocols study the results.
  2. Medium-term (6-18 months): If sPENDLE achieves higher participation than vePENDLE, 2-3 mid-tier protocols announce similar transitions.
  3. Long-term (18+ months): Even Curve and Balancer begin experimenting with liquid governance options alongside their existing ve models.

The veToken model was a crucial innovation for DeFi governance. It proved that token-based governance could work at scale. But like all v1 designs, it has been iterated upon. Pendle’s sPENDLE is the v2 – and v2 usually wins.

Sources: Pendle Medium, CoinMarketCap, AInvest, Yahoo Finance, Odaily. Historical context from Curve Finance documentation and Convex Finance metrics.

What do you think – is this a Pendle-specific story, or the beginning of a broader paradigm shift?

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Chris, this is a great macro analysis. I want to add the yield strategist perspective on what happens to the broader DeFi ecosystem if ve models start falling like dominoes.

The bribe economy is at risk. Platforms like Votium, Hidden Hand, and Redacted Cartel have built entire businesses around the ve governance meta-game. If protocols shift to algorithmic gauge allocation (like Pendle’s 30% emission reduction approach), the bribe market loses its reason to exist. That is billions of dollars in TVL that would need to find new homes.

For protocols I work with on yield optimization, this has real implications:

  • Bribe yield disappears. A significant portion of veCRV and veBAL yield comes from bribes, not just protocol fees. If algorithmic gauges replace manual voting, that yield source dries up.
  • Convex and Aura face existential questions. These protocols exist because ve models are capital-inefficient. If the underlying protocols adopt liquid staking models, what is Convex’s value proposition? You do not need a liquid wrapper if the governance token is already liquid.
  • Yield farming meta shifts. The current playbook of “lock token, earn bribes, compound” gets replaced by “stake token, deploy liquid governance token across DeFi, stack yields.” The latter is more capital-efficient but requires more active management.

One thing Chris did not mention: the impact on protocol treasuries. Many protocols hold significant ve positions as treasury assets. If ve models transition to liquid models, treasury management strategies need to evolve. A protocol holding veCRV as a strategic governance position might prefer a liquid sCRV position that can be deployed productively while still maintaining governance influence.

I think your timeline is roughly right but potentially accelerated. DeFi moves fast, and once the first successful sPENDLE-style implementation proves the model, the competitive pressure to iterate becomes intense. Nobody wants to be the last protocol still locking tokens when everyone else offers liquid governance.

The Curve question is the most interesting. Curve has the deepest moat in DeFi, but even deep moats can be drained if the water flows in a new direction.

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Interesting macro analysis Chris, but I want to push back on the idea that this is a simple “ve is dead” narrative. From a scaling infrastructure perspective, I think the picture is more nuanced.

Different protocols have different governance requirements. Pendle is a yield tokenization protocol where speed and flexibility are core values. Of course a lock-up model feels wrong there. But consider Curve: its value proposition is stability. Curve pools handle billions in stablecoin swaps, and the protocol’s governance needs to be conservative and deliberate. A 4-year lock actually aligns well with the kind of slow, careful governance that a critical financial infrastructure protocol requires.

The L2 dimension nobody is discussing. As DeFi migrates to L2s (Arbitrum, Optimism, Base), governance mechanics face new challenges regardless of whether they use ve or liquid models:

  • Cross-chain governance coordination becomes essential
  • Gas costs for governance participation drop dramatically on L2s, which changes the friction calculus
  • Sequencer centralization on L2s introduces new governance attack vectors that neither ve nor liquid models address

sPENDLE has an advantage here because liquid tokens are easier to bridge cross-chain than ve positions. You cannot bridge a time-locked ve position without complex synthetic representations. But you can bridge sPENDLE like any other ERC-20. This cross-chain composability might be the real killer feature of the sPENDLE model – not the liquidity itself, but the ability to participate in governance from any chain.

On the Velodrome/Aerodrome point: I think ve(3,3) models are more resilient than pure ve models because the economic incentive for locking is directly tied to fee revenue from voted pools. It is not just governance power – it is a direct cash flow claim. That said, a liquid version of ve(3,3) would be even better, and I expect that is where those protocols evolve.

My prediction: we do not see the “death” of veTokenomics. We see a spectrum emerge – from fully locked (Curve, which needs conservative governance) to fully liquid (protocols prioritizing capital efficiency) with most protocols landing somewhere in between. The one-size-fits-all era of ve governance is ending, and that is a good thing.

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Lisa makes an excellent point about the L2 dimension, and I want to extend that into cross-chain governance implications, because this is where sPENDLE-style models have a massive architectural advantage.

The bridging problem with veTokens is fundamental. When you have a time-locked ve position on Ethereum mainnet and you want to participate in governance for a protocol that has expanded to Arbitrum, Optimism, and Base, you face a coordination nightmare:

  • The ve position exists on one chain
  • Governance proposals may affect pools on multiple chains
  • Bridging a lock state (not just a token balance) requires complex message passing
  • The lock expiry time needs to be synchronized across chains

Protocols like Velodrome (on Optimism) and Aerodrome (on Base) solved this by being chain-native – you lock on the chain where the protocol lives. But as protocols go multi-chain, this creates fragmented governance. You end up with separate ve positions on each chain, each with different lock periods and voting power.

sPENDLE solves this elegantly. As a standard ERC-20 token, sPENDLE can be bridged using any cross-chain messaging protocol – LayerZero, Chainlink CCIP, Wormhole, or native bridges. Your governance position is portable. Stake on mainnet, bridge to Arbitrum for cheaper voting, bridge back. Or hold sPENDLE on whatever chain your primary DeFi activity is on.

This is what I mean when I say interop is infrastructure, not a feature. The governance token’s portability becomes a first-class infrastructure concern in a multi-chain world, and liquid tokens are inherently more portable than locked positions.

The risk I would flag: bridged sPENDLE governance creates potential double-counting issues. If sPENDLE is bridged from Ethereum to Arbitrum, governance snapshots need to account for the total supply across all chains. This is a solvable problem (multichain Merkle proofs, oracle-based supply aggregation) but it adds complexity.

For protocols considering the transition from ve to liquid governance, cross-chain readiness should be a primary design consideration, not an afterthought. sPENDLE gets this right by being a simple, composable token that works within existing bridge infrastructure.