Introduction to the ve(3,3) Model

What is the ve(3,3) Model?

The ve(3,3) model is a next-generation Automated Market Maker (AMM) model that builds upon the strengths of existing DEX models while introducing key innovations. This model offers a more flexible, capital-efficient approach to liquidity provision, combining a concentrated liquidity system with improved incentive alignment and optimized fee structures.

Core Features of ve(3,3):

Concentrated Liquidity: Unlike traditional DEX models that spread liquidity evenly across a range, the ve(3,3) model allows liquidity providers (LPs) to concentrate their liquidity in specific price ranges. This means LPs can more effectively capture trades in a narrow price band, making capital utilization more efficient and reducing impermanent loss.
Capital Efficiency: The ve(3,3) model enhances capital efficiency by enabling LPs to focus liquidity on active price ranges, which leads to higher utilization of capital compared to traditional AMMs. This reduces the idle capital that would otherwise be exposed to impermanent loss.
Enhanced Incentives: With a more concentrated pool design, LPs can more clearly see how their participation in different price ranges affects their earnings, improving alignment between risk and reward. Additionally, the ve(3,3) model allows for optimized fee splitting between liquidity providers and protocol governance, ensuring more sustainable growth.

Why Do We Need the ve(3,3) Model?

Inefficiency in Traditional AMMs: Traditional AMM models suffer from suboptimal capital utilization due to liquidity being spread evenly across wide price ranges. This often leads to low trading fees and increased impermanent loss, discouraging liquidity providers from committing capital effectively.
Lack of Flexibility: Previous models don’t offer the level of granular control over liquidity provision, which limits LPs' ability to capture profitable trades in a specific price range.
Scalability Challenges: As DEXes grow and liquidity pools expand, traditional models struggle to maintain scalability without sacrificing capital efficiency or user experience.
Need for Better Incentive Alignment: Current models fail to adequately incentivize LPs to deploy liquidity in ways that align with long-term platform health. The ve(3,3) model improves incentive structures, ensuring LPs are rewarded fairly for their risk and capital deployment decisions.

Let's understand why we need it with an example:

According to the data, Uniswap generated $4.5 million in fees over a seven-day period in October, with the top 30 pairs accounting for $3.56 million, or 79.03%. These top pairs account for only $1.11 billion, or 31.31% of total TVL, implying that the remaining $2.44 billion (or 68.68%) is largely underutilised.

The Advantage of ve(3,3):

The ve(3,3) model represents a significant step forward in AMM design by:

Maximizing capital efficiency.
Providing better risk management tools for LPs.
Aligning user incentives more closely with platform success.
Offering optimized fee distribution that balances protocol growth with user rewards.

In summary, the ve(3,3) model is not just an evolution—it’s a revolution in decentralized exchange design, addressing long-standing limitations in liquidity provision and enabling a more sustainable, efficient, and scalable DEX ecosystem.

Embrace the future of liquidity provision with the ve(3,3) model.