Beyond Burn: Why veCRV Unlocks Sustainable Tokenomics for Curve
As DeFi evolves with more capital at stake and growing complexity in on-chain systems, protocol design must increasingly balance incentive alignment, active governance, and long-term value creation. Two models have emerged as dominant frameworks in this discussion: the Voting Escrow (ve) model and the Buy-and-Burn model.
Curve - pioneering work led by Michael Egorov - introduced the ve-tokenomics model with the launch of veCRV in 2020, setting the standard for commitment-based governance in DeFi. This model has since been adopted by many other DeFi protocols.
The Buy-and-Burn model, which has roots in traditional corporate finance (e.g. stock buybacks) and early crypto tokenomics (as with Binance’s BNB in 2017), is often praised by economists as an effective way to boost token value through supply reduction. However, this view is frequently misguided. With nearly five years of real-world data on the veCRV model, we are now able to evaluate both approaches not just in theory, but through the lens of actual protocol performance - focusing on sustainability, user incentives, and revenue generation.
ve-Tokenomics vs. Buyback-and-Burn
The ve-tokenomics model incentivizes long-term commitment by allowing users to lock their tokens for a specified period in exchange for voting power and a share of protocol rewards. These locked tokens are typically non-transferable - though some variations with transferable “locked tokens” exist - and are excluded from the circulating supply for the duration of the lock, reinforcing governance participation and alignment with protocol goals.
In contrast, the buyback-and-burn model reduces token supply by using protocol revenue to repurchase tokens from the open market and permanently remove (or burn) them. This approach creates immediate scarcity by decreasing the total number of tokens in circulation, without requiring any active participation from holders.
Burn vs. Lock: Which Builds a Stronger Protocol?
The buyback-and-burn model, adopted by several DeFi protocols, reduces token supply by permanently removing tokens repurchased with protocol revenue - aiming to increase scarcity and drive token value. While straightforward, this approach treats tokenholders as passive beneficiaries and lacks built-in mechanisms for governance or engagement.
In contrast, the veCRV model reduces effective supply through long-term token locking, rather than destruction. Locked tokens are non-transferable for the duration of the lock - up to four years - and grant users voting power, boosted rewards, and a share of protocol revenue. This design encourages active participation and long-term alignment between users and the protocol.
Importantly, data shows that veCRV has consistently locked around three times more tokens than a comparable burn mechanism would remove. This not only amplifies scarcity but also deepens protocol governance and value distribution across committed participants.
Verdict: veCRV for Sustainable Growth
The veCRV model achieves more than just supply reduction - it builds a governance-driven ecosystem, where long-term users are incentivized to participate, vote, and contribute to protocol success. As Curve’s revenue mix shifts toward sustainable sources like trading fees and crvUSD markets, veCRV remains central to how value flows back to the community.
Looking forward, we believe the future of DeFi lies not in burning tokens, but in empowering holders to shape the protocol’s direction - and rewarding them in line with their commitment.