Introducing veOCEAN

Earn by locking OCEAN and by Curating Quality Data

Trent McConaghy
Ocean Protocol
9 min readJul 12, 2022

1. Overview

ve tokens have been introduced by several projects such as Curve and Balancer. These tokens require users to lock project tokens in return for ve<project tokens>.

In exchange for locking tokens, users can earn rewards. The amount of reward depends on how long the tokens are locked for. Furthermore, veTokens can be used for voting in grants DAOs or for asset curation.

We are rolling out veOCEAN to give token holders the ability to lock OCEAN to earn yield, and curate data.

People lock their OCEAN up to 4 years to get veOCEAN. If someone locks 1,000 OCEAN, they get 1,000 OCEAN back at the end, plus rewards along the way.

veOCEAN supports passive staking by default. Active staking can lead to higher yield.

Going forward, veOCEAN will be the main mechanism for staking OCEAN, and for curation of datasets. It’s lower risk than Ocean datatoken pools to achieve similar benefits.

We aim to launch veOCEAN, including the DF features within 3 months.

The rest of this article elaborates as follows. Section 2 gives design goals. Section 3 gives the veOCEAN design, and section 4 frontend mockups. Section 5 is an FAQ. Section 6 concludes. The appendix discusses Ocean pool risks.

2. Design Goals

Ocean pools recently suffered some attacks, which illuminated their risks and the community’s related concerns. Ocean pools are getting wound down, and Data Farming paused until veOCEAN ships. The appendix has details.

We see this as an opportunity to make some changes! An opportunity to not only resolve the concerns about pools, but to refine the Ocean & OCEAN architecture to make staking itself much better.

Here are the design goals for veOCEAN:

  • Make staking much safer. If someone locks 1,000 OCEAN, they get 1,000 OCEAN back at the end, plus rewards along the way. Stakers can only gain.
  • Offer paths for passive and for active stakers. Some people want to just stake OCEAN in one place and be done. Others people want to engage more, for higher potential returns.
  • Leverage stakers to help curate datasets — staking on datasets is useful to help identify higher quality datasets but it must be safe.
  • Reconcile short- and long-term incentives — the longer someone locks their tokens, the more reward and voting power they get.

3. The Design: veOCEAN

3.1 Background

We’ve been exploring ve and related ideas in the background since 2021. Other candidate designs include tokenized vaults, bonding curves, and AMM varieties.

The ve pattern originated with Curve more than two years ago. Since that time, it’s become battle-tested, with millions locked, and billions transacted. Many teams have adopted the veCRV model, including our friends at Balancer and New Order. We’re adopting ve for OCEAN.

3.2 Core Idea

The core idea is: stake longer for higher rewards and more voting power. A staker can be passive, though they earn more if active.

  • stake OCEAN for 1 week → get 0.0048 veOCEAN = 1 / (4 * 52)
  • stake OCEAN for 1 year → get 0.25 veOCEAN
  • stake OCEAN for 2 years → get 0.50 veOCEAN
  • stake OCEAN for 3 year → get 0.75 veOCEAN
  • stake OCEAN for 4 years → get 1.0 veOCEAN

veOCEAN cannot be unlocked before the pre-set time. veOCEAN is non-transferable.

People “vote” on assets they think are the most useful by allocating veOCEAN to those assets. This is the “v” in ve.

veOCEAN holders have earnings from community fees, and from Data Farming. (The next sections give details.)

Taken together, these mechanics align near-term incentives with long-term incentives to around Ocean and OCEAN.

3.3 Earnings from Community Fees

Every transaction in Ocean Market and Ocean backend generates transaction fees, some of which go to the community. 50% of the community fees will go to veOCEAN holders; the rest will go to Ocean community-oriented traction programs.

All earnings here are passive.

3.4 Earnings from Data Farming

veOCEAN holders will get each weekly DF rewards allocation, except a small carveout for any Data Challenge initiatives that run through DF ops.

veOCEAN holders can be passive, though they will earn more if active.

“Being active” means allocating veOCEAN to promising data assets (data NFTs). Then, rewards follow the usual DF formula: DCV * stake. But now, stake is the amount of veOCEAN allocated to the data asset, rather than liquidity in a datatoken pool. (And this stake is safe: you can’t lose your OCEAN as it is merely locked.)

3.5 Evolution of Earnings Volume

Earnings from OPC revenue (1) is smallish in the near term but grows to be large in the longer term as DCV . Complementary, DF earnings (2) will be large in the near term (once the DF rewards ramp), and will shrink over time as DF rewards follow a Bitcoin-like distribution curve.

3.6 Flow of Value

The image below illustrates the flow of value. On the left, at time 0, the staker locks their OCEAN into the veOCEAN contract, and receives veOCEAN. In the middle, the staker receives OCEAN rewards every time there’s revenue to the Ocean Protocol Community (top), and also as part of Data Farming rewards (bottom). On the right, when the lock expires (e.g. 4 years) then the staker is able to move their OCEAN around again.

Flow of value

The veOCEAN design is in accordance with the Web3 Sustainability Loop, which Ocean uses as its system-level design.

The veOCEAN code will be forked from the veCRV code. veCRV parameters will be the starting point. To minimize risk, tweaks will be circumspect.

This is the current design. We expect changes based on feedback from the community, and learnings during implementation.

4. veOCEAN Frontend Mockups

Ocean’s Data Farming webapp will be expanded to support veOCEAN, for both veOCEAN lock/unlock and for allocating veOCEAN to data assets. The following mockups illustrate. They may change significantly before final release; we’re sharing them now to help the community understand what veOCEAN might look like.

Mockup for veOCEAN lock/unlock. Steps to lock are (1) approve (2) set amount and duration (3) commit the lock.
Mockup for allocating veOCEAN, evolved from https://df.oceandao.org.

5. veOCEAN FAQ

5.1 Pricing FAQs

  • Q: In this scheme, can people stake on fixed-price datasets?
  • A: Yes. They allocate their ve to datasets. Then DF rewards follow the usual DF formula: DCV * ve stake.
  • Q: Does this work for other pricing schemes?
  • A: Yes, from the get-go! It doesn’t matter how data is priced, this works for all schemes.
  • Q: With pools getting wound down in Ocean Market, will fixed-price be its only pricing scheme?
  • A: For now in Ocean Market, yes. However people can price datatokens however they like, leveraging whatever DeFi tools they like. For example. do an IDO via Liquidity Bootstrapping Pool, ending up in an unmodified Balancer AMM. And we will continue listening to the community, to understand best where to focus our efforts.

5.2 Staking FAQs

  • Q: What about passive stakers — people who just want to stake in one place and be done?
  • A: Yes, that works. Just lock OCEAN for veOCEAN. veOCEAN holders get rewards passively. This is “Passive DF”, and it has 50% of weekly DF rewards budget.
  • Q: What about active stakers — people who want to do extra work and get rewarded?
  • A: Yes, that works. Users need to allocate veOCEAN towards datasets with high DCV. The higher the DCV, the more rewards. This is “Active DF”, and it has 50% of weekly DF rewards budget.

5.3 Third-Party Market FAQs

  • Q: What do you think could be the monetization / incentive options for third party dApps and Data Markets that build on top of OCEAN?
  • A: People pay fees on fixed-rate exchange and in consume. 3rd party markets can get a cut of both. More info at Ocean docs.
  • Q: Staking veOCEAN will be an important part in curating the most valuable datasets. Which earning opportunities will stakers have other than DF and fees generated from consume transactions?
  • A: veOCEAN holders’ earning potential via fees and DF on their own could be quite substantial, eg given that a large portion of OCEAN supply is directed towards DF. No need for more ways per se. There won’t be a fee on locking OCEAN for veOCEAN, because adding that code would have meant changes to veCRV contracts, something we’re not doing for security reasons. Re ALGA or other apps making money on facilitating veOCEAN: there are several ways, the best way to get inspiration is to look at projects on top of base ve tokens, such as Convex, aura, Redacted Cartel, and more.

5.4 Chains

  • Q: Will the Market still need to be multi-chain?
  • A: Yes, Ocean Market still needs to be multi-chain: all the reasons that we went multi-chain for are as valid as ever.
  • Q: Which chain will veOCEAN be deployed on?
  • A: Current plan is for veOCEAN core contracts will only be on Ethereum mainnet, and allowing to allocate veOCEAN tokens to any chain.
  • Q: Which chain should fixed price assets be deployed now in order to be ready for veOCEAN deployment and DF in 3 months time?
  • A: You can publish assets to any chain that Ocean supports.

6. How the veOCEAN design meets the goals

7. Conclusion

veOCEAN is coming. It will mean safer staking. People can earn by locking their OCEAN and by curating quality data.

Appendix: Ocean Pools Aims and Risks

Ocean V4 has three out-of-the-box approaches to pricing data: free, fixed-price, and dynamic. Each has its use cases and since datatokens are ERC20 tokens, the Ocean backend supports many pricing approaches (1, 2).

We made AMM-based pools a core feature of Ocean Market for these benefits:

  • Dynamic pricing of data. Automatic discovery of price, based on supply and demand.
  • Staking. LPing in pools has served as the main vehicle for staking. The Ocean community really wants staking.
  • Curation. The amount of stake in a pool is an proxy signal for quality of a dataset, to help dataset discovery.

Pools bring risks. First, data price in pools can have high variance, especially in low-liquidity pools. On some occasions since V4 release, LPers that added OCEAN liquidity, and removed it later were surprised to see a drop in their OCEAN. This is impermanent loss (IL). While IL is expected behavior in AMMs, it makes pools less attractive to people who simply want to stake and know that they will get back the same number of tokens as they injected.

Second, we’ve come to understand that stakers who are not consuming the data should not determine the price of the data. Ocean V3 did this; V4 solved it with one-sided staking. However, Ocean V4 staking still affected pricing: e.g. the more staked on a dataset, the harder it is to move its price. Deep liquidity is a double-edged sword.

Third, over the past weekend, a new attack vector emerged. A malicious actor found a way to drain OCEAN from pools. The actor did the sequence: (1) stake OCEAN, (2) buy datatokens, (3) unstake OCEAN, (4) sell datatokens. With amounts set just right, the attacker was able to drain a small amount of OCEAN from the pool. Repeated several times, it became a large amount. This blog post has details.

Given the risks, we are winding pools down in the frontend. (They remain active at the chain level, of course.)

Accordingly, Data Farming will get paused. Counting has stopped on DF4 (the current round as of 12.01am today, Jul 12). All other DF4 parameters will remain the same, including the 10K of OCEAN rewards are available. Rewards will be dispensed on Jul 14, as planned.

DF will resume when veOCEAN launches.

Updates

[Nov 18, 2022] OceanDAO grants is winding down, to focus more fully on DF. Therefore veOCEAN is not used for voting on OceanDAO proposals. For now, “voting” is by allocating veOCEAN to data assets perceived to be the most useful (highest DCV). This blog post has been updated accordingly.

[Nov 18, 2022] In “veOCEAN holders will get each weekly DF rewards allocation, except a small carveout for DF Crunch”. DF Crunch was always about data challenges, and this post didn’t explain further. And, we may not use the “DF Crunch” label. Therefore, in this post, we changed “DF Crunch” to “any Data Challenge initiatives that run through DF ops.” Note that there have not been any carveouts yet.

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