What are Liquid Lockers?

Jun 20, 2022 2 min read
What are Liquid Lockers?

Liquidity Pools are a significant part of DeFi. And for crypto projects, liquidity pools holding their own tokens are of keen interest.

Continued liquidity for the project’s tokens is a prominent indicator of its health as an enterprise. This pushes projects to maximise the amount of governance tokens they hold, and hence, the votes. Then, they will be able to tip proposals in their favour by securing rewards to pools of their interest. As such, they hope to attract activity from Liquidity Providers in said pools, improving their token's liquidity.

Hence, projects are willing to buy governance-tokens off of other holders in exchange for other incentives.

Common users then, face two choices. To keep their votes and practice vanilla governance on the protocol which hosts the pool. Or, to sell their votes to other projects in return for more earnings.

Additionally, protocols usually require users to lock governance tokens on their platforms for long durations — months to years — to be able to exercise their votes in the traditional way. This makes the governance tokens illiquid — since they can’t be moved and sold easily.

Liquid Lockers by Stake DAO

The Liquid Locker is a product meant to solve the dilemma users face above. The idea is to help work around illiquidity, by requiring shorter lock durations, while still enabling full voting powers on governance tokens.

Liquid Lockers are smart contracts where users can deposit protocol governance tokens, such as veCRV for Curve. In return, they receive a Stake DAO derivative — in this case, sdCRV — along with a host of other incentives. While, at the same time, they can also use their deposited veCRV to exercise their votes for Curve.

Thus, users aren't forced to choose between earnings and governance.  They can still sell their votes for increased earnings in the form of bribes, but only if they explicitly choose to do so. Users are then able to exercise governance for many protocols via simply interacting with Stake DAO — while maximising their earnings.

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Liquid Lockers preserve capital efficiency of governance tokens while deriving the most yield possible on them.

The conclusive idea which ties this product with the broader Stake DAO platform is the vote-escrow token. veSDT is Stake DAO's native governance token. Community matters such as the rewards allocated to Liquid Lockers of various protocols get decided this way.

Liquid Lockers and veSDT, then, position Stake DAO to grow into a premier meta-governance platform. A single place for users to govern all their protocols of interest, while preserving their earning capacity.

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