We are excited to work with Modethe first L2 to implement a modernized (ve) meter-based governance model and vote depository. This advancement in applying ve and gauges to an accretive ecosystem introduces a dynamic governance model that encourages incentive alignment, reduces coordination overhead, and drives network growth.
TLDR:
- There is no long-term lock-up requirement, token holders can stake or stop staking at any time with warm-up and cool-down periods;
- veStaker supports multiple tokens: MODE and BPT (80/20 MODE/WETH);
- Staking tokens exponentially increases voting power with each epoch;
- Punters allocate a percentage of their voting power to indicators to direct rewards;
- Rewards go to network protocols, rather than liquidity pools;
- Participants receive $OP rewards for participating in governance;
- Incentives change with each season;
- Community members stake, vote and claim rewards directly on the Mode Governance Hub.
As an AIFi-focused L2, Mode builds infrastructure, assets, and applications to scale decentralized finance (DeFi) to billions of users around the world. Mode is powered by Optimism’s OP stack and is working together with Optimism to build the Superchain. By leveraging the successes and lessons learned throughout the history of DeFi governance, Mode is paving the way for a new chapter in five governance.
Mode brought together a group of industry leaders to modernize governance based on fives and gauges for this new use case, including experts from Rocker, AuraAragon and others. This collaboration generated advances that drive governance toward deeper alignment of incentives, less coordination overhead, and ecosystem growth.
The solution encourages participation in governance by incentivizing voters with exponential voting power and rewards, without imposing long-term lock-ins. veMODE and veBPT holders can then allocate their voting power to indicators that direct the distribution of rewards between the network’s protocols. Incentives for both veMODE and protocols adapt from season to season, keeping governance responsive and adaptable to ecosystem and market dynamics.
With its novel approach requiring custom government contracts and the need to continually adapt in the future, Mode chose to build on Aragon OSx. Aragon OSx is a next-generation modular DAO framework built on a battle-tested foundation and optimized for adaptability.
Here’s a breakdown of Mode’s novel complete governance solution, from contracts to the user interface:
We worked together with Mode to create a custom veStaker with new features:
- Users can stake two different types of tokens in a single position:
- veMODEacquired by staking MODE tokens;
- veBPTacquired by staking MODE/ETH Balancer liquidity tokens.
This novel feature unlocks the potential to allocate dynamic voting power between different stakeholder groups, introducing dual governance incentives and capabilities. It also creates a more inclusive stakeholder base for participation in governance. Token holders who provide liquidity to the MODE/ETH pool earn fee income from trading activity, while helping to support healthy on-chain liquidity for the MODE token. They fulfill an essential function of the ecosystem and it was important to include them in the governance process.
- Voting power increases exponentially over time: Mode Season 3 is divided into six epochs where voters can exponentially increase their voting power (up to 6 times if they stake during all six epochs) by staking their five tokens for longer periods of time.
- No need for long-term locking: There are no long-term lock-up requirements: token holders can stake or cancel their stake at any time. There is simply a short warm-up period before veTokens can participate in governance and a short cool-down period before withdrawing the tokens, to ensure predictability and security in voting.
Customizing five contracts is a complex task. Leveraging learnings from the existing five models, we built a modularized five contract library that allows projects to safely and easily customize parameters with greater granularity. This allowed the Mode team to design a single five-governance implementation, without needing to draw on resources from their development team.
Mode is implementing an indicator-based governance system that allows veMODE and veBPT holders to determine reward distribution between network protocols. Protocols compete for a share in the incentive pool, which is allocated based on the percentage of votes obtained. Allocating rewards across protocols is a novel approach that strategically uses incentives to encourage network growth.
Indicator-based governance also reduces coordination overhead and voter fatigue since token holders only need to allocate their voting power once and can reallocate it each epoch. It is not necessary to continually vote in favor of direct incentives. In this system, token holders no longer need to relock to the maximum duration to maximize their voting power and returns.
Together with Mode, we created a custom governance plugin that allows users who hold veTokens to assign their voting power to a predetermined list of options. Voters can then set the percentage of voting power they want to allocate to each option. Users who participate in indicator-based voting will receive $OP rewards. Rewards for both protocols and users will be distributed primarily through Merkel.
Aragon OSx allows you to program and implement any governance logic. New governance rules are isolated in plugins, making new forms of governance more secure and easier to develop. Once a plugin is published, any DAO can install it using the Aragon OSx plugin repository, fostering an interoperable governance ecosystem across the Ethereum community.
Mode’s governance system is implemented and governed by an Aragon OSx DAO and can therefore adapt as the community evolves its governance model and incentives. Mode plans to iterate and adjust incentives for each individual season. This structured process of continuous improvement allows Mode to easily apply learnings from previous seasons and continue to adapt to market dynamics. With a plug-in architecture that allows DAOs to safely and easily change their governance logic, Aragon OSx ensures a predictable and secure upgrade path.
Finally, the Mode community has a dedicated place to participate in governance and guide the growth of the L2 ecosystem. Everything from betting to participating in indicators is in one consolidated user interface. Governance Hub has all the features users need to participate in a familiar interface consistent with the Mode brand, ensuring an intuitive and seamless experience for the community.
Governance Hub was built with our governance app template. It allows projects to easily implement a single interface to interact with custom government contracts, including the flows, features, and information needed to participate. Having a dedicated user interface for governance prevents users from having to jump between governance platforms. This not only greatly improves the user experience, but also ensures continuity between a project’s brand, products, and governance system.
This is just the beginning of the Mode government. Governance incentives will be adapted season by season and learnings will be applied over time. The community will directly shape how Mode’s novel governance approach evolves.
We are modularizing five contracts to make it easier for projects to adjust five models to meet the needs of their ecosystems and communities. For more information on how to implement a custom ve model for your project, please contact here.
