Voting Escrow Tokenomics for Serum (veSRM)

Serum should introduce vote escrow tokens (veSRM) to incentivize participants to take a longer-term stake in the protocol, align incentives between traders and governance, and drive community engagement. The veSRM token will function similarly to Curve’s veCRV token. SRM token holders can lock their SRM for varying amounts of time in exchange for veSRM. Users who lock their SRM for longer will receive more veSRM. The utility of veSRM is threefold. First, a portion of Serum’s trading fees will go to veSRM holders. Second, traders can use veSRM to boost their volume reward rate. Third, veSRM can be used to vote on how SRM emissions are distributed among reward pools, as well as on DAO proposals.

Voting Escrow

Curve finance pioneered the concept of a voting escrow with its veCRV token. In a voting escrow, users lock up their governance tokens in exchange for voting power. Voting power is represented by a new voting escrow token, or veToken (e.g. veCRV). Users receive veToken proportional to the length of time they lock their governance tokens for.

Like Curve, Serum’s voting escrow program will enable SRM token holders to lock their SRM tokens in a voting escrow in exchange for veSRM. Users can lock SRM for up for some amount of time between the minimum and maximum lock duration. This range is still TBD, but will likely be in the range of 1 year minimum to 4 years maximum. The conversion from SRM to veSRM is linear from 0 to 1 over the maximum duration. MSRM will have a slightly favorable conversion rate. This design gives more voting power to users who take a larger long-term stake in the exchange.

The utility of the veSRM token has three components:

  1. Fee sharing: token holders receive a share of Serum’s trading fees
  2. Trading rewards: traders can use veSRM to boost their volume-based trading rewards
  3. Voting: veSRM can be used to vote on reward pool parameters and DAO proposals

Trading Fee Distribution

A percentage of Serum’s trading fees will be distributed to veSRM token holders, proportional to the amount of veSRM held. Fee revenue will be used to buy SRM on the open market, which will then be distributed to veSRM holders. Fee balances will be calculated at some frequency, e.g. daily, but should be claimable at any time. E.g., if fees were recalculated daily, the fees available for a trader to claim since their last claim would be determined by:

fees_earned = 0

for date in range(last_claimed_date + 1, today):
    fees_earned += 24h_fees(date) * veSRM_balance(date) / total_veSRM(date)

The APR of veSRM from trading fees is roughly determined by:

((daily_trading_fees * 365) / (total_veSRM * SRM_price)) * 100

conservatively assuming that 1 veSRM is worth 1 SRM.

The APR will decay as SRM’s lockup ratio increases, but should serve as an initial incentive for users to lock up veSRM and a sustainable source of yield for investors.

Benefits over buy and burn

Currently, most of Serum DEX’s fees (80%) are used to buy and burn SRM tokens in order to support the price, which rewards all SRM token holders. Distributing fees to veSRM holders is a more fair model, as it favors investors who take a longer term stake in the exchange. Additionally, using fees to reward investors for locking up SRM has the potential to take more SRM out of circulation than could be burned with fees. For example, over about 1.5 years, more than 50% of the total CRV supply has been vote-locked. At the time of writing, the buy and burn program has removed 7.15M SRM, less than 1% of the total supply.

Reward Boosting

With the proposed trading rewards program, traders will be incentivized to hold veSRM by the reward boosting mechanism. By holding veSRM, traders can boost their volume rewards. See the “Reward formula” section of the rewards program proposal for more details.


veSRM will be used to vote on reward pool weights in the proposed trading rewards program (see the “Pool weight voting” section of the rewards program proposal, linked above). veSRM will also replace SRM as the voting mechanism for Serum DAO proposals (1 veSRM == 1 vote). Voting power is based on the amount of veSRM held at the time the vote closes.

Benefits for Serum

Introducing veSRM improves the fundamental fairness and accessibility of Serum governance, by giving more power those who take a longer term stake in the protocol. The token’s added utility will also align the incentives of traders on the exchange with the protocol itself.

The veSRM token should increase excitement and community engagement for Serum. Vote locking will take SRM out of circulation, supporting the price by limiting supply. The additional utility of veSRM should further support SRM’s price by driving demand. The token utility also highly incentivizes protocols built on top of Serum to accumulate veSRM, so that rewards can be passed to their users. This could lead to a phenomenon similar to the “Curve wars,” where protocols like Yearn and Convex competed to hold the most veCRV and therefore reap the most rewards. These dynamics should drive more volume to Serum, encourage more ecosystem growth around Serum, and generally create excitement and engagement that grows the Serum community.

For more details on the benefits of the veToken model, this is a good overview with some analysis of how projects have performed since introducing a veToken model.


As some of the veSRM utility outlined above depends on the proposed trading reward system which is not currently implemented, veSRM will first be introduced with limited utility. Initially, veSRM will only be used to distribute trading fees and vote on DAO proposals (Phase 1 below). If the trading reward program is introduced, veSRM will also be used for boosting trading rewards and voting on pool weights (Phase 2 below).


U dont care about price?

This sounds awesome! The buy and burn model seems pretty stale, and Curve is a success worth emulating. The trading rewards component is nifty too for big traders. In conjunction with the other protocol, active traders will be incentivized to both trade more and hold / lock SERM (both great outcomes for Serum).

Well-thought out, high effort proposal.

1 Like

Exciting to imagine “curve wars” dynamics playing out on Serum and potentially the broader ecosystem. Seems like this will both incentivize more volume and more locking, definitely in support of the proposals.

I think this is a positive step for Serum and easy win for SRM holders. The post mentions that a percentage of fees will be distributed to veSRM token holders without explicitly mentioning a percentage.

I personally think it might be interesting to increase the % of fees paid to referrers of Serum volume (such as GUI hosters) to increase volumes and make Serum more competitive. Would be great to open up the conversation to the community on this topic and discuss whether the current 80% of Dex fees used to distribute to token holders is still the best strategy for Serum.

:man_facepalming:t2: This is sad, instead of aggressively partnering with projects to bring their real volume to Serum using grants and emission rewards we’re now trying to save the SRM price with ponzimonics. Look at Saber, they tried to do the VE thing and SBR is dead now.

Orca is 100’s millions of $$$ in volume daily from the StepN partnership, why is that not Serum?

I feel like this is a positive step and so support it but it doesnt really address the issue SRM has, supply vs demand.

10bn of supply, vs a slowly increasing demand.

Kudos to Nomad, big brain thinking and a very nice writing style

A DAO vote for this proposal is live: