TLDR: Mode is launching veMODE and becoming the first L2 to implement a vote escrow model for the distribution of incentives to ecosystem protocols. veMODE is an upgrade to the current MODE staking module. Stakers will be rewarded for upgrading their staked MODE balance in order to take part in this new system. OP rewards start accruing immediately upon upgrade, claimable after successful voting participation.

Key benefits:

• Staking to veMODE enables users to continue to earn OP and vote for the distribution of incentives to ecosystem protocols

• $2m in incentives are available in Season 3 for veMODE holders to direct to ecosystem protocols

• Mode ecosystem protocols must deploy all incentives to users on Mode to be eligible for future incentives

• Mode ecosystem protocols can decide on which pools they distribute incentives to

Key innovations:

• Staking, not locking. Vote power increases with time staked.

• MODE and MODE/ETH liquidity tokens can be used to vote, increasing the productivity of participating tokens.

• Flexibility and upgradability

  • Vote for protocols, not pools - enabling teams to strategically target growth.

  • Time bound seasons. Lessons learned from Season 3 will be considered and applied to upgrade Season 4, enabling continuous innovation.

Key dates:

• Thursday 17th October: Staking for Season 3 will go live

• Friday 18th October: Users will be able to upgrade from the old Mode staking contract to the new veMODE Staking contract in the Mode dashboard to continue earning OP rewards

• Wednesday 23rd October @ 23:59:59 UTC: veMODE and veBPT must be staked to be eligible to vote in first Epoch

• Thursday 24th October @ 00:00 UTC: Voting goes live

• Wednesday 30th October 23:00 UTC: Voting Deadline

  • Voting deadlines are on the WEDNESDAY of each voting period.

  • New voters must be staked 3 days prior to the end of each voting period to be eligible to vote (warm-up period).

• Week of Oct. 31st: First incentive distributions to protocols from results of gauge votes

• Epochs are two weeks long, voting occurs the first week of each epoch.

• Season 3 will run for approximately 3 months, with 6 epochs.

Introduction

Layer 2 blockchains are continuously experimenting with ways to foster community and network growth. Popular avenues include broad points and tasked based systems, to governance structures using application-based stimulus programs and retroactive funding rewarding strategic initiatives. These programs have had mixed results, with lessons learned at every turn. Mode has had two Seasons of experimentation and has closely studied the landscape of growing ecosystems.

Mode is in a unique position in having deep DeFi (Decentralized Finance) roots, focused on being the DeFi hub of the Superchain and evolving to scale DeFi by building the AIFi economy. DeFi has a rich history of experimenting with governance models and aligning protocol participants with network goals and ecosystem growth. Mode is proud to have worked alongside some of the most seasoned veterans in space, and has pieced together lessons and frameworks from DeFi’s battle-tested history to deliver a new chapter in L2 governance. Mode welcomes you to Season 3.

Background

DeFi has delivered many innovations in managing governance and incentives across blockchain protocols. One of the most significant innovations has been the vote escrow (ve) token model, first introduced by Curve Finance.

Curve Finance set the standard with its veCRV model, where users who locked their CRV tokens for longer durations gained more influence in governance decisions and protocol emissions. This model successfully aligned long-term holders and major liquidity providers (LPs) with the growth of the Curve protocol. As veCRV gained popularity, it paved the way for Convex Finance, which aggregated users’ veCRV holdings, allowing Convex to gain significant control over Curve’s governance. This type of “meta-governance” was an important lesson showing liquidity markets will typically arise for locked tokens.

The success of these systems led to the rise of bribe markets. In these markets, protocols seeking to gain votes could offer incentives to veToken holders in exchange for governance support. This created a new way for veToken holders to earn additional rewards while also driving competition among protocols for governance influence.

Solidly, another step in this evolution, introduced the ve(3,3) model, which incorporated veNFT gauge voting into the distribution of incentives, while rewarding the voters with trading fees, shoutout to Andre Cronje for his pioneering work here. Gauge voting allowed protocols and large LPs to compete for a share of emissions based on votes from veToken holders, creating a more efficient and dynamic allocation of rewards. The hyperinflationary tokenomics design was an important lesson in the Solidly design, as trading fees alone paled in comparison to rewards from emissions, bringing into question long-term sustainability.

Olympus DAO, post 2023, set a new standard in sustainable growth. After building a massive treasury through innovative bonding mechanisms, Olympus evolved from its rebasing roots in 2021 by completely shutting off inflation, only activating emissions to open bond markets when/if a healthy premium arises. The token floats in a price range sandwiching the moving average using automated configurations called Range Bound Stability (RBS). Today, Olympus uses the treasury to support the lower range RBS and the revenue to execute leveraged token buybacks.  The lesson from Olympus is that a carefully managed, conservative, but productive treasury can sustain protocol growth without relying on inflationary tokenomics. Mode builds upon these innovations with its own governance system for Season 3.

Mode's Innovation: The First ve-model for an L2

Building on this history, Mode is the first Layer 2 on the Optimism Superchain to implement a ve governance model. Mode isn’t just modeling the successes of past models; it’s innovating in several ways:

1. Seasonal Governance

Each Mode season has a start and an end, which gives the system the ability to evolve and adapt quickly. Unlike static governance models that lock participants into long-term decisions, this seasonal approach allows Mode to fine-tune its governance structure based on the needs of its community and the overall market environment. Season 3 will consist of six, two-week epochs, spanning a total of three months.

2. Gauge Voting for Protocols, not Pools

Users on Mode can vote with either veMODE (acquired by staking MODE tokens) or veBPT (obtained by depositing in the 80/20 MODE-ETH liquidity pool on Balancer). Participants can vote on which protocols will receive incentives. Both veMODE and veBPT will direct separate batches of incentives.Voting for protocols empowers the protocols to strategically use the incentives for optimal growth. Community liquidity providers should work closely with protocols to align on incentivizing building healthy ecosystems. Protocols on Mode can apply for gauge eligibility at https://forum.mode.network/

3. Incentivizing long-term commitment without locks

There are no long-term locking mechanisms in Season 3, just warm-up/cool-down periods to ensure predictability and security in voting. Thus, stakers remain relatively liquid while participating in Season 3, free to come and go as they please. However, there are benefits in long-term participation.The longer a user stakes veTokens (veMODE or veBPT) the more voting power they will receive. Voters will see an exponential increase in voting power for each epoch staked, up to 6x if they stake for all six epochs. This increase in voting power corresponds with a gradually increasing incentive allocation for each epoch. This means more rewards are available for distribution in later epochs, encouraging early and long-term participation.

4. Rewards for participation

Stakers will be eligible to claim OP rewards each epoch if they vote.

5. Bribe Markets (coming soon)

Bribe markets might sound controversial at first, but in reality, they’ve become a critical piece of incentive driven governance economies. Protocols that want to receive a share of Season 3 incentives must compete for votes from veMODE and veBPT holders. These holders can be “bribed” by protocols and motivated stakeholders to direct their votes accordingly. What makes this work is transparency—bribe markets, when done openly, create a win-win situation for both veToken holders and protocols. For veToken holders, it creates an additional reason and benefit to hold veTokens and participate in governance. For protocols, it enables them to grow their liquidity and strategic incentives with better capital efficiency.

6. Autonomous Agents (looking forward)

We believe that governance participation today is flawed, as participation is often far lower than expected. In the future, people will be able to train an agent to express their views and vote on their behalf. Mode governance will become a testbed for Autonomous Agents to participate in onchain voting, bringing a new age of efficiency.

Tokenomics and Sustainability: How Incentives Work

One of the most important questions for any governance system is: where do the incentives come from, and are they sustainable?

Starting with an Allocated Reserve

In Season 3, the incentives will initially come from OP grants and will transition to come from MODE allocations reserved for user and developer airdrops. This distribution is designed to continue to bootstrap ecosystem growth and incentivize early participation.

Building Towards Sustainability

Mode isn't relying solely on reserves forever. As the protocol matures, the goal is to fund these incentives through revenue generated by an Olympus-like Smart Treasury. The treasury will generate revenue and use a portion as incentives to be directed toward the ecosystem by veToken holders, ensuring a sustainable model as the ecosystem grows.

In Summary

Season 3 represents a pivotal moment for Mode as it launches the first ve- model on the Superchain, pioneering a dynamic and adaptable governance system. By focusing on staking rather than locking, empowering protocol voting over pool allocation, and incentivizing long-term engagement with exponential voting power growth, Mode is setting the stage for a sustainable DeFi evolution. With lessons learned from the broader DeFi ecosystem, Season 3's governance framework introduces flexibility and strategic growth opportunities, offering both participants and protocols a platform for collaboration. This adaptable, community driven framework aims to power Mode’s mission to build the AIFi economy.

Special Thanks

We’d like to acknowledge and sincerely thank all the teams involved in helping create Season 3. Aragon has been an incredible build partner - professional, innovative and precise. We’d like to thank the Balancer team for their strategic input as well as being a critical infra partner with the incorporation of BPTs. Thank you to the Solidly, Aero, Velo, Curve, Origin, Angle, PieDAO, Convex, and Aura teams for pioneering and diligently designing mechanics that inspired the foundation for the evolution on Mode. Thank you to Web3Packs for a custom distribution channel for governance tokens which greatly reduces onboarding friction. Lastly, a sincere shoutout to all those we may have missed but are deeply grateful for your time and contributions along the way.

About Mode

Mode is the Layer 2 (L2) building the AIFi economy. Mode’s mission is to scale DeFi to billions of users through onchain agents and AI-powered financial applications. Backed by a $6 million grant from Optimism, our mission is to build a more open, efficient, and inclusive financial future.

To learn more and get involved with the community and core team, check out our community telegram groups