veMAGMA

What is veMAGMA?

veMAGMA is the vote-escrowed governance token for Magma finance, which directs emissions and earns revenue:

• veMAGMA is obtained by creating and locking MAGMA/MNT liquidity

• It is locked indefinitely, and its voting power does not decay over time

• veMAGMA can be unlocked at any time through the exit mechanism, taking a 50% penalty

• Gauge voting: holders can vote for gauges on a weekly basis to direct oMAGMA emissions

• Governance rights: holders can partake in governance and cast votes for protocol improvement proposals

• Fee and bribe revenue: voters earn 100% of the swap fees generated by the pools they voted for each epoch, as well as the bribes to vote for those pools

Why lock LP for veMAGMA?

Each DEX or flywheel-based protocol has to kickstart the system by offering rewards in their native token. This token can only be sold if there is liquidity to sell into. In the vast majority of cases, the only way to entice people to provide that liquidity is to pay the LPs handsomely in even more native tokens. We see many such cases where a DEX has the bulk of its emissions going to its own native LP. And even in many Solidly variants, the native token pools collectively require more votes than any other gauge to sustain the liquidity. This needlessly consumes a large amount of emissions, and if the APRs drop significantly, the flywheel reverses and the native token LPs can withdraw the liquidity rapidly. Instead, locking a 50:50 MAGMA:MNT liquidity pair for veMAGMA builds a large and mostly permanent liquidity base, whose value proposition for holding is the fees and revenue generated. This allows the votes and emissions to be more effectively used on all non-native token liquidity pairs.

Why have an exit mechanism for veMAGMA?

The better question is: why require anyone to lock tokens at all in the first place? "It helps reduce sell pressure!" is a paltry answer. One of the only acceptable answers is to prevent governance-voting abuse vectors. A bad actor might buy up a large amount of the supply, vote for his own token pool to pump its price, then dump both his own token and the governance token of the DEX. Locking for governance makes such types of attacks far less attractive. But in the name of preventing abuse, most locking set ups hurt the average user, who is trapped regardless of changing circumstances, protocol developments, market conditions, or personal situation. Most Solidly inspired DEXes allow the veNFT positions to be sold OTC or on an NFT marketplace, which allows for user to exit their position without directly unlocking the tokens. This functionality serves many people well, so long as the market is doing alright. However, people find that when conditions have turned sour, the moment they might need to sell, they find that all bids have been pulled and it has not been uncommon to see veNFT positions sold at over 80% discount. Therefore it we have introduced an exit mechanism for veMAGMA:

• Any user may instantly break their veMAGMA position, with a 50% penalty

• The user receives half their position value in $MAGMA and $MNT tokens. The other 50% is sent to the treasury where it remains as perpetual protocol-owned liquidity.

We believe this adequately keeps in place deterrence to governance attacks, while still giving users an option to liquidate their position no matter the market conditions.