Pendle, PancakeSwap, and Balancer Are Abandoning ve Token Models Within 12 Months

Author: Pink Brains

Compiled by Deep潮 TechFlow

DeepChaio Summary: Over the past 12 months, Pendle, PancakeSwap, and Balancer each abandoned their ve-token models—protocols whose combined TVL once reached billions of dollars. This article presents the most comprehensive post-mortem analysis available: identifying the specific breaking points for each protocol, the alternative mechanisms they adopted, and whether their underlying failure logic was identical. The conclusion is not that "ve tokens are dead," but a more precise assessment—identifying which types of protocols can successfully use them, and which cannot.

The full text is as follows:

Three major DeFi protocols abandoned their vote delegation model within 12 months. Pendle, PancakeSwap, and Balancer each had different breaking points, but ultimately reached the same conclusion.

Vote-escrowed token economics (ve tokens) were meant to be the ultimate solution for DeFi tokenomics: lock tokens to gain governance rights, earn fees, and permanently align incentives without centralized governance. Curve proved it works, and dozens of protocols replicated this model between 2021 and 2024.

But this has already changed.

Over the 12 months of 2025, three protocols with combined TVL in the billions of dollars concluded that this mechanism did more harm than good—not because the theory was flawed, but because of failed execution: low participation, governance capture, emissions flowing into unprofitable pools, and token prices plummeting despite growing usage.

What went wrong?

The Pendle team disclosed that, despite a 60-fold increase in revenue over two years, vePENDLE has the lowest participation rate among all ve-token models—only 20% of the PENDLE supply is locked.

The mechanism designed to align incentives excluded 80% of holders. The final blow came from the breakdown of pool data: over 60% of the pools receiving emissions were unprofitable.

A small number of high-performing pools are subsidizing a majority of value-destroying pools. Highly concentrated voters mean emissions flow to where large holders have positions—these are wrapper products—before being distributed to end users.

In comparison, Curve’s veCRV lock-up rate is over 50%, Aerodrome’s veAERO lock-up rate is approximately 44%, with an average lock-up duration of about 3.7 years. Pendle’s 20% is too low; the locking incentives lack appeal relative to the opportunity cost of capital in the yield market. Meanwhile, as of March, Aerodrome had distributed over $440 million to veAERO voters.

Alternative: sPENDLE

14-day withdrawal window (or instant withdrawal with a 5% fee)

Algorithmic emission reduction (approximately 30%)

Passive rewards, applicable only to key PPP votes

Transferable, composable, and re-pledgeable

80% of revenue → Buy back PENDLE

SPENDLE is a 1:1 liquid staking token for PENDLE, with rewards derived from income-backed buybacks rather than inflationary emissions. The algorithmic model reduces emissions by approximately 30% while directing funds toward profitable pools. Existing vePENDLE holders receive a loyalty bonus (up to a 4x multiplier, decaying over two years from the snapshot on January 29). A wallet associated with Arca accumulated over $8.3 million in PENDLE within six days.

However, not everyone agrees with this decision. Michael Egorov, founder of Curve, believes that ve tokenomics is a very powerful mechanism for aligning incentives in DeFi.

What went wrong?

PancakeSwap’s veCAKE is a textbook example of bribery-driven resource misallocation. The gauge voting system has been captured by Convex-style aggregators, most notably Magpie Finance, which siphons off emissions with minimal return to PancakeSwap’s actual liquidity.

Data prior to closure: Pools that received over 40% of total emissions contributed less than 2% of CAKE burn volume. The ve model created a bribery market where aggregators extract value, while fee-generating pools are inadequately incentivized.

However, this shutdown was deliberately orchestrated. Michael Egorov referred to it as "a textbook governance attack," suggesting that insiders within CAKE erased the governance rights of existing veCAKE holders and may have forced the unlocking of their own tokens after the vote. Cakepie DAO, one of the largest CAKE holders, challenged the vote citing irregular conduct. PancakeSwap offered Cakepie users up to $1.5 million in CAKE compensation.

Alternative: 100% fee revenue → CAKE burn

The team directly manages emissions.

1 CAKE = 1 vote (Simple Governance)

Approximately 22,500 CAKE per day (target: 14,500 CAKE)

100% of fee revenue → CAKE burned, no dividends

Goal: 4% annual deflation, reaching 20% by 2030

All locked CAKE/veCAKE positions will be unlocked without penalty, with a 6-month 1:1 redemption window. Revenue distribution will be changed to token burns, increasing the key pool burn rate from 10% to 15%. PancakeSwap Infinity launches simultaneously, featuring a redesigned pool architecture.

Post-transition results: An 8.19% reduction in net supply, 29 consecutive months of deflation, 37.6 million CAKE permanently burned since September 2023, over 3.4 million CAKE burned in January 2026 alone, and cumulative trading volume of $3.5 trillion (up from $2.36 trillion in 2025).

The deflationary scheme looks promising, but the CAKE price remains around $1.60, down approximately 92% from its all-time high.

What went wrong?

Balancer's failure was a cascading collapse resulting from governance capture, security breaches, and economic insolvency.

The whale battle came first. In 2022, whale "Humpy" manipulated the veBAL system, directing $1.8 million worth of BAL into the CREAM/WETH liquidity pool under its control over six weeks. In comparison, the same pool generated only $18,000 in revenue for Balancer during the same period.

Next was the exploit incident. A rounding flaw in Balancer V2’s swap logic was exploited across multiple chains, resulting in approximately $128 million being drained and TVL dropping by $500 million over two weeks, once again exposing Balancer Labs to unsustainable legal risks.

Alternative: 100% fee → DAO Treasury

BAL emissions reduced to zero

100% of fees allocated to the DAO treasury

Repurchase BAL at a fixed price for withdrawal

Focus: reCLAMM, LBP, Stable Pool

Maintain a lean team through Balancer OpCo

Models built around token rewards in old DeFi patterns are being phased out. Despite token economics challenges, Martinelli notes that Balancer "is still generating real revenue"—over $1 million in the past three months: "The issue isn't that Balancer doesn't work; the issue is that the economics around Balancer don't work. These are fixable."

Whether a streamlined DAO can sustain $158 million in TVL without incentives remains an open question. Notably, Balancer’s market capitalization ($9.9 million) is currently lower than its treasury ($14.4 million).

The three aforementioned withdrawals are symptoms; the root cause is structural.

A recent analysis by Cube Exchange outlined three scenarios in which the ve token model could fail.

Assumption 1: Emissions must remain valuable. If token prices crash, emissions lose value → LPs exit → liquidity, trading volume, and fees decline → increased selling pressure. This is a classic negative feedback loop (observed on CRV, CAKE, BAL).

Assumption 2: The lock-up must be genuine. If locked tokens can be wrapped into liquid versions (Convex, Aura, Magpie), the lock-up loses its meaning and creates exploitable inefficiencies.

Assumption 3: A genuine allocation problem must exist. The validity of ve relies on the protocol needing to continuously determine the direction of incentives (e.g., AMM). Without this, gauge voting becomes an unnecessary overhead.

Diagnostic test: Does the protocol have a genuine, recurring allocation issue that allows community-led distribution to generate significantly more economic value than team-led allocation? If not, ve tokenomics merely adds complexity without adding value.

The fee-to-emissions ratio is the dollar value of fees generated by the protocol divided by the dollar value of emissions distributed. When this ratio exceeds 1.0, the protocol earns more revenue from liquidity than it spends to attract it. When it is below 1.0, the protocol is subsidizing activities with a net loss.

Here are the details revealed by Pendle’s exit: the overall ratio masks the true situation of each pool. Pendle’s overall fee efficiency exceeds 1.0x (revenue exceeds emissions). However, when the team broke down each pool individually, over 60% of the pools were unprofitable on their own. A small number of high-performing pools—likely large stablecoin yield markets—are subsidizing the others. Manual gauge voting directed emissions toward pools that benefited large voters, rather than those generating the most fees.

PancakeSwap experienced the same situation, but it was reflected in CAKE burns.

Ve tokenomics creates a problem: capital locking is inefficient. Liquidity lock products address this by packaging locked tokens into tradable derivatives. However, while solving the capital efficiency issue, they introduce a governance centralization problem. This is the core paradox of every ve tokenomics model.

In the case of Curve, this paradox produced a stable (though concentrated) outcome. Convex holds 53% of all veCRV, with StakeDAO and Yearn holding additional shares. Through Convex, individual governance is mediated via vlCVX voting. However, Convex’s incentives are aligned with Curve’s success, as its entire business depends on Curve functioning well. The centralization is structural, not parasitic.

In the case of Balancer, this paradox is destructive: Aura Finance became the largest veBAL holder and, de facto, the governing body. However, the lack of other strong competitors allowed a hostile whale, Humpy, to independently accumulate 35% of veBAL and manipulate gauge weights to extract emissions.

In the case of PancakeSwap, Magpie Finance and its aggregator captured gauge votes through bribery, directing emissions to liquidity pools that contributed minimal value to PancakeSwap.

The token economy requires locked capital to function, but locking capital is inefficient, so intermediaries emerge to unlock it—and in doing so, they centralize governance power that was meant to be decentralized. This model creates conditions for self-capture.

Curve's conclusion: The amount of tokens continuously locked as veCRV is consistently about three times the amount that an equivalent burn mechanism might remove.

Lock-based scarcity is structurally deeper than burn-based scarcity because it simultaneously generates governance participation, fee distribution, and liquidity coordination—not just supply reduction.

In 2025, Curve’s DAO removed the veCRV whitelist, expanding access to DAO governance. Protocol metrics were equally impressive: trading volume increased from $119 billion in 2024 to $126 billion in 2025, while pool interactions more than doubled to 25.2 million transactions. Curve’s share of Ethereum DEX fees rose from 1.6% at the start of 2025 to 44% by December, a 27.5-fold increase.

But here’s a counter to the counter: Curve holds a unique position as the backbone of stablecoin liquidity on Ethereum, and 2025 is the year of stablecoins. Liquidity guided by gauges reflects real, market-driven, organic demand. Stablecoin issuers like Ethena structurally require Curve pools. This creates a bribe market rooted in genuine economic value.

Three protocols that have left ve tokenomics lack these. Pendle’s value proposition is yield trading, not liquidity coordination; PancakeSwap’s is a multi-chain DEX; Balancer’s is programmable liquidity pools. None of them have a structural reason for external protocols to compete for their gauge emissions.

Ve tokenomics is not universally dead. Curve’s veCRV and Aerodrome’s ve(3,3) are functioning well. However, this model only works when gauge-guided emissions generate real economic demand for liquidity. Meanwhile, other protocols are opting for income-backed buybacks, deflationary supply mechanisms, or liquid governance tokens as alternatives to ve tokenomics.

It may be time for DeFi to adopt a new incentive mechanism that benefits both the protocol and token holders in the long term.