Introducing Bug Finance: Revolutionizing The ve(3,3) Landscape

10 min readMay 16, 2023

In the year 2111, Earth’s landscape lay barren and desolate, ravaged by a devastating nuclear war. Humanity has perished, and only the bugs have emerged as the ultimate survivors. Through tenacity and resilience, these once-simple creatures evolved into AI-powered, technologically-advanced bugs, unlocking the secrets of time travel and journeying back to our era to secure a better future for their kind.
Deep within the caverns of a post-apocalyptic Earth, a team of experienced crypto builders join forces with the technologically-advanced bugs to create something revolutionary: Bug Finance.

The Birth of Bug Finance

Built upon the foundation laid by Solidly and Thena, Bug Finance aims to become the new native liquidity layer on Polygon. As avid supporters of the Polygon network since early 2021, we felt it was the perfect time to build something new and valuable for the chain and its community.

We saw the potential in Solidly’s innovative AMM structure but also recognized its flaws. Observing other Solidly forks launch their improved versions, we saw there was still room for improvement from taking a first principle approach to the economic incentives structure.

Bug Finance aims to become the native liquidity layer on Polygon, creating value by opening the gates to new and established protocols seeking to start and solve their liquidity provision. Incentivizing liquidity can be a costly endeavor for protocols, and the ve(3,3) model offers a long-term solution to reduce these costs. However, we at Bug Finance believe it can be done better, which is why we reimagined ve(3,3) with an innovative stake and exit mechanism.

Key Innovations in Bug Finance

veBUG: Bug Finance allows users to acquire veBUG by staking liquidity with LP tokens paired with $BUG or staking $BUG, ensuring deep liquidity across the platform and providing dual incentives for users.
Zero rebase: Implementing a zero-rebase model, Bug Finance addresses imbalanced voting power in current ve(3,3) models, promoting long-term health and sustainability.
The Swarm NFT collection: An exclusive NFT collection offering utility benefits such as airdrops, a share of trading fees, royalties, and access to exclusive strategies and the gated Swarm community.
Fee discounts: Users can receive fee discounts of up to 50% on the platform by acquiring certain NFTs. More on this later…
LP Boosted Staking: Users can receive a 2x boost of emissions on their vAMM & sAMM LPs through LP Boosted Staking, with an exit mechanism that introduces incentives to increase and maintain TVL.

By rewriting the rules for acquiring veBUG and introducing a host of other improvements, Bug Finance stands out as a soon-to-be leading decentralized exchange on the Polygon network. Our platform is dedicated to providing unparalleled value, transparency, and user experience to our community, making Bug Finance a cornerstone of DeFi on Polygon.

Redefined ve(3,3) Mechanics

We took a first principal approach to the ve(3,3) mechanics, identifying the intended outcomes and observing market behavior to engineer the optimal solution.

(1) The vote escrow model was originally intended to align the stakeholders of the platform with the health of the protocol. However, current iterations do not necessarily achieve this with their model of “rented” liquidity. LPs are not incentivized in the health of the protocol but are rather rented with emissions that change weekly.

In the Solidly and DEX markets, the health of the protocol is based on the TVL in liquidity pools. In current “rented” liquidity models, the TVL is transient as yields shift and the system fails to align token holders with the long-term success of the protocol.

To address this, we have implemented novel mechanics around veBUG to align token voters with liquidity providers and also introduced boosted LPs to incentivize long-term commitment from liquidity providers.

(2) The original introduction of the vote escrow model also served to achieve two things:

Reduce sell pressure of vote escrow tokens.
Align rewards with long-term stakeholders in the protocol by correlating voting power with lock duration.

However, with the model ve(3,3) iterations, these two elements are broken because the vote escrowed positions are represented as NFTs and are available to sell over the counter, often at a discount.

This resulted in the vast majority of tokens being max-locked regardless of time commitment (because they can still be sold) and the secondary market purchases removing buy pressure from the liquid token.

At Bug Finance, we have re-imagined and redefined the vote escrow model by removing both the lock duration (as it is no longer appropriate with a tradeable market) and introducing an exit mechanism to turn the secondary market discount into a benefit for the protocol.

We observed that on Solidly forks, veNFT positions were exitable through secondary markets or liquid wrappers, but these methods did not benefit the protocol. Our exit mechanism with a time-weighted % fee aims to address this issue by benefiting the protocol through:

40% of the exit fee going to bribes for the exited pool, distributed over 4 weeks to maintain a steady APR.
40% allocated to a lock bonus for the exited pool, offering a 5% bonus on LP and veBUG tokens for users who stake their tokens, as long as the supply lasts.
20% directed to Protocol Owned Liquidity, strengthening the protocol and long-term liquidity over time.

This creates a system where someone exiting increases Protocol owned Liquidity (which makes the protocol forever stronger), increases yields for people voting in that pool and thus liquidity providers, and incentivizes new people to jump into the pool for the bonus. And if they decide they want to exit, everybody benefits again.

In this way, we create a flywheel for LPs within the greater ve(3,3) flywheel.

1. LP Boosting:

How it works: Users can stake normal LP tokens (without $BUG in the pair) for an unlimited time to receive a 2x boost in emissions. Instead of locking the LP tokens for a fixed period, an exit mechanism is introduced, which decreases over time until it reaches 0%.

Exit Mechanics: The exit fee is calculated based on the APR of the pool in which the tokens are staked, ensuring users reach a break-even point within 4 weeks.

The exit fee is set so that if you exit <4 weeks, you will exit at a net loss. Between 4–8 weeks, you can exit at a profit, but regular staking would have been more profitable. From 8 weeks onwards, boosted staking will be more profitable than regular staking. And from 52 weeks onwards the exit fee is zero, thus boosted staking will produce double the yield.

When a user exits, the fee is distributed as follows: 40% for bribes in the exited pool, 40% for lock bonuses for new users who stake LP in the exited pool, and 20% for Protocol Owned Liquidity.

Design rationale: The LP Boosting mechanism is designed to encourage users to provide liquidity to Bug Finance pools, creating deeper liquidity and a better trading experience. By offering a 2x boost in emissions, users are incentivized to stake their LP tokens for a longer period. When users leave the pool, the exit mechanism creates incentives for new liquidity to step in and backfill.

2. veBUG LP Staking:

How it works: Users stake BUG LP tokens (whitelisted pairs with $BUG) to receive voting power in the form of veBUG. Staking LP tokens into veBUG means voters also get LP emissions, providing a dual incentive system for users.

Exit Mechanics: The exit fee for veBUG LP Staking starts at 20% and decreases by 0.33% weekly over the course of a year to finish at 2.5%.

When a user exits, the fee is distributed as follows: 40% for bribes in the exited pool, 40% for lock bonuses for new users who stake LP for veBUG in the exited pool, and 20% for Protocol Owned Liquidity.

Design rationale: veBUG LP Staking is introduced to ensure deep liquidity across the platform for the $BUG token and any partner protocols with BUG pairs. This mechanism aims to fairly distribute voting power and give users more influence over the protocol’s decision-making process.

3 . Single-Sided BUG Staking:

How it works: Users stake $BUG tokens to acquire veBUG, receiving 50% of the voting power compared to staking BUG LP. This allows users to participate in the voting process without providing liquidity.

Exit Mechanics: To exit a single-sided veBUG position, users will have the option to “upgrade” their BUG position into an LP veBUG position by adding an equivalent amount of pair tokens in compatible pools. This veBUG LP would receive 100% voting power and have exit mechanisms as described in the veBUG LP section above.

Design rationale: Single Sided Staking is introduced as a way for users to compound their BUG emissions without selling and is an alternative for new DeFi users who may not be familiar with liquidity provisioning. This encourages users to hold onto their $BUG tokens while still participating in the governance process.

By allowing an exit conversion to veBUG LP, we enable these positions to be flexible and benefit the protocol TVL.

The Swarm NFT Collection

The Swarm is Bug Finance’s exclusive NFT collection featuring 2111 unique, futuristic bug-themed NFTs.

The Swarm represents the culmination of centuries of evolution, as ten factions of distinct bug species have risen from the ashes of nuclear war, each one more cunning and resourceful than the last. Within each faction, a hierarchical structure has formed, reflecting the varied roles and capabilities of these remarkable creatures.

Tier 1: Leader (1 per faction) — The supreme ruler of each faction, wielding unparalleled power and influence.
Tier 2: Super Soldiers (10 per faction) — The bodyguards of the leader, making sure their leader is always supported and protected.
Tier 2: Soldiers (20 per faction) — The valiant defenders and warriors, protecting their faction with unyielding loyalty.
Tier 3: Drones (80 per faction) — Skilled scouts and reconnaissance specialists, navigating the world with stealth and precision.
Tier 4: Workers (100 per faction) — The diligent builders and tireless laborers, ensuring the continued prosperity of their faction.

Each NFT boasts a unique appearance, role within their faction, and significant utility within the Bug Finance ecosystem.

The Swarm NFT Utility within Bug Finance

The Swarm NFTs are not just collectibles; they are an integral component of the Bug Finance ecosystem, providing tangible value to their holders. We envision The Swarm as a thriving community of passionate users who actively participate in the Bug Finance ecosystem and contribute to its success. As we continue to expand and innovate, The Swarm NFT holders will play a pivotal role in shaping the future of our platform.

The Swarm NFT holders can benefit from various exclusive features, including:

Airdrop Rewards: Secure your share of the 1,500,000 BUG token airdrop, with 355 $BUG and 355 veBUG per NFT. Leverage your veBUG to earn rewards through voting and foster long-term commitment to Bug Finance. veBUG is locked forever, while $BUG is vested over 12 weeks, with 25% available immediately at launch.

Weekly Trading Fee Share: Enjoy a percentage of Bug Finance’s weekly trading fees as an NFT holder. Stake your Bug NFT to claim your share, starting at 20% and reducing to 10% after 6 months:

Months 1–3: 20%
Months 4–6: 15%
Months 7 onwards: 10%

Royalty Benefits: Benefit from a 3% royalty on each NFT, with 3% allocated to the staking pool. Claim your share of royalties weekly and grow your rewards.

Exclusive Strategies: Gain access to special strategies tailored exclusively for BUG NFT holders, maximizing your potential and trading experience on Bug Finance.

The Swarm Community Access: Join the gated Swarm community and participate in the project’s development. Receive early alpha insights and be an integral part of Bug Finance’s future.

Fee Discount: The leaders and soldiers of each faction will be able to trade more efficiently with up to a 50% fee discount on all pairs. These highly valuable NFTs will be sought after by high-volume traders, collectors, and arbitrageurs alike.

Extra Utility: Each Tier will also receive extra added-on utility that each serves a different purpose. More on this will be announced soon…

By joining the Swarm and obtaining exclusive NFTs, you’ll not only gain access to valuable benefits but also play a pivotal role in shaping the future of Bug Finance.

More information about the benefits and details of minting a Swarm NFT will be shared in an upcoming article.

A New Dawn — The Future of Bug Finance

As the sun casts its final, fiery glow over the desolate landscape of 2111, the AI-powered bugs — architects of a brighter future — assemble for one last council. The Swarm, a diverse and powerful assembly of evolved bug species, transcends the boundaries of time and space to alter the course of history. With their arrival comes the dawn of Bug Finance, a revolutionary platform poised to illuminate the dark corners of the financial world.

The Swarm NFT Collection captures the essence of these futuristic bugs, each a symbol of the resilience and potential that define their kind. As holders of these unique NFTs come together, they will forge an unstoppable force within the Bug Finance ecosystem, propelling its success and actively shaping its destiny.

Stay updated on Bug Finance’s progress and developments by following our social media channels, and we welcome you to this groundbreaking journey.