Participants may ask what is the SVY token’s utility and how does it accrue value? The purpose of this article is to answer those questions.
What is the SVY token used for?
The SVY token has three utilities:
- DAO membership and governance
- SVY ownership grants Savvy DAO membership. SVY can be staked (or deposited in a Savvy smart contract) in return for veSVY. The balance of veSVY in a wallet determines that wallet’s voting power in Savvy governance.
- Protocol access
- To use the protocol, users must own an amount of SVY.
- SVY Incentives
- SVY incentivizes liquidity providers and rewards borrowers. Liquidity providers deposit funds in liquidity pools like svToken and base asset pools. Deep liquidity pools ensure the smooth operation of the Savvy protocol by minimizing volatility and price discrepancies between svTokens and base assets. The Savvy DAO has control over a treasury of SVY, which is distributed based on on-chain governance votes. The Savvy DAO uses its reserves by providing boosted rewards for liquidity providers.
- SVY also rewards borrowers. Borrowers (users) of the protocol get SVY rewards determined by the following formula:
How does SVY accrue value?
- veToken model
- Governance plays a central role in determining Savvy DAO’s distribution of SVY. This central role of governance drives demand for veSVY, which takes SVY out of the circulating supply. The less SVY in circulating supply (assuming demand remains the same), the higher the token price.
- SVY rewards incentivize long-term borrowers as a function of veSVY balance, and veSVY emissions accelerate over time. Futhermore, when a user unstakes veSVY, their veSVY balance resets to 0. Both of these mechanics incentivize long-term borrowers and long-term stakers.
- svToken Pool Wars
- As previously mentioned, on-chain governance determines SVY incentives distribution. DAO members will want to incentivize the pools that benefit them the most, causing competition for SVY via veSVY demand. DAO members can include DEXs or third-party protocols that want to incentivize SVY pools on their platforms. They vote by buying and staking SVY for veSVY.
- Vote on Redemption Program
- The redemption program refers to using protocol owned liquidity to remove SVY from the open market. The SVY that is bought can then be used as emissions or SVY incentives when the initial SVY reserves dry up. This will be put to a vote by the DAO.
In summary, SVY has three use cases for DAO membership and governance, protocol access, and SVY incentives. The SVY token accrues value through the veToken model, svToken Pool Wars, and a potential redemption program.