What is ve?
ve means vote escrowed
Escrowed means that users have to lock up their tokens, and they are unavailable to get them earlier. Tokens unlock properly in chosen time
Vote means that users get an amount of tokens back. This amount depends on the lockup period. That ve tokens are being used for managing. It also means that members of community that locked their tokens for more time have more authority. This rule also applies to rewards, so users who locked tokens for longer period will get more rewards.
Problems with long-term success
In the real world you don’t even know what will happen the next day. In crypto industry or trading this is much more tangible. Now imagine that you have locked your tokens for 3 years. Everything is great if the price increases, but it also means that if the market falls down, you can’t do anything. And chances that it can fall down aren’t low as we can see. When someone who locked ve tokens for shorter period sells it, another people’s confidence is decreasing. Also, the token is being managed by another users, so the governance trends can be unprofitable for you and the long-term alignment is disappearing. For example when users want to sell their tokens, but they can’t because of locking, and they are allowed to take part in managing, their policies will not be aimed at long-term profit. This can lead to the fact that the interest in management can be very low when it is so important, which can lead to a complete failure. Yes, it isn’t surely that all these problems will arise, but it is a real risk that you have to consider.
What decisions would make the system better
As we said, the problem is in lack of interest in long-term profit, which causes bad managing and losses for many users. The cause of this problem is that users that want, but can’t sell their tokens are not satisfied and that is the reason why they make bad decisions.
One possible solution is to make short-term opportunity costs higher and make all users understand selling their tokens after a short time is not the best decision. Also, it is necessary to make users allowed to unlock their tokens earlier than selected unlock time if they changed their long-term strategy. It is fair. That all will decrease mid-term and long-term volatility and make the whole governance politics better. Users have to understand that their responsible managing makes the entire system more profitable for all of them.
The second needed step is to find a balance between old and new holders. Making opportunity costs increasing proportionally to the staking period will stimulate users to hold tokens longer. Here is the problem that longer holders will get more and more weight in governance - that’s disbalance. But the fact that they hold the token for a long time means that they are interested in a long-term profit, and it is significant.
So ve tokens have their advantages, but there are also disadvantages too. It’s really important to understand that it can be profitable in long-term. But not all users understand this and not all users are interested in long-term holding and managing.