Author: Mehdi
Date: January 21, 2026
Category: Research and Discussion
Note: This discussion addresses protocol-level changes and therefore does not fall under the DAPG framework
Executive Summary
This research discussion proposes a dual restructuring of Velora’s economic model. First, it proposes replacing passive staking rewards with usage-based fee discounts, where stakers receive tiered fee reductions based on their stake size rather than epoch-based revenue distributions. Second, it proposes rebalancing the protocol’s revenue allocation to align with industry standards by reducing the Foundation’s share from 85% to 50% of protocol fees, with the DAO controlling the remaining 50%.
The proposal aims to address two critical challenges facing Velora: stopping VLR from severe price depreciation by creating genuine utility and demand, and establishing sustainable treasury funding for protocol growth. By tying staker benefits directly to protocol usage and significantly increasing DAO-controlled revenue, this model incentivizes active trading rather than passive holding, while creating economic conditions that support VLR value through actual utility rather than speculative staking rewards.
Background and Problem Statement
Since the protocol’s inception, Velora has operated with a fee structure where 85% of user fees flow to the Velora Foundation for operational expenses, while 15% is allocated to the DAO. Of this 15% DAO allocation, 80% is distributed to stakers as epoch rewards and 20% is retained in the DAO treasury. This means the DAO treasury receives only 3% of total protocol fees, while stakers receive 12%, and the Foundation receives 85%. This fee structure creates two fundamental problems that threaten the protocol’s sustainability and competitiveness.
Current Fee Structure
When users swap tokens through Velora’s interface, they pay a flat fee of 0.15% (15 basis points) on most trades. Of this 0.15% user fee:
- 85% flows to the Velora Foundation for operational expenses and protocol development
- 15% flows to the DAO, which is then split:
- 80% distributed to stakers as epoch rewards
- 20% retained in DAO treasury
This means the DAO treasury currently receives only 3% of total protocol fees (20% of the 15% DAO allocation), while stakers receive 12% and the Foundation receives 85%. This allocation is significantly misaligned with industry standards and limits the DAO’s ability to fund growth initiatives.
The current staking system faces a critical challenge driven by collapsing yields and severe VLR price depreciation. As of January 2026, only 699 unique addresses are actively staking VLR, with a total value locked of approximately $783,000. While onchain data does not yet definitively confirm a decline in staker count, the trajectory is clear: with staking APR having declined heavily over recent epochs and VLR experiencing significant price depreciation, further reduction in staker participation is highly likely.
The last epoch saw revenue drop to zero percent, as confirmed by Wakeup Labs, meaning stakers currently receive no incentive whatsoever to risk holding VLR tokens. Velora’s revenue has declined due to three primary factors:
- Market downturn: The broader decline in DeFi activity has affected all trading venues, reducing overall volume across the ecosystem
- Lost B2B partnerships: The protocol lost a significant partnership that had been contributing meaningful revenue to the treasury
- Rise of orderbook DEXs: Platforms like Hyperliquid and Lighter have created new competitive pressure with different value propositions around execution quality and fee structures
Recent epoch performance illustrates this revenue collapse clearly—Epoch 37 generated $175,159 in revenue, but this collapsed to just $39,998 in Epoch 38 (a 77% drop) and $40,701 in Epoch 39.
This situation is creating a negative feedback loop: declining epoch rewards reduce staking attractiveness, while VLR price depreciation erodes the principal value of staked positions. The combination makes holding VLR economically irrational for most participants. Further staker attrition and continued VLR price pressure are not distant risks—they are inevitable outcomes under the current model. Without intervention, the remaining 699 stakers will continue to exit as they realize their capital generates no return and faces ongoing depreciation.
However, the core issue is not simply declining staker numbers or token price—these are symptoms of three fundamental structural problems that threaten Velora’s sustainability and competitiveness:
1. Insufficient Protocol Revenue to Fund Development: The DAO receives only 3% of total protocol fees ($7,831 per month) against Laita Labs’ requirement of $60,000 per epoch for sustainable development. This structural funding gap prevents the protocol from competing on product quality and innovation.
2. No User Stickiness or Loyalty: Traders shop across aggregators with no economic incentive to prefer Velora. Without differentiated value for committed users, Velora competes purely on execution quality in a crowded market, making sustainable growth difficult.
3. Misaligned Economic Incentives: The current model rewards passive holding (which now yields 0%) rather than active protocol usage. Stakers contribute nothing to protocol growth yet extract value through revenue distributions, creating a drain rather than a growth engine.
The staker exodus validates that the current model is broken. This proposal doesn’t aim to prevent further decline under the old model—that’s inevitable. Instead, it offers a fundamentally different value proposition that aligns staker benefits with actual trading activity, redirects revenue to protocol development, and creates genuine competitive advantages for committed users.
More critically, the current model creates value leakage rather than value creation. Staking VLR does not meaningfully contribute to protocol growth—instead, it acts as a drain on resources. Revenue is redistributed to holders in ETH rather than reinvested in VLR or protocol development, effectively extracting value from the ecosystem. At this stage of Velora’s development, when every dollar should be directed toward competitive improvements, rewarding passive holders represents an inefficient allocation of scarce capital.
Treasury and Revenue Constraints
The protocol faces severe treasury constraints that limit its ability to compete and grow. As outlined in recent governance discussions around cost rationalization, Velora is running short on runway and budgeting. The current DAO allocation of just 3% of total protocol fees is insufficient to sustainably fund Laita Labs’ development work, which requires $60,000 per epoch over a twelve-month period. This represents a structural funding crisis that cannot be resolved without fundamental changes to revenue allocation.
The Foundation’s 85% share of protocol revenue is significantly higher than industry benchmarks. Examining comparable protocols reveals that foundation allocations typically range from 15-30% of protocol revenue, with the majority directed toward token holders and DAO-controlled initiatives. For example, Hashflow—a structurally similar RFQ-based DEX—allocates protocol fees as follows:
- 50% to HFT stakers as direct rewards
- 30% to Community Treasury for future token buybacks and ecosystem development
- 20% to Foundation for operating expenses
This 50/30/20 split demonstrates how leading protocols prioritize alignment with token holders while maintaining adequate foundation funding. Velora’s current 85% foundation allocation is an outlier that concentrates revenue away from governance and stakeholder incentives.
Recent revenue data shows the scale of the challenge. While the protocol generated $783,109 in total revenue over the last 90 days, the DAO treasury received only approximately $23,493 (3% of total fees). The last 7 days generated $293,494 in total fees, but just $8,805 reached the DAO treasury. With Laita Labs requiring $60,000 per epoch, the current allocation model creates an unsustainable gap.
Proposed Model: Revenue Rebalancing and Staking-Linked Fee Discounts
This proposal fundamentally reimagines Velora’s economic structure through two interconnected changes. First, it proposes shifting from passive staking rewards to active usage incentives through tiered fee discounts. Second, it proposes rebalancing protocol revenue allocation to align with industry standards and create sustainable DAO funding.
Revenue Allocation Restructuring
The current 85/15 split between Foundation and DAO is misaligned with industry norms and governance best practices. Across major protocols in 2025-2026, there is a clear trend toward returning more fees to token holders and DAO governance rather than concentrating them in foundations. This proposal recommends adopting a 50/50 split between Foundation and DAO:
Proposed Revenue Allocation:
- 50% to Velora Foundation for operational expenses and core protocol development
- 50% to DAO for governance-controlled initiatives including:
- Staker fee discount subsidies (replacing direct distributions)
- Product development funding (Laita Labs)
- Security audits and infrastructure
- Marketing and growth initiatives
- Meta-governance program (when treasury sufficient)
This rebalancing brings Velora in line with protocols like Hashflow while maintaining stable foundation funding. The Foundation would still receive 50% of all protocol revenue—substantially more in absolute terms than the current 85% given expected volume growth from improved competitiveness. Meanwhile, the DAO gains control over sufficient resources to fund sustainable growth and align stakeholder incentives.
Core Economic Principle
Rather than distributing revenue to passive holders, the protocol would offer fee discounts to stakers that scale with their commitment level. This shift transforms staking from an extractive activity into a usage-aligned incentive that benefits both users and the protocol. Users who commit capital by staking VLR and ETH receive progressively better pricing on their trades, creating direct alignment between holding VLR and using Velora for swaps.
Stakers no longer need to monitor epoch distributions or claim rewards—their benefit materializes automatically with every trade they make. For active traders, the fee savings will substantially exceed any historical staking yields, while simultaneously making Velora the most cost-effective venue for their trading activity.
Under this structure, the 50% of protocol revenue allocated to the DAO would fund the fee discount subsidies for stakers (replacing the current 12% direct distribution), while the remainder supports protocol development, security, and growth initiatives. This creates a sustainable funding model that aligns protocol development with actual usage, while maintaining the Foundation’s ability to operate effectively with 50% of revenue.
Fee Tier Structure
The proposed tier system balances accessibility for small users with meaningful benefits for larger stakeholders. Each tier has been designed to serve a specific user segment while maintaining overall protocol competitiveness. Importantly, even the entry tier offers fee savings compared to the current standard 0.15% fee, creating immediate incentive for users to stake.
Tier Summary
The structure creates four distinct tiers designed to serve different user segments while maintaining protocol competitiveness:
- Tier 1 (Entry Staker): $50-499 stake | 0.09% fee (40% discount from 0.15% base) | 30-day lock
- Tier 2 (Active Trader): $500-4,999 stake | 0.06% fee (60% discount) | 90-day lock | Priority routing
- Tier 3 (Power User): $5,000-24,999 stake | 0.03% fee (80% discount) | 180-day lock | RFQ access
- Tier 4 (Institutional): $25,000+ stake | 0.015% fee or rebates (90%+ discount) | 365-day lock | Custom terms
The $50 minimum entry point for Tier 1 is deliberately designed to maximize accessibility and onboard new unique stakers. At this level, even casual traders can justify the stake after just a few trades, creating immediate switching costs and user stickiness.
Volume Caps and Anti-Gaming Measures
To prevent whales from staking minimal amounts while capturing unlimited fee discounts on large volumes, each tier includes a monthly volume cap at the discounted rate. Trading volume beyond the tier’s cap automatically reverts to the base 0.15% fee.
Tier Assignment: Users are automatically assigned to the highest tier their stake qualifies for. A $300 stake receives Tier 1 benefits ($50-499 range), a $3,000 stake receives Tier 2 benefits ($500-4,999 range), and so on. There is no ambiguity—your stake amount determines your tier.
Monthly Volume Caps:
- Tier 1 ($50-499 stake): First $50,000 volume/month at 0.09%, excess at 0.15%
- Tier 2 ($500-4,999 stake): First $250,000 volume/month at 0.06%, excess at 0.15%
- Tier 3 ($5,000-24,999 stake): First $2,500,000 volume/month at 0.03%, excess at 0.15%
- Tier 4 ($25,000+ stake): First $25,000,000 volume/month at 0.015%, excess at 0.15%
Grace Allowance Mechanism:
To accommodate legitimate users with variable trading patterns, each tier receives a one-time annual “overflow allowance” equal to 2x their monthly cap. This prevents frustration from temporarily exceeding caps due to lumpy trading activity.
Example:
- Alice stakes $500 (Tier 2) with $250K monthly cap
- In June, she needs to execute $400K in trades
- She uses $150K of her annual overflow allowance (2× $250K = $500K total available)
- June trades: $250K at 0.06%, $150K at 0.06% (using overflow), total fees = $2,400
- Remaining overflow allowance: $350K for rest of the year
- July onwards: Back to normal $250K/month cap
Rationale:
This structure ensures capital commitment scales with usage. A trader executing $1M monthly volume cannot game the system by staking just $50—they would only receive discounted fees on their first $50K of volume, with the remaining $950K reverting to the base 0.15% rate. To maximize their savings, they must either stake at Tier 3/4 level or accept paying standard fees on the majority of their volume. This protects protocol revenue while maintaining fairness for users whose volume genuinely matches their tier.
For institutional users and market makers whose volume consistently exceeds Tier 4 caps, custom arrangements can be negotiated that maintain appropriate capital commitment relative to trading activity.
Tier 1: Entry Staker (0.09% Fee)
Tier 1 serves as the primary onboarding mechanism for new committed users. The staking requirement of $50-499 in value, composed of 80% VLR and 20% ETH, is intentionally accessible to reduce barriers to entry. Users must maintain this stake for a minimum of 30 days, creating a modest commitment that nonetheless differentiates them from pure aggregator traffic.
At a 40% discount from the base fee of 0.15%, Tier 1 users pay 0.09% per trade. For a user making a $10,000 swap, this translates to $9 in fees versus $15 at the base rate—a $6 savings. After just nine trades at this volume, a user with a $50 stake has recovered their entire investment through fee savings. This rapid payback period creates compelling economics for anyone who trades with even moderate frequency.
The target user for this tier is the regular DeFi participant who currently shops between aggregators for best execution. By staking a minimal amount, they ensure Velora consistently provides competitive pricing, reducing the need to compare across platforms. This tier is expected to drive the largest growth in unique staker count, potentially increasing from the current 703 stakers to several thousand active participants.
Tier 2: Active Trader (0.06% Fee)
Tier 2 targets users with consistent trading volume who would benefit from deeper fee reductions. The $500 stake requirement remains accessible for most DeFi participants while demonstrating genuine commitment to the protocol. The 90-day lock period further aligns these users with protocol success over a meaningful time horizon.
At a 60% discount, Tier 2 users pay just 0.06% per trade. Beyond the fee savings, these users receive priority routing through the best available solvers, ensuring they benefit from superior execution quality in addition to lower costs. For users trading $50,000 to $500,000 monthly, the combination of fee savings and execution improvements creates substantial value.
This tier is designed to capture the core DeFi power user segment—individuals who trade frequently enough that fee optimization matters but who aren’t yet operating at institutional scale. These users become deeply embedded in the Velora ecosystem, as the combination of stake lock-in and superior economics makes switching to competitors economically irrational.
Tier 3: Power User (0.03% Fee)
Tier 3 addresses the needs of sophisticated traders, including whales, protocols conducting treasury operations, and semi-professional traders. The $5,000 stake and 6-month lock period reflect the serious commitment expected at this level. The 80% fee reduction translates to a 0.03% fee, which becomes highly competitive even against the most aggressive pricing in the market.
Beyond pricing, Tier 3 users gain access to RFQ functionality for large trades, allowing them to request custom quotes from market makers for size that might otherwise experience significant slippage. They also receive priority routing and the ability to set solver preferences, giving them more control over execution quality. For users regularly executing six-figure trades, these benefits combined with the fee savings create compelling value that would be difficult to replicate elsewhere.
Tier 4: Market Maker / Institutional (0.015% Fee or Rebates)
Tier 4 is designed for professional market makers, intent fillers, high-frequency traders, and institutional users. The $25,000 minimum stake and 12-month lock period reflect the professional nature of these relationships. At this tier, the model becomes highly flexible, with the protocol able to offer 0.015% fees, maker rebates, or custom negotiated terms based on the user’s activity and contribution to protocol liquidity.
Institutional users at this tier receive API access with higher rate limits, enabling programmatic trading. They can integrate custom solver logic and potentially participate directly in Velora’s intent fulfillment network. For market makers, the model offers the opportunity to share in B2B partnership revenue, creating additional alignment beyond fee economics. This tier effectively allows Velora to compete for professional order flow by offering economics similar to traditional market-making arrangements.
The institutional tier serves a dual purpose: it provides competitive pricing for large traders while creating a pathway for professional market participants to become deeply integrated with Velora’s infrastructure. These relationships can evolve into partnerships that bring additional liquidity and functionality to the protocol.
Multi-Chain Consistency
The same fee tier structure applies uniformly across all chains. Staking remains centralized on Base for efficiency and simplicity, with cross-chain messaging used to verify stake status when users trade on other networks. This approach maintains a single source of truth for tier qualification.
Competitive Positioning
Understanding how this model positions Velora relative to competitors is essential for assessing its viability. The intent-based DEX aggregator market has evolved rapidly, with different platforms taking varied approaches to fees and value capture.
Competitor Fee Analysis
1inch operates as a pure aggregator with zero protocol fees, routing user orders across more than ninety liquidity sources without adding any overhead. Users pay only the underlying DEX fees and gas costs. This zero-fee approach has been 1inch’s core strategy since launch, with co-founder Sergej Kunz explicitly stating that their mission prioritizes DeFi market growth over short-term revenue extraction.
CowSwap uses a different model, charging fifteen to twenty-five basis points in partner fees while employing a batch auction mechanism that protects users from MEV. Their economic proposition centers on surplus extraction—on limit orders, they take fifty percent of any surplus above the limit price, capped at one percent of trade volume. For users, CowSwap’s value proposition is MEV protection and execution quality rather than rock-bottom fees.
Hyperliquid represents the orderbook DEX model with taker fees around 0.2% for standard pairs and 0.04% for stablecoin pairs. They employ volume-based fee tiers where higher trading activity results in better rates. Importantly, Hyperliquid directs all fees to community initiatives including the HLP, assistance fund, and deployer rewards, rather than distributing to passive holders. At peak activity, Hyperliquid has generated over 2.6 million dollars in daily fee revenue.
Lighter takes a more radical approach by charging zero fees for retail traders while monetizing through institutional accounts and by selling clean retail order flow to market makers, similar to payment-for-order-flow models used by platforms like Robinhood. Since launching LIT token in December 2025, Lighter has processed over two hundred billion dollars in thirty-day volume.
Velora’s Competitive Advantages Under New Model
Against this landscape, Velora’s tiered model creates several distinct competitive advantages. For non-stakers, the 0.15% base fee matches Velora’s current standard rate, ensuring continuity for casual users. However, for stakers, the economics become immediately compelling—even minimal Tier 1 commitment provides fee savings on every trade.
A Tier 1 staker with minimal commitment already achieves 0.09% fees, making Velora more cost-effective than most competitors for small to medium trades. Tier 2 and above users receive 0.06% pricing or better, beating all intent-based competitors on fee alone before considering execution quality improvements from priority routing. For large traders at Tier 3 and institutional users at Tier 4, Velora offers 0.03% or lower—pricing that rivals orderbook DEXs while maintaining the simplicity and capital efficiency of intent-based execution.
Critically, because stakers receive fee discounts regardless of how they access Velora—whether directly through velora.xyz or via an aggregator—Velora’s quotes will consistently appear at or near the top of aggregator results for staked users. This creates a powerful flywheel: users stake for better pricing, which makes them preferentially use Velora, which generates revenue, which funds protocol improvements, which attracts more users.
Expected Impact on Protocol Revenue
Assessing the revenue implications of this model requires considering both the direct effects of fee structure changes and the behavioral changes driven by altered incentives. While precise projections require detailed onchain data, we can establish reasonable scenarios based on observed market dynamics.
Current Baseline
Under the existing model with the current fee structure, the protocol generates revenue but distributes it inefficiently. Based on recent performance data, the protocol generated approximately $783,109 in total revenue over the last 90 days. However, the revenue split heavily favors the Foundation:
- Foundation receives: 85% =
$665,643 over 90 days ($221,881/month) - DAO receives: 15% =
$117,466 over 90 days ($39,155/month) - Of DAO’s 15%:
- Stakers receive: 80% = ~$31,324/month
- Treasury receives: 20% = ~$7,831/month
This means the DAO treasury currently receives only 3% of total protocol fees—approximately $7,831 per month—while Laita Labs requires $60,000 per epoch for sustainable development. The structural funding gap is severe.
Recent epoch performance shows significant volatility. Epoch 37 generated $175,159 in revenue, but this collapsed to $39,998 in Epoch 38 and recovered slightly to $40,701 in Epoch 39. With current active user metrics showing only 2,810 addresses in the last 24 hours and 41,064 in the last month, the user base remains constrained.
Revenue Modeling Under Proposed Structure
The revenue impact depends on three key variables: changes in total trading volume, the distribution of users across fee tiers, and the rebalanced Foundation/DAO split. We can model three scenarios based on the proposed 50/50 Foundation/DAO allocation:
Conservative Scenario:
- Volume increases 30% from improved stickiness (to ~$1.02M/90 days total revenue)
- 40% of traders stake at Tier 1 or above
- Effective average fee: 0.13% (vs current 0.15%)
- Foundation receives: 50% = ~$169,000/month
- DAO receives: 50% = ~$169,000/month
- Net effect: DAO treasury increases from $7,831/month to ~$169,000/month = 21.6x increase
- Foundation decreases from $221,881/month to ~$169,000/month = 24% reduction but with volume growth potential
Base Case Scenario:
- Volume increases 60% from competitive pricing (to ~$1.25M/90 days)
- 60% of traders stake at Tier 1+
- Effective average fee: 0.11%
- DAO receives: 50% = ~$229,000/month
- Net effect: DAO treasury = 29.2x increase
- Foundation receives: ~$229,000/month (comparable to current despite 50% vs 85% split due to volume growth)
Optimistic Scenario:
- Volume doubles from market share gains (to ~$1.57M/90 days)
- 75% staker adoption across tiers
- 2-3 new institutional partnerships (Tier 4)
- Effective average fee: 0.09%
- DAO receives: 50% = ~$261,000/month
- Net effect: DAO treasury = 33.3x increase
- Foundation receives: ~$261,000/month (18% increase from current despite halved percentage)
The key insight: even in the conservative scenario where effective fees decrease and the Foundation’s percentage share is cut in half, both parties benefit. The DAO gains massive increase in controlled resources for growth initiatives, while the Foundation maintains adequate funding through volume expansion. The current 85/15 split creates a zero-sum dynamic; the proposed model creates aligned growth.
Break-Even Analysis
A critical consideration is whether the Foundation can operate effectively with 50% instead of 85% of protocol revenue. The analysis shows this is not only viable but creates better alignment:
Current Foundation Revenue: 85% of ~$261,000/month = ~$221,881/month
Proposed Foundation Revenue (Conservative): 50% of ~$339,000/month = ~$169,500/month
Even in the conservative scenario with no volume growth assumptions, the Foundation receives 76% of current absolute funding. In the base and optimistic scenarios with volume growth from improved competitiveness, the Foundation receives equal or greater absolute funding despite the reduced percentage.
This rebalancing aligns Velora with industry standards. Examining comparable protocols:
- Hashflow: 20% to Foundation, 50% to stakers, 30% to community treasury
- Typical range: 15-30% foundation allocation across major DeFi protocols
- Velora current: 85% to Foundation (significant outlier)
- Velora proposed: 50% to Foundation (still above industry average, but reasonable)
The Foundation maintains sufficient resources for core operations while the DAO gains the funding necessary to compete on product development, security, and growth initiatives.
Market Differentiation:
- First major intent-based DEX to implement usage-linked staking rewards (novel flywheel mechanism)
- Clear value proposition: “Stake once, save on every trade forever”
- Demonstrates governance capability to make bold structural changes when needed## Risk Analysis
While this proposal offers significant upside potential, it carries several risks that merit careful consideration:
Risk 1: Further Decline in Staker Participation
The most significant risk is that transitioning from direct staking rewards to fee discounts may accelerate the exodus of current stakers, particularly those who trade infrequently or hold VLR primarily for passive income. With only 703 unique stakers currently and APR already at 0%, further attrition could weaken network effects and reduce VLR demand.
Mitigation Context: With staking rewards already at zero, existing stakers have minimal downside from the transition to fee discounts—indeed, active traders will benefit immediately. The current system has already failed these stakers, so the negative selection has largely played out. The timing for this change is optimal precisely because the worst-case scenario (zero rewards) has already materialized.
Risk 2: Further Decrease in Protocol Revenue
The proposed fee tier structure may result in lower effective fees as more users stake for discounts, potentially reducing overall protocol revenue during the transition period. Combined with existing market headwinds, this could create short-term treasury pressure.
Mitigation Context: As mentioned earlier, multiple factors have already driven revenue decline. Maintaining the status quo is not a viable option, as it offers no path to revenue recovery. This proposal represents a necessary trade-off: experiment with a novel flywheel mechanism that is unique among intent-based DEXs. By making committed users stickier through fee incentives and redirecting more revenue to protocol development, we create conditions for sustainable growth rather than managed decline.
Risk 3: Implementation Complexity and Delays
Cross-chain stake verification, tier calculation logic, and integration with existing infrastructure could prove more complex than anticipated, leading to development delays or technical issues that undermine user confidence.
Mitigation: Leverage existing staking infrastructure on Base to minimize new development. Phased rollout starting with single chain before expanding. Thorough testing and security audits before full deployment.
Risk 4: Insufficient Adoption of Entry Tiers
If the $50+ entry tier fails to attract significant new stakers, the model may not achieve the network effects needed to drive volume growth and offset lower per-trade fees.
Mitigation: Aggressive marketing campaigns from the Foundation, Laita Labs, and VGC will be essential to communicate the value proposition and drive adoption of the entry tier.