In Liquity V2, LQTY stakers will take on a new role: directing Protocol Incentivized Liquidity (PIL). This empowers them to decide where 25% of the protocol's revenue is allocated, while continuing to earn staking yield from V1, resulting in a dual reward mechanism.

Voting is a crucial component of Liquity V2's mechanism, enabling LQTY stakers to directly influence its success.

By voting, you:

• Direct the distribution of 25% of the protocol's revenue
• Help drive initiatives that benefit the V2 ecosystem expansion
• Ensure the strategic placement of incentives for sustainable growth

Why vote?

The motivation to vote is closely tied to the desire for Liquity V2's success. As mentioned earlier, 25% of the protocol's revenue is allocated to PIL, paid out in BOLD. These incentives are organic, sustainable, and directly linked to the protocol's overall performance.

As BOLD demand increases and minting grows, so do PIL funds: more BOLD is minted -> more funds distributed to incentives -> higher APRs -> more BOLD demand…

Additionally, with sufficient incentives, a bribe market might emerge, where interested parties will compete for your voting power. This means you'll not only earn proceeds from V1 activity but also receive bribes for allocating your votes to specific initiatives.

How do you vote?

To participate in voting, simply stake your LQTY tokens in Liquity V2. This grants you voting rights, and the longer you stake, the stronger your voting power becomes.

There are no lock-up periods or fees associated with un-staking, giving you the flexibility to leave at any time. When adding a new stake amount, this portion starts with a voting power of 0, while the old portion stays the same. Conversely, reducing your stake leaves the remaining staking age unchanged.

Those who stake earlier than others have a relatively higher voting power. Although the voting power of newer entrants will converge over time, they will never catch up to those who staked earlier.

Voting occurs in weekly epochs, which start every Thursday at 00:00 UTC and end the following Wednesday at 23:59:59 UTC.

You can allocate your votes among the available initiatives in any way you prefer. Since liquidity is crucial, the initial initiatives focus on key BOLD LP positions. This allows users to support the growth of the ecosystem in a targeted and flexible manner.

The voting process has two categories: upvote and downvote. You can vote on multiple incentives or just one, and split your votes however you prefer.

During the last 24 hours of each epoch, only downvote actions are allowed. In this final period, existing votes can still be removed and reassigned as downvotes. This mechanism provides the community with a window to respond to proposals that may be detrimental to the protocol.

Once set, your votes carry over to the next week, meaning that you only have to resubmit them, if you want to change something.

To learn more about the incentives itself head over to Discourse. This is where all incentives are proposed and discussions around them happen.

Is Voting Governance?

Liquity V1 is known for its immutability, there is no way to change the protocol.

This remains true in V2, where all core contracts are also immutable. The sole purpose of PIL voting is to determine where 25% of the revenue is allocated; voting cannot influence the core functions of the protocol in any way.

Initiatives can be added in a permissionless way. To do so, the proposer must hold at least 0.01% of the total voting power of all LQTY staked and pay the registration fee of 1000 BOLD. 

Once registered, the initiative becomes eligible for voting in the next epoch. To gain voter support, the proposer must also present the initiative on Discourse, addressing any questions from stakers.

Further details on proposing initiatives will be covered in a future article.

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