xSHADOW

What is xSHADOW?

xSHADOW is a token developed by the Shadow team to address the sustainability challenge associated with earlier ve(3,3) models. xSHADOW combines the best of vote-escrow models with the flexibility of traditional escrow incentive systems.

No more lengthy lock-ups to participate fairly in an ecosystem.

What can I do with xSHADOW?

xSHADOW stakers can vote to direct rewards to their favorite LP pairs. By staking, they earn 100% of protocol fees, vote incentives, and penalties from exits.

Token

xSHADOW is a non-transferable representation of 1 unit of SHADOW held in escrow within the xSHADOW smart contract. Only holders of xSHADOW have voting rights on Shadow. While xSHADOW itself is non-transferable, it provides users with different exit options, instant or vesting.

How is xSHADOW obtained?

Users can acquire xSHADOW through vote incentives, token emissions, or by converting SHADOW.

SHADOW > xSHADOW conversion

SHADOW can be freely converted into xSHADOW at any time. The process is instant, and the ratio is 1:1.

How to exit xSHADOW?

xSHADOW > SHADOW redemption

Users can convert xSHADOW to SHADOW at any time: instantly (with a 50% penalty) or with a user-selected vesting period, that influences the conversion ratio. The longer the vesting, the more favorable the ratio.

1. An immediate conversion incurs a 50% penalty, offering a 1:0.5 ratio
2. Partial vesting periods offer proportional ratios (e.g., 3 months = 1:0.73 ratio)
3. Opting for a full 6-month vesting period results in a 1:1 ratio, eliminating any penalty

Vesting Penalty

• Minimum Vesting Length (Cancellation Period): 15 days (86400s * 15)
• Maximum Vesting Length (100% Exit): 180 days (86400s * 180)

Vesting can be cancelled only during the initial 14 day vesting period. xSHADOW is returned to a user upon cancellation of vesting. Once the 14 day cancellation period has elapsed, the vesting becomes permanent and the user can withdraw liquid SHADOW tokens subject to the penalty applicable to them at that time. Upon completion of the maximum 180 day vesting length a user receives all their underlying SHADOW tokens on a 1:1 basis.

Voting Incentives

xSHADOW holders are rewarded for actively participating and voting—earning 100% of protocol fees and vote incentives. When you vote for liquidity with gauges, you receive a proportionate share of all fees generated by that liquidity, plus any additional vote incentives offered by protocols to attract emissions.

Voting Breakdown

The main purpose of the xSHADOW token is to vote to direct emissions to liquidity. This is achieved through weekly voting for gauged liquidity. Emissions are distributed proportionally to the total percentage of votes in the Epoch.

Emission Calculation

The expected emissions can be calculated using a simple division formula:

For example, 100,000 xSHADOW is distributed in a single epoch. If 10% of all votes are allocated to the SHADOW / USDC pair, that pair will receive 10,000 xSHADOW tokens distributed linearly to liquidity providers of the relevant LP pair throughout the epoch.

Vote Weight Calculation

The voting power of xSHADOW is determined by:

1. Amount of xSHADOW held
2. Active participation in voting

Active Staking

Active staking is a key improvement in xSHADOW's design over traditional ve(3,3) systems. While other protocols automatically distribute rebases to all holders, xSHADOW requires users to be staked to earn vote incentives and rebases.

Requirements

To be eligible for ALL weekly rewards, xSHADOW holders must:

• Have xSHADOW staked
• Cast votes during that epoch

This design choice ensures incentives flow to active participants who are staked and vote every epoch, rather than having passive holders accumulate rewards without contributing.

Liquid Staking

Shadow was designed to eliminate friction from the ve(3,3) model, and managing voting positions is one of the biggest sources of this friction. The liquid staked version of xSHADOW simplifies this process by automating voting and reward claims without disrupting xSHADOW's core mechanics.

$x33

$x33 is the liquid staked version of xSHADOW and can minted with xSHADOW. The $x33:xSHADOW ratio starts at 1.00:1.00 and increases in $x33's favor as rewards accrue from fees, vote incentives and rebases.

After every weekly epoch flip rewards from fees and vote incentives are automatically sold to increase the $x33:xSHADOW ratio, this increase includes rebases from user and emission exits. Below is an example showing how $x33:xSHADOW ratio will increase over time.

Does not bypass exit fee

While $x33 offers instant liquidity, it doesn't circumvent xSHADOW's exit penalties. As the liquid staking version of xSHADOW, $x33's market price naturally reflects the instant exit fee structure. The token cannot trade below the xSHADOW redemption value because arbitrageurs would immediately buy and redeem $x33 for xSHADOW to capture the difference. While $x33 cannot trade below the xSHADOW instant exit penalty, it may trade at a premium to this based on market dynamics.

PVP Rebase

Shadow incorporates a unique player vs. player (PvP) take on the traditional ve(3,3) anti-dilution (rebase) model which is designed to both protect xSHADOW holders from dilution and to incentivize them to maintain their positions and participate in the continued success of Shadow.

100% of xSHADOW tokens that are forfeited prior to full vesting or by instant exiting xSHADOW is streamed to xSHADOW stakers and can be claimed in proportion to their positions after epoch flip, serving as dilution protection (rebase) and an additional incentive.

This rebase mechanism not only discourages premature exits but also ensures that the remaining participants are rewarded for loyalty and active participation.

Why?

As mentioned in the Origins of ve(3,3), ve(3,3) vastly improved user alignment. xSHADOW builds on this by improving incentive access, and moving the power balance back towards users. Instead:

• Stakers who remain in xSHADOW longer earn more fees, vote incentives, user and emission exits.
  • Users can exit their position at any time, ensuring rewards flow to those who value it the most.

Exit penalties create a "survival of the fittest" where less committed capital exits and active stakers earn increased rewards, attracting more users. Any size can exit, unlike liquid wrappers (limited liquidity) or veNFTs that are large to sell (pseudo-liquid).