Before we get started, this is not a recommendation or endorsement to buy any token mentioned. I am disclosing I hold VELO and hence may have some bias in writing about Velodrome. This should not be the basis for any investment decisions.
Back in early January 2022, the famed DeFi developer and founder of Yearn Finance, Andre Cronje, released details on an upcoming project that would later be called Solidly. It was a mash-up of ideas and concepts pioneered by the Curve veToken incentives as well as the (3,3) Nash equilibrium design popularized by Olympus. In exchange for providing liquidity, users would receive SOLID tokens, which they can lock up for veSOLID tokens. These veSOLID tokens grant holders a claim on Solidly trading fees as well as the opportunity to boost rewards through voting. This is all somewhat similar to how Curve Finance’s CRV token functions when locked up as veCRV, except veCRV holders are voting on CRV emissions to be rewarded to those acting as LPs in Curve pools.
Eventually in February 2022, Solidly would launch with a number of issues, including a bug in the code, as well as a barrage of bad news following revelations at the time that Andre’s partner in building Solidly, Daniele Sesta, had entrusted his DeFi protocol Wonderland with a CFO who was formerly the co-founder of the famed QuadrigaCX crypto exchange, which fraudulently mismanaged and lost approximately $169M Canadian dollars. It was a bumpy ride and would eventually lead to Andre rage-quitting DeFi in mid-March 2022.
Then on May 19th, a team of developers, some of which originally worked on veDAO on Fantom, announced Velodrome as a new automated market-maker (AMM) and liquidity marketplace on the Ethereum L2 Optimism. Building from the foundational work of Solidly, Velodrome aims to provide a solution to bootstrap liquidity by aligning protocol emissions with fees generated, not just liquidity. Velodrome made a number of adjustments and improvements, including a built-in bribe functionality that allows anyone to incentivize voting for their preferred liquidity pool. Bribes are distributed only to voters on the incentivized pool proportionally to the votes cast.
Here’s a breakdown of how the ve(3,3) tokenomics works:
- veVELO holders vote on which liquidity pools receive weekly VELO rewards, and pools earn in proportion to the voting power they accrue each week.
- The Velodrome liquidity providers in those pools earn the VELO weekly emissions, based on how much liquidity they have in a pool.
- Meanwhile, veVELO holders earn the trading fees generated by the pools they vote for in proportion to their voting power, as well as bribes paid to the pools they vote for.
Velodrome has two different types of pools: Volatile Pools for uncorrelated assets (ie ETH-DAI) vs Stable Pools for correlated assets (ie stablecoins or ETH-stETH) which work similarly to Curve pools. The trading fees are 0.02% but could be adjusted in the future.
Since launching 2 months ago, Velodrome makes up about 12% of TVL ($122M vs $1B on Optimism). What’s more impressive is Velodrome’s growth in daily swap volume peaking on July 29th at $41.62M (see Dune dashboard).
Today, I’ll show how I can earn yield in the form of VELO emissions as an LP in a Stable Pool on Velodrome, and subsequently, lock the VELO for veVELO to vote on liquidity…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
