How to Earn 16% APY with WETH/rETH LP on Velodrome on Optimism

Velodrome

Before we get started, this is not a recommendation or endorsement to buy any token mentioned. DeFi Dad disclosed he currently holds VELO. Holding VELO is not necessary to act as a Velodrome LP.

Previously, we have covered a newer automated market-maker (AMM) and liquidity marketplace called Velodrome. Velodrome launched in June 2022 on the Ethereum L2 Optimism during the market contagion that followed the collapse of Terra and UST. Building off the foundational work of the short-lived Solidly protocol by Andre Cronje, 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 function 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 reminder 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 LPs in these pools earn the VELO weekly emissions, based on how much liquidity they have in a pool, instead of the trading fees.
  • 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 USDC-DAI or ETH-stETH) which offer a low-slippage AMM trading experience similar to

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