The past year has seen the total value locked (TVL) of the DeFi ecosystem boom tremendously, thanks, in large part, to the immense innovation permeating this sector. Amid this growth, Velodrome, a next-generation automated market maker (AMM), has made a name for itself, securing over $190 million in TVL and $ 8.4 billion in cumulative trading volume.
Moreover, since the project’s inception, Velodrome has amassed a massive number of followers, currently boasting 97k monthly active users, as well as an annualized trading-fee pool of $48+ million.
In this article, we will examine the intricacies of what makes Velodrome an attractive option for investors, examining its foundational elements, functionalities, and core benefits. So, without further delay, let’s get into the meat and bones of things.
Velodrome is a next-generation automated market maker (AMM) designed to serve as the central liquidity hub on the Optimism blockchain. It combines the best features of popular AMMs like Curve, Convex, and Uniswap into a single platform. At its core, Velodrome enables low-slippage token trading by incentivizing liquidity provision through token emissions.However, before proceeding any further, it would be best to briefly describe what an AMM in.
That said, the Velodrome protocol has two key tokens – VELO, an ERC-20 utility token, and veVELO, an ERC-721 non-fungible token (NFT) used for governance voting. Liquidity providers deposit trading pairs into Velodrome liquidity pools and have the option to earn a share of VELO emissions proportional to the amount of liquidity they provide. VELO token holders can then lock their VELO into veVELO NFTs, with longer lock times granting higher voting power. These veVELO voters determine how VELO emissions are distributed across the different liquidity pools.
In addition to earning a share of emissions, veVELO voters also capture 100% of the trading fees generated by the pools they vote for as well as any additional incentives offered by protocols. This creates an incentive flywheel wherein the more votes a pool receives from veVELO holders, the more VELO emissions it attracts — which in turn incentivizes more liquidity provision. Protocols can jumpstart this flywheel by offering initial incentives to veVELO voters to direct emissions to their pools.
Velodrome stands out from other AMMs for its ability to combine several innovative features into a unified protocol.
Velodrome places a strong emphasis on security and working with reputable partners to ensure the safety of user funds. In this regard, the protocol has undergone multiple comprehensive smart contract audits by leading blockchain security firms.
For instance, in early 2023, blockchain security firm Spearbit audited Velodrome’s smart contracts. Subsequently, Spearbit completed an audit of Velodrome’s concentrated liquidity Slipstream contracts. To further strengthen security, Velodrome launched a $200,000 bug bounty program on June 29th, 2023, in collaboration with Immunefi and the Optimism Foundation. This initiative was designed to incentivize researchers to identify and report any vulnerabilities in the protocol’s codebase.
Velodrome has also actively forged partnerships to drive growth and adoption within the Optimism ecosystem. A notable partnership was announced with Resonate in September 2022, where Velodrome committed 1,000,000 VELO tokens to bootstrap liquidity in the VELO/USDC pool. This enabled Velodrome to incentivize liquidity providers to lock their positions for extended periods.
More recently, in September 2023, Velodrome received a grant of 1.25 million OP tokens from Optimism. This grant aims to expand on Optimism’s vision by increasing governance participation using novel govNFT technology and enabling ecosystem growth through initiatives like the Tour de OP voting incentive program.
In terms of the people working behind the scenes, Alex Cutler is a co-founder. Prior to getting involved with the DeFi economy, Alex worked in politics, technology, and consulting. Tao Watts is another co-founder. He has been involved with this space for several years.
With the crypto ecosystem continuing to expand and grow at a monumental rate, platforms like Velodrome seem ready to help revamp the global economy. Most recently, Rivo — a DeFi Yield Marketplace with Smart Contract Wallet functionality — integrated three of Velodrome vaults. These include:
Thus, looking ahead, it will be interesting to see how this space continues to evolve and grow!
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