Velodrome Finance
Velodrome Finance is an AMM (Automated Market Maker) designed as the central trading and liquidity marketplace on the Optimism Network. [1][2]
Overview
Velodrome first launched on the 2nd of June, 2022, and Velodrome V2, a full protocol redesign, launched on the 22nd of June, 2023 to include features such as decentralization, concentrated liquidity support, dynamic fees, dynamic emissions rate, Velodrome Relay, and enhanced performance and user experience with the dApp. [8]
Velodrome Finance is a decentralized derivatives trading platform that allows users to create, trade, and settle derivatives contracts transparently. The protocol is designed to enable token swaps and fee generation (from Traders) by attracting liquidity. [5][7]
On September 1, 2023, Velodrome announced that it had received 1.25 million OP to support the Optimism ecosystem by Expanding the Optimistic Vision, Increasing Governance Participation, and Enabling Ecosystem Growth. [9]
On the 29th of November, 2023, the domains velodrome.finance and aerodrome.finance went through a DNS attack, resulting in an estimated loss/damage of [up to] $250,000 to individuals who interacted with the attacker’s websites. The Velodrome team released an incident report representing a provisional understanding of the attack. [10]
The attacker used a social engineering attack on the domain registrar to gain ownership control of the account that holds domain names, overriding 2FA and other security mechanisms. As a result, the attacker was able to change the nameservers of the domains and route the legitimate domain traffic to malicious clones of the Velodrome/Aerodrome websites which prompted users to connect their wallets and to sign transactions that approved asset transfers to wallets on multiple chains. [10]
On February 8, 2024, Velodrome introduced itself as a MetaDEX. A single unified protocol that brings together primitives in DeFi (including AMMs, Liquid Locks, Auto-voting, and Rewards) into a single streamlined experience. [11][12]
"Velodrome also serves as the secondary economic engine of the Optimism ecosystem, having contributed over $80M in rewards to projects and users of Optimsm. These rewards serve as economic stimulus for the broader ecosystem, accelerating its growth and increasing its resiliency." - the blog post stated[11]
Tokenomics
Velodrome Finance uses two tokens to manage its utility and governance:
- $VELO — an ERC-20 utility token of the protocol
- $veVELO — an ERC-721 governance token in the form of an NFT (non-fungible token). [3][4]
$VELO is distributed to liquidity providers through emissions while $veVELO is used for governance. Any $VELO holder can vote-escrow ('ve') their tokens and receive a $veVELO (also known as Lock or veNFT) in exchange. Additional tokens can be added to the $veVELO NFT at any time. [6]
Initial Distribution
The initial distribution of $VELO and $veVELO was done for users and protocols that are the most likely to contribute to the protocol mission to become the liquidity base layer of the Optimism ecosystem. [6]
The initial supply of $VELO is 400M. 240M (60%) $VELO tokens were distributed to the Community, 72M (18%) $veVELO is allocated to attracting and engaging Protocols most likely to contribute to Velodrome and Optimism's long-term success, 24M (6%) $veVELO is reserved to distribute to Partner Protocols after the launch, 40M (10%) to the Foundation, 20M (5%) to Optimism, and finally, 4M (1%) to Genesis Liquidity Pools. [6]
Velodrome Relay
On October 5, 2023, Velodrome introduced Relay — a way for protocols to maximize their liquidity strategies. Velodrome Relay was created to transform the protocol and user experience by automating the process of managing veNFTs. [13]
With Relay, protocols are able to develop personalized voting strategies, select how rewards should be managed, and let the Relay vaults do the work for them. Velodrome Relay was created with 2 primary audiences in mind; Protocols seeking liquidity, and Users seeking rewards. [13]
