Velodrome V2: Just Getting Started

Record breaking fees is just the start for the Velodrome V2 era.

TLDR

• Velodrome has launched V2, designed to solidify its position as the most capital-efficient liquidity hub in DeFi and setting the groundwork for concentrated liquidity pools (clAMM) and automated voting management (Relay).
• Velodrome V2 is already setting new records, generating more weekly fees in its third epoch than ever before and at nearly 6x the pace of V1.
• Velodrome’s implementation of clAMM will improve trading execution and reduce slippage, unlocking benefits such as increased fee rewards for veVELO voters, low-cost liquidity for partner protocols, and greater diversity of pools for LPs.
• Velodrome’s governance system gives veVELO voters control of emissions. Relay will further improve voter’s user experience and system effciency through automated voting, strengthening the governance foundations.
• Velodrome is committed to enhancing the Optimism ecosystem and Superchain vision by building the leading high-efficiency, user-centric platform on L2 Ethereum.

Introduction

The launch of V2 has officially kickstarted a period of accelerated development for Velodrome. As a full-stack protocol redesign, V2 established the groundwork for powerful features such as customizable fees, concentrated liquidity pools (clAMM), and automated voting management (Relay). These enhancements will solidify Velodrome’s position as the most capital-efficient liquidity hub in DeFi, supporting a growing number of tokens and protocols while driving the expansion of the Optimism Superchain. Already, we can see the V2 effect through significantly higher rewards for veVELO voters and a seamless user experience on the Nightride UI.

Supercharging Digital Goods

While skepticism may linger due to recent challenges faced by the crypto industry, the potential of digital goods and decentralized applications remains immense. The DeFi landscape continues to evolve with a growing ecosystem of services, low-cost rapid transactions on Layer 2s, and increasingly intuitive user interfaces. As the online economy expands, the use cases for cryptocurrencies and decentralized, transparent financial services will multiply.

Velodrome is designed to simplify the process of attracting liquidity for the growing diversity of digital goods, offering a user-friendly interface and flexible incentive mechanisms that empower teams to maintain control of their incentives. As a quick refresh, Velodrome distributes VELO emissions to liquidity pools based on the veVELO votes they receive each epoch. Projects can attract votes for their pools by depositing incentives in any token. Partner protocols get exposure to the growing Velodrome community, and their token-holders can find stable, user-friendly opportunities to provide liquidity.

V2 kicked off emissions at ~1.5% of the total supply. This represents a 20% boost over 4 years as compared to V1, designed to power a new wave of growth ahead of the release of clAMM and expansion into the Superchain. You can read the technical details of the V2 emission architecture here.

Protocols that incentivize votes on V2 earn 3x the reward of their incentives through VELO emissions.

This scalability has allowed Velodrome to serve a growing list of projects. Liquid staking protocols, stablecoins, lending, yield aggregators, gaming, and even other DEXes are leveraging the flywheel to build liquidity for over 120 different trading pairs, which accumulate rewards for veVELO voters.

Scaling through Capital Efficiency

The implementation of concentrated liquidity pools (clAMM) will represent another major leap for Velodrome’s economic engine. By focusing the distribution of VELO emissions to LP positions exclusively in a pair’s active price range, clAMM will significantly improve trading execution, allowing Velodrome to capture more volume for the same TVL and effectively give protocols a powerful precision tool to direct liquidity. All sides of the flywheel will benefit from this improved capital efficiency.

Partner Protocols

• Enhanced liquidity & reduced slippage: Velodrome’s outsized emissions will be directed to a tighter price range, incentivizing Liquidity Providers (LPs) to maintain active positions, which supports trading execution. This will allow protocols to offer low slippage trades with less and create room for more pools to be incentivized.
• Self-sustaining pools: Lower slippage will attract more volume and fees. Fee-generating pools can become self-sustainable, reducing the need for partner protocols to provide extra incentives. This not only improves the efficiency of the pool but also reduces the cost for partner protocols, enhancing the overall sustainability of their operations.

Liquidity Providers

• Continuous rewards: A time-based farming approach will allow for steadier rewards for LPs. Unlike in other clAMM implementations, where LPs depend on market conditions to drive fee generation, Velodrome will allow LPs to continuously capture emissions for providing in-range liquidity.
• Flexible reward accrual: During volatile market conditions, LPs have the option to unstake their position and accumulate the trading fees captured by their liquidity. This approach ensures pools remain liquid in volatile times and compensates LPs for the higher risk. Fees accumulate with every trade, allowing LPs to maximize short-term results. A new baseline of higher activity will reward both veVELO voters and LP’s appropriately.

veVELO voters

• Increased fee rewards: clAMM pools will drive a substantial boost in the volume through improved trading execution. In combination with dynamic fees, adjustable to reflect market conditions, clAMM will drive significantly increased rewards to veVELO voters, incentivizing them to vote for the most productive pools.
• Growing rewards streams: the increased utility for protocols will help attract more projects, bringing higher incentives for voters. More projects using Velodrome will increase the diversity of voter rewards and boost the appeal of locking veVELO.

Cementing the Foundations

Velodrome’s veVELO governance system is perhaps the most innovative and comprehensive in DeFi. With over 14K participants, veVELO voters control 100% of the protocol’s emissions and receive 100% of the protocol’s fees and voting incentives, establishing perfectly aligned incentives.

With V2, Velodrome will strengthen the governance process by improving the user experience through Relay and giving veVELO voters greater control of the protocol’s mechanics. Relay, an automated veVELO manager, will allow veVELO voters to delegate their NFTs for optimal voting. Users will have the option to automatically distribute votes or to maintain active votes in specific pools while compounding rewards.

Velodrome is also committed to contributing actively to Optimism’s governance and to building alongside the Optimism Foundation. In the current grant season, Velodrome offered to develop govNFTs, a new token standard that will allow easy management of vested OP tokens. Future programs could leverage govNFTs to distribute vested OP grants, ensuring that recipients maintain aligned incentives with the overall ecosystem. And, like veVELO, govNFTs could eventually enable new governance features, such as increased votepower for OP lockers.

Letting it Ride

Velodrome V2 is yet another example of the protocols resiliency and long-term dedication to build a high-efficiency, user-centric platform that attracts projects to L2 Ethereum and serves as the ultimate marketplace for liquidity on the Superchain.

We appreciate the patience and collaboration of the community through the V2 migration and look forward to seeing the impact of Velodrome’s exciting roadmap ahead.