On Velodrome

Introduction

veDAO launched with the purpose of giving ordinary people an opportunity to own and control a portion of Solidly.

In the course of this work, the veDAO team developed deep subject matter expertise on both Solidly and ve(3,3), learning what is and isn’t working for Solidly and its broader ecosystem — expertise that we’ll apply to evolve Solidly and bring its next-generation capabilities to Optimism.

We’ll continue to roll out details in the coming weeks, but if you’re looking to catch up, check out…

  • On Optimism” — veDAO + Optimism Partnership Announcement
  • On Solidly” — Overview of Solidly’s Strengths and Opportunities

In today’s post, we want to give you all a better idea of how we’re thinking about the new protocol we’re building and its underlying mechanics. While these details are still subject to change, we wanted to share our working thinking so that we could continue the conversation with our community as we finalize the design of the new protocol.

Introducing, Velodrome

Protocol Design

Velodrome is an AMM modeled on Solidly and designed to be a public good that provides deep liquidity and low slippage to token pairs critical for the growth of the Optimism ecosystem. Powered by the VELO token and veNFTs, Velodrome’s model incentivizes liquidity by giving token lockers the ability to direct the protocol’s emissions to their chosen pairs. In return, lockers receive 100% of the trading fees generated by the pairs they vote for, any bribes directed toward these pairs, and an anti-dilutive rebase. Fees and bribes as incentives will naturally pull voting towards the most beneficial pairs for the ecosystem.

Initial Distribution

Distribution of the VELO token will kick off with an airdrop for users and protocols most likely to contribute to Velodrome’s mission to become the liquidity base layer of the Optimism ecosystem. The airdrop will be meaningful but will also leave enough room for new players joining the VELO races to capture voting share through emissions or token acquisition. It will also ensure that Velodrome as a protocol is able to successfully bootstrap and retain a team to ensure its longterm success.

  • Offer sustained incentives for players to maintain their voting power
  • Generate natural demand for voting power from key protocols
  • Enable bribes as a capital effective strategy for incentivizing liquidity
  • Distribute more unlocked circulating supply for token velocity and the ability for new entrants to accrue voting power over time
  • Foster decentralization with less than 50% of supply initially owned by protocols
  • Attract experienced and engaged DeFi users in early distribution
  • Ensure Velodrome can attract and retain a focused team to maintain the protocol

These are the initial distribution mechanisms as we currently see them, but could change based on partner/community input and market conditions .

Overview of Distribution

  • 65% to Community as VELO
  • 25% to Protocols/DAOs as locked veNFTs
  • 5% to Optimism Team as locked veNFTs
  • 5% to Velodrome Team as VELO

Community (65%)

An airdrop of VELO tokens for the people who have played the biggest role in incubating Velodrome and those most likely to contribute to its long term success including:

  • WeVE holders (30%)
  • Optimism users (25%)
  • DeFi users (25%)
  • Liquidity providers (20%)

Protocols/DAOs (25%)

Airdropped as locked veNFTs aimed at attracting and engaging the protocols most likely to contribute to Velodrome and Optimism’s long term success. We will consider a variety of metrics in assessing the recipients including TVL, transaction volume, unique wallets, and OP Team input.

  • Top OP protocols/DAOs (60%)
  • Partner protocols (20%)
  • Key ETH Protocols (20%)

Optimism Team (5%)

The Optimism Team has a vested interest in ensuring that Velodrome achieves its mission of serving as an ecosystem public good. The team will receive 5% of the initial distribution, airdropped as a locked veNFT, to support that interest.

Velodrome Team (5%)

The Velodrome Team must be incentivized to bootstrap and support the long-term health of the protocol and ecosystem. Its 5% initial distribution will be used to that end.

Ongoing Emissions

A healthy interplay between initial distribution and protocol emissions will be key to attract and sustain liquidity. Velodrome’s weekly token emissions will start off at 15 million VELO — about 3.5% of the initial supply — and decay at 1% per week, maintaining a fast but sustainable pace.

These incentives will be split between liquidity providers (LPs) and veNFT holders. veNFT holders receive the (veSupply / Total_Supply)² share of incentives in the form of a locked rebase and LPs take the rest.

For example if 50% of the supply is locked in week 1, veNFTs will get 50%² = 25% of the 15 million tokens, or 3.75 million VELO as a rebase. LPs receive the rest. The higher the share of locked tokens, the lower the dilution for lockers. This mechanism creates a strong incentive to vote-lock but leaves plenty of room to reward LPs.

  • Solidify the product layer and give time for liquidity routing to build (tail emissions > 4 years)
  • Incentivize lockers, though not so much that majority of the supply becomes locked (retain token velocity & liquidity)
  • Ensure Velodrome team has a revenue stream to support ongoing protocol operations
  • Ensure the VELO-ETH base pair receives ongoing emissions to ensure liquidity
  • 400 million VELO initial distribution (detailed above)
  • Weekly token rewards (rebase + emissions) begin at 15M tokens (3.5% of the initial supply) and will decay by 1% per week.
  • Rebase amounts to lockers will reduce over time by squaring the ve/Total_Supply ratio. Rebase amount = Weekly Token Distribution * (veSupply / Total_Supply)²
  • Velodrome Team / DAO will receive 2.5% of weekly distributions
  • VELO-ETH pair will receive 2% of weekly distributions
  • Supply in line with ecosystem growth; example below assumes 60% lock rate of floating supply

Whitelisting Mechanics

Checks and balances for token whitelisting are critical to ensuring that that the protocol cannot be exploited by actors attempting to game emissions. Velodrome will adopt low-friction gauge votes for the addition of new tokens and a Curve-esque “Emergency DAO” that can act in any edge cases.

Objectives

  • Voting is directed to useful pairs that can attract high volume and add value to the Optimism ecosystem
  • Clear path for protocols to create new pairs to support their projects
  • Meaningful cost for bad actors pursuing unproductive/dummy pairs

Details

  • Require 0.1% of vlVELO supply to create gauge to WL tokens
  • vlVELO voters can then vote via gauges to approve or reject a token, with the default being a pass if quorum is not met
  • In extreme cases, the Emergency DAO can blacklist tokens that run counter to ecosystem interests

Bribing Mechanics

Because fees go to voters rather than to LPs, incentivizing proper voting behavior over emissions requires an appropriate fee level and native bribing mechanisms. Velodrome will introduce balanced fees and improved voting and farming mechanisms.

  • External bribes and fees provide enough value to overcome emissions rent seeking
  • It is profitable for new protocols to bribe for emissions while building a voting position for themselves
  • Bribing process is structured and staged, allowing individuals and protocols to plan/react
  • Retail investors have a turn-key mechanism for passive bribe farming and optimization
  • Set trading fees at 0.022% to better incentivize voters without compromising protocol value
  • Bribes function in a manner similar to Votium; i.e., the voting epoch is split into two phases: bribe accumulation then voting period, airdrop on epoch turn.
  • Introduce automated delegated vote optimizers similar to Votium, Union

User Experience

A great DeFi protocol is about more than just the underlying mechanics. It is about how those mechanics come to life through the UI, UX, and documentation. Our goal with Velodrome is to ensure that not only does the protocol deliver the functionality it promises, but provides an experience that makes it easy to use and navigate.

  • Ensure that table stakes UI features of DEXs are present and functional
  • Make real-time protocol analytics easily accessible to users and partners
  • Provide UI/UX queues sufficient to protect users against the inadvertent loss of funds
  • Clearly document product functionality and mechanics to create an equal playing field for participants
  • Create marketing and communication assets to communicate the protocol’s purpose and function
  • Revamp the overarching design language for a more robust experience
  • Include swapping UX that properly warns when routing through illiquid pools
  • Integrated display of crucial details such as APRs
  • Front end for bribing and pool incentives
  • Analytics page that provides accurate real-time data
  • Detailed documentation and operation on protocol operation
  • Assets such a explainers, infographics, and videos that make the protocol intelligible

Dedicated Team

While a fully autonomous and immutable protocol is an admirable objective, it comes at a cost. Velodrome will ensure its long-term sustainability by employing a dedicated team focused on supporting the product, documentation, community, and ecosystem. As the protocol evolves, team can consider introducing more immutability or DAO components as appropriate.

  • Ability to govern key protocol parameters to drive optimal voting and emissions behavior
  • Clear communication and documentation outlining protocol function and behavior
  • Active and healthy community to support users and partners of the protocol
  • Key parameters such as quantity and direction of fees possible to be updated by the team
  • A roadmap of new product features and bug fixes the team will support
  • Key functions such as marketing, product support, and community management built in
  • Enough voting power from initial distribution to ensure that protocol pairs (such as VELO-ETH) retain liquidity

What’s next?

The veDAO Team is working closely with their Optimism partners to finalize these details and development is already underway. In the coming weeks, the team will continue to share details about the future of Velodrome and veDAO, including more details on the benefits to WeVE holders.

We’d love your thoughts and feedback on the direction we’re heading, especially as we work towards a series of VIPs for the community’s consideration. Please join the conversation on Discord and on Friday’s Twitter Spaces AMA!

--

--

--

https://www.vedao.io/#/

Love podcasts or audiobooks? Learn on the go with our new app.

Cryptoxbets: Play and Win money in Seconds

Crypto fatigue — it’s real, and it‘ll hurt more than just your pocket…

ORIGINEX PLATFORM ;Seed token sale and private sale.

Grand Open of C-one Island

🍿 POPKON is delighted to announce our latest partnership with EFUN 📣

Crypto Deal Flow: December 6–9

Crypto Deal Flow: December 6–9

AMA Recap of Crypto Eagles with America NFT

BSR locked by Trustswap. Funds are SAFU!

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
veDAO Alt

veDAO Alt

https://www.vedao.io/#/

More from Medium

Introducing Berachain

Citadel Initial Sale Parameters

On Solidly

$FRG Masterplan