Velodrome Finance Review: Protocol Benefits From ve(3,3) Mechanism
Notwithstanding current challenges, the DeFi industry is likely to expand in the next years, providing considerable prospects for Velodrome Finance.
The integration of Velodrome Finance with the Velodrome virtual world platform offers the platform with a potentially huge and engaged user base, and optimistic utilization provides users with the advantage of rapid transactions and cheap costs. It has the potential to become the dominant project in the Layer 2 DeFi sector by exploiting its unique features and establishing a strong community.
Velodrome Finance, which was revived and upgraded from Solidly, has grown to become the main AMM on layer 2 Optimism. Let us learn about the working mechanism and characteristics of the Velodrome, as well as ve(3,3) model and full information on the VELO token through this Velodrome Finance Review article.
What is Velodrome Finance?
Velodrome Finance serves as the liquidity foundation for the Optimism whole ecosystem. It was launched in June 2022 with the goal of adequately incentivizing liquidity for DeFi protocols.
Incidentally, Velodrome is based on the basis laid down by Solidly, a well-known AMM on Fantom, with ve(3,3) mechanism in early 2022. Making significant adjustments to Solidly’s work to guarantee that Velodrome meets its full potential.
The Velodrome Finance development team previously produced veDAO, a project that competed in ve(3,3) wars on Fantom and finished first.
The core offering is a decentralized exchange AMM model and a liquid market on Optimism, a Layer 2 network built on top of the Ethereum blockchain. It is similar to Ethereum’s Uniswap and BNB Smart Chain’s PancakeSwap.
The layer 2 season is a widely awaited development in the blockchain industry, and Optimism intends to play a significant role in this movement. Yet, in order for the benefits of Layer 2 to be fully realized, the market must have sufficient liquidity. As DeFi gets traction, Velodrome Finance has evolved as a protocol to support liquidity and swaps.
Its predecessor, which had some of the most efficient mechanism designs in DeFi, was widely regarded as a colossal failure. Solidly reached an ATH of $2.3 billion TVL six weeks after starting on Fantom before emissions dried up and liquidity vanished from the ecosystem. Now, the Velodrome Finance Review article will learn more about the project’s special features.
Special features of Velodrome Finance
Velodrome Finance is a novel ve(3,3) mechanism that combines two DeFi models from Curve Finance (veCRV) and Olympus DAO. The Vote-Escrow Token model incentivizes long-term holders, whilst the Staking/Rebasing/Bonding model or game theory (3,3) creates user appeal and increases project sustainability.
Each Pool on Velodrome will have a separate veVELO reward rate, which veVELO holders’ voting will determine. Holders will fight to choose the most profitable Pool for themselves and acquire more veVELOs since transaction fees are 100% transferred to the veVELOs that have chosen that pool. This generates a push to encourage customers to offer liquidity, which increases liquidity and reduces slippage for traders when trading.
Incorporating the bribes mechanism to generate support for the Pools is a new Velodrome innovation. The Velodrome team devised this method to help initiatives or people that wish to gain consumers’ attention.
They utilize their own coins to reward veVELO holders who contribute to their Pool, boosting the payouts and assisting the Pool in attracting new veVELO holders. This includes valuing the Pool from the perspective of the veVELO holding community.
What Problems Does It Solve?
A DeFi protocol requires some type of liquidity to function properly. Yet, getting liquidity and offering incentives to liquidity providers (LPs) can be difficult to manage at times. As a result, a protocol such as Velodrome Finance is required. The graphic below depicts how this protocol works:
The protocol provides an appealing alternative to Solidly. This protocol architecture goes beyond liquidity by balancing protocol emissions with fees. It does this through the employment of a single voting method. Yet, the voting procedure is not without flaws. This is because significant stakeholders and procedures can use their voting power to prevent fees from being collected from the pools in which they invest.
Velodrome has addressed one of Solidly’s key shortcomings. Velodrome Finance works to guarantee that voting is performed honestly and that LPs are adequately paid for temporary losses.
Many issues arise when it comes to generating and incentivizing liquidity in the DeFi industry. Among these issues are:
- The high cost of Pool 2 emissions: Typically, this type of liquidity incentivization encourages “farm and dump” investments.
- Bribing votes is a huge concern because old LPs are already ahead of new LPs.
- Protocol Owned Liquidity (POL) might be difficult to get at times.
The challenges highlighted above are some of the most pressing concerns about liquidity incentivization on DeFi systems. Velodrome makes various changes to the Solidly ecosystem to solve the concerns described above:
- Tying Rewards to Emission: On Solidly, prizes may be accessed before emissions. Velodrome addresses this by tying incentives to emissions. This implies that bribes placed in one epoch will be available to all voters in that epoch, regardless of when the bribe was sent. This, in turn, will contribute to the much-needed balance between voters and external bribers.
- White-Glove Assistance: After the launch, Velodrome will give much-needed assistance to its partners and stakeholders. Velodrome Finance allocates 3% of permanent emissions to its team multi-sig.
Liquidity Pools on Velodrome Finance
Following in the footsteps of Solidly, Velodrome will have multiple Pool tokens, each of which can represent the liquidity of a specific project token, so projects will try to encourage veVELO holders to vote for their pool, which increases the pool’s rewards and thus attracts more liquidity providers.
Velodrome has two primary liquidity pools (LPs) available:
Stable Pools: These pools are often built for coins with very low volatility.
Variable pools: They are designed specifically for token assets with a high price volatility index.
When numerous individuals contribute liquidity, the pool has greater liquidity and traders have less slippage while trading, generating a positive feedback loop for the project, the trader, the veVELO holder, and the Velodrome.
There are two key tokens that will orbit around Velodrome:
- When holders opt to lock VELO, it works as a native token
- veVELO: voting-escrow token. This token has the authority to choose the pool and manage the protocol.
- Token Name: Velodrome Finance Price
- Ticker: VELO
- Blockchain: Optimism
- Token Contract: 0x3c8b650257cfb5f272f799f5e2b4e65093a11a05
- Token Type: Utility
- Initial Supply: 400,000,000 VELO
- Total Supply: 400,000,000 VELO
- Circulating Supply: 141,000,000 VELO
- VELO: utilized to reward Liquidity Providers for providing liquidity.
- veVELO: utilized in Velodrome to administer and vote on rewards for liquidity pools.
Moreover, veVELO holders earn transaction fees, bribes, and rebase (extra-inflation tokens).
The Velodrome will also be launched, along with an initial distribution of 400 million VELO tokens. The tokens will be distributed to members of the community, protocols, and DAOs who are expected to be active participants in the Optimist ecosystem. New participants, however, might enter and obtain voting shares through emissions and token acquisition.
Active Velodrome users will receive 60% of the 240 million VELO tokens. Moreover, 27% of VELO tokens, or about 108 million VELO, will be distributed to WEVE token holders. Users of the OP token network will also receive 18% of the allotment, which amounts to around 72 million VELO tokens.
The platform also set aside 6% of veVELO tokens as Grants for post-launch partner protocols. The team will also get a total allocation of 40 million dollars, with 10% of that amount allocated in VELO and veVELO tokens. In addition, 25% of the initial team allocations will vest. It will also aid in the voting of VELO couples.
VELO tokens are distributed proportionally as follows:
- Community: 60%
- Partner Protocol/DAOs: 24%
- Velodrome Team: 10%
- Optimism Team: 5%
- Genesis Liquidity Pool: 1%
60% of the VELO provided through the community will be unlocked, while 24% of the VELO distributed to partners will be locked as veVELO. The remaining 10% of tokens for the team will be distributed as follows:
- 15,520,816 VELO will be distributed over a 12-month period, with 6 months of veVELO locking and 6 months of linear distribution.
- 7,200,000 VELO were dispersed over a 24-month period, with 12 months locked under veVELO and 12 months of linear distribution.
- 3% of future VELO inflation will be dispersed across six months, with three months frozen under veVELO and three months of linear distribution.
The project is scheduled to update various new features in 2023, such as:
- The feature of automatic interest accrual
- Uniswap V3-based centralized liquidity feature
- Metapool: a form of liquidity pool for a large number of currency pairings.
- Trading veNFT: entails purchasing and selling veNFT, a sort of NFT utilized in the Velodrome system.
- veNFT Lending & Borrowing
Velodrome was established by an amazing development team from veDAO, a non-profit organization operating in the field of dApp development and blockchain technology. These team members have gained essential expertise and knowledge via the development and implementation of several DeFi projects on various blockchain platforms.
While Velodrome is still in its early stages, it is based on the Solidly codebase. From its introduction on the Fantom Network, the codebase has been largely safe, with no records of any security problems.
While security audits are not a failsafe guarantee of security, they are a reasonable indicator for assessing the security of a smart contract.
On January 30, 2022, Solid had a partial security examination (just the AMM portion was sent for audit). PeckShield conducted the audit, which revealed 5 low-severity and 1 informal finding.
As part of the Code4rena bug bouncy challenge, Velodrome Finance also underwent a security audit and peer evaluation. Eventually, a thorough MythX deep scan on Velodrome contracts revealed just a few false-positive, low-severity errors.
Furthermore, the team behind the Velodrome launch is an active member of the DeFi ecosystem. veDAO became active prior to the Velodrome debut. The Velodrome team also created veDAO, which was meant to interact with the Solidly platform.
Conclusion of Velodrome Finance Review
The Velodrome project is a prominent decentralized exchange built on top of Optimist, which has had great success in giving its customers a better trading experience and reduced expenses.
Solidly’s (3,3) mechanism is used by Velodrome. Although the supply of VELO continues to grow, practically all of the newly supplied VELO has been utilized for locking in the previous half year, and the quantity of VELOs in circulation is basically the same as in Epoch1, demonstrating the influence of this process.
Velodrome has swiftly caught the interest and confidence of the community with its distinctive architecture and features, as well as the backing of the Optimism development team and participating projects on this platform, and is regarded as one of the most promising projects on Optimism today. Hopefully, Velodrome Finance Review article has helped you gain more useful information about the project.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.