Aerodrome: The Liquidity Hub of Base

Velodrome has undergone key improvements since our previous report released in August of 2023, including plans to expand to more chains. Velodrome determined Base to be significant enough to the success of Velodrome that it required a unique fork: Aerodrome. Base has experienced rapid growth over its first year, and Aerodrome has grown with it, boasting the most TVL on Base at over $495M, which is more than double Uniswap’s Base deployment.  Considering the odds of Base launching a token are near zero in the current regulatory environment, AERO will continue to be the best way to gain onchain exposure to the Base ecosystem for the foreseeable future.

Velodrome/Aerodrome Overview

As discussed in our previous report, Velodrome is a "MetaDEX", combining the best elements from various decentralized exchange (DEX) primitives such as Curve, Convex, Uniswap V2, Uniswap V3, and Votium into a single model. This allows Velodrome to provide a solution that can satisfy the divergent needs of traders, liquidity providers, and projects seeking to seed liquidity for their token. This design eliminates the complexity and inefficiencies associated with using multiple platforms, making it an obvious choice for each class of end user. Aerodrome is a unique fork of Velodrome on Base that inherits the same functionality.

Velodrome builds on the vote-escrow system pioneered by Curve and Convex to drive sustainable liquidity for token pools. This is done by enabling VELO holders to lock their tokens as veVELO, in turn giving them governance power to direct protocol emissions to pools of their choice, as well as capture the fees associated with said pools. This creates a strong flywheel effect in which the most in-demand pools will attract the most liquidity because rational liquidity providers will gain the most rewards by directing fees to the highest volume pools. End users benefit from low spreads on these in-demand pools.

Velodrome is novel in that 100% of fees and protocol incentives ("bribes") are returned to veVELO voters. The team only earns rewards to the extent that they participate in the protocol through veVELO votes. The Aerodrome team auto max-locked their initial distribution of 14%. This further aligns incentives between token holders and the team.

New Developments

New developments include Relay, Slipstream, and the Velodrome Superchain, which includes Velodrome’s expansion to Base via Aerodrome.