A platform that lets users swap tokens for low fees in exchange for rewards, among other features, has attracted some $150 million just a day after going live – bumping Base blockchain’s DeFi ecosystem by 80% in terms of locked value.
Aerodrome, a product by Velodrome in collaboration with Base developers, hopes to act as a “business development protocol” for the Base ecosystem, supporting projects as they launch, onboarding new projects and tokens, and generating liquidity for the ecosystem.
Its creators hope to emulate the apparent success of Velodrome, one of Optimism network’s most used platforms which holds over $288 million in locked value. Like Velodrome, Aerodrome rewards its AERO tokens to platform users who provide liquidity, conduct swaps, or participate in governance.
AERO tokens have a total supply of 500 million of which 450 million are locked for four years, as per developer documents. The only liquid AERO at launch are the 50 million tokens reserved for voter incentives and providing initial liquidity.
How it works
A key problem faced by decentralized exchanges is that rewards emissions are tied to total liquidity, rather than to trading volume, which generates fees for the protocol. To combat this, products like Aerodrome allow holders of their native token, AERO, to lock their holdings for anywhere between one week to four years – in turn of veAERO, a vested AERO token.
The longer the lock, the more veAERO the user receives, which grants them more voting power on governance matters. This is the same mechanism used on Velodrome.
These locked veAERO are represented as NFTs, which can then be traded on different NFT marketplaces. Other users can then purchase these NFTs to gain outright exposure to the ecosystem, instead of having to buy tokens, locking them up and having to manage that position.
Users can use the veAERO tokens to take part in platform governance, and, importantly, help set the reward levels of trading pools offered on the platform. In return, these voters receive 100% of all fees and bribes received by the specific pools that they voted for.
Such features create a flywheel of liquidity, as users are attracted to rewards, purchase more AERO, and keep the platform running by continually voting on which project’s tokens to support, add, and further reward.
And the approach seems to be working so far. Velodrome, the Optimism project, generated platform revenues of over $3 million in the past month, data shows, of which $1.3 million were paid out as fees to VELO holders and users.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.