VELO Token Overview of Velodrome.Finance

Velodrome.Finance is a decentralized exchange (DEX) built on the Optimism Layer 2 network for Ethereum. It aims to provide efficient and low-cost trading while incentivizing liquidity providers and participants through its unique tokenomics model.

Tokens Issued by Velodrome

1. VELO Token

   • Purpose: VELO is the native utility and governance token of Velodrome Finance.
   • Functions:
     • Liquidity Mining Rewards: Users providing liquidity to Velodrome pools earn VELO tokens as rewards.
     • Staking: VELO tokens can be staked to earn additional rewards.
     • Governance Participation: VELO holders can participate in governance decisions when converted to veVELO.

2. veVELO (Vote-Escrowed VELO)

   • Purpose: veVELO represents locked VELO tokens and grants voting power within the Velodrome ecosystem.
   • How to Obtain:
     • Users lock their VELO tokens for a specific duration (ranging from a week up to four years).
     • The amount of veVELO received is proportional to the amount of VELO locked and the duration of the lock.
   • Functions:
     • Governance Voting: veVELO holders can vote on protocol proposals and changes.
     • Gauge Voting: Influence the allocation of VELO emissions to different liquidity pools.
     • Fee Earnings: Receive a portion of the trading fees generated by the platform.
   • Characteristics:
     • Non-Transferable: veVELO cannot be transferred or traded; it is tied to the wallet that locked the VELO.
     • Decay Over Time: The voting power decreases as the lock period approaches its end unless re-locked.

Full Tokenomics of Velodrome Finance

1. Token Supply and Distribution

   • Initial Supply: A predefined amount of VELO tokens were minted at launch.
   • Emissions Schedule:
     • VELO tokens are emitted over time to incentivize liquidity providers and participants.
     • The emission rate may decrease over time to control inflation.
   • Allocations:
     • Liquidity Mining: A significant portion is allocated to reward liquidity providers.
     • Team and Development: A portion is reserved for the team, subject to vesting schedules.
     • Treasury: Used for partnerships, marketing, and future development.
     • Investors: Early backers may receive allocations, also subject to vesting.

2. Liquidity Provision and Incentives

   • Liquidity Pools:
     • Users provide liquidity to various token pairs on Velodrome.
     • In return, they receive LP (Liquidity Provider) tokens representing their share.
   • Rewards:
     • LPs earn trading fees from the swaps occurring in their pools.
     • Additional VELO token rewards are distributed based on gauge weights determined by veVELO holders.

3. Locking Mechanism (VELO to veVELO)

   • Lock Duration:
     • Minimum of one week, up to a maximum of four years.
     • Longer lock periods grant more veVELO per VELO locked.
   • Benefits of Locking:
     • Increased Voting Power: Influence over protocol governance and emission allocations.
     • Fee Sharing: Earn a share of the protocol’s revenue (e.g., trading fees, bribes).
     • Boosted Rewards: Potentially higher yield from liquidity provision due to gauge weight influence.

4. Governance and Voting

   • Protocol Decisions:
     • veVELO holders vote on proposals affecting protocol parameters, upgrades, and policies.
   • Gauge Voting:
     • Determine how VELO emissions are distributed among different liquidity pools.
     • Encourages LPs to lock VELO to veVELO to boost their preferred pools.

5. Fee Distribution

   • Trading Fees:
     • A portion of the fees collected from trades is redirected to veVELO holders.
   • Bribes:
     • External projects can offer bribes to veVELO holders to sway gauge votes towards their preferred pools.
     • Bribes are additional incentives paid directly to veVELO holders.

6. Incentive Alignment

   • Long-Term Commitment:
     • The locking mechanism encourages long-term participation and commitment to the protocol.
   • Alignment of Interests:
     • By locking VELO and obtaining veVELO, users are incentivized to act in the protocol’s best interest.

7. Token Burning Mechanisms

   • Deflationary Measures:
     • The protocol may implement token burns, reducing the circulating supply.
     • Burns can be funded through a portion of the fees or other mechanisms.

8. Economic Security

   • Anti-Dilution:
     • veVELO holders are protected against dilution through the design of the emissions and locking model.
   • Sustainable Emissions:
     • The emissions schedule aims to balance incentives with long-term sustainability.

Conclusion

Velodrome Finance’s tokenomics revolve around the VELO token and its vote-escrowed counterpart, veVELO. By locking VELO to obtain veVELO, users gain governance rights, fee-sharing benefits, and the ability to influence the distribution of incentives within the platform. This model fosters active participation, aligns user interests with the protocol’s success, and aims to create a sustainable and engaged ecosystem.

Key Takeaways

• Tokens Issued: VELO and veVELO.
• Voting Mechanism: veVELO is used for voting and governance.
• Locking VELO: Converts to veVELO, granting voting power and rewards.
• Tokenomics Focus: Incentivizing long-term participation and aligning user interests with the protocol.