Aerodrome is a decentralized exchange built on top of Coinbase’s Layer 2 blockchain platform, Base. It’s the project by Velodrome Finance, the owner of the largest Total Value Locked (TVL) on the Optimism network, on Coinbase. While the Base blockchain stands out for its fast and low-cost transactions, Aerodrome aims to provide a decentralized exchange experience utilizing this infrastructure. Bringing together a powerful liquidity incentive engine, a vote-locking governance model, and a user-friendly interface, this platform aspires to centralize liquidity for Base.
Technical Features of Aerodrome
- Liquidity Incentive Engine: Aerodrome employs a liquidity incentive engine to attract liquidity providers to the platform. This engine rewards liquidity providers with AERO tokens. These rewards can be utilized for participating in platform governance or earning staking rewards.
- Vote-Locking Governance Model: Aerodrome utilizes a vote-locking governance model, which means users need to lock their AERO tokens for a specific period to participate in governance voting. This approach assists in making governance decisions in the best interest of the platform.
- User-Friendly Interface: Aerodrome offers a user-friendly interface that allows users and liquidity providers to easily navigate the platform. This enables even new users to start using the platform with ease.
Aerodrome’s Role in the DeFi Space
Aerodrome is a promising DEX (Decentralized Exchange) set to play a significant role in the decentralized finance sector. At the time of writing, it has positioned itself as a leading protocol on Base with a TVL of $180 million. In the past month, Base surpassed Arbitrum and Optimism in terms of daily trading volume, strengthening its position among Ethereum Layer 2 platforms. With its launch, Aerodrome aims to become the decentralized liquidity source for the Base network.
Aerodrome Tokenomics
The initial total supply of the AERO token project is set at 500 million coins. 90% of this supply, which is 450 million coins, is locked through a mechanism called “veAERO” to encourage long-term participation.
Long-term participation is a cornerstone of the project’s success. Therefore, the AERO project team has adopted a strategy of keeping a significant portion of the total coin supply locked. As part of this strategy, we observe that 450 million coins, constituting the veAERO, are locked to incentivize long-term participation.
The AERO project team plans to distribute 200 million coins, which make up 40% of the total initial supply, to VELO holders. This airdrop aims not only to reward existing veAERO holders but also to reach a wider user base.
Airdrop Terms and Distribution Criteria
To benefit from the airdrop, veVELO holders must meet specific conditions. One of the most important requirements is to possess at least 1000 veVELO tokens. However, certain veVELO balances will be excluded from the distribution upon the launch of Velodrome.
As it stands, holders of 500 million veVELO tokens across 3,500 wallets are eligible for the airdrop. Yet, a 20% portion may be excluded based on specific criteria. The primary reasons for this distinction will be the allocation of veVELO balances reserved for the Velodrome team and initial partners, as well as protocols accepting user deposits.
How veAERO Works
The Aerodrome platform features a specialized incentive system to support collaboration between users and protocols. In this system, protocols lock up veAERO tokens to offer rewards to veAERO holders. In return, veAERO holders receive 100% of transaction fees and incentives from their chosen liquidity pools.
- Protocols and veAERO: Protocols can lock up veAERO tokens and allocate incentives to specific liquidity pools while targeting them. These incentives are utilized to guide users toward providing liquidity to particular pools.
- Users and Liquidity Pools: Users can participate in their preferred liquidity pools by utilizing veAERO tokens locked by protocols. This enables them to benefit from both transaction fees and pool incentives.
This system creates a mutually beneficial relationship between protocols seeking liquidity and users aiming for yield maximization. Protocols offer rewards to incentivize liquidity providers, thereby increasing user returns.
Emission Process and Increase Rates
Aerodrome follows a system called “Epoch” for its emission process. In the initial Epoch, 10 million AERO will be released weekly, increasing by 3% in the following 14 Epochs. It will peak at 15 million AERO per week and then decrease by 1% per Epoch. This decrease is intended to prevent AERO’s value loss by reducing supply after the protocol matures.
When emissions fall below 9 million AERO, expected to occur in Epoch 67, users with voting power through veAERO will have a say in Aerodrome’s monetary policy through the Aero Fed system. At this point, users will vote for one of the three options for each Epoch:
• An increase in emissions by 0.01% of total supply
• A decrease in emissions by 0.01% of total supply
• Continuation of emissions without changes to the current trajectory
Conclusion
Aerodrome emerges as a significant player in the decentralized finance landscape. Built on Coinbase’s Layer 2 blockchain platform, Base, this decentralized exchange aims to provide a user-friendly experience by utilizing the fast and cost-effective transactions of the Base blockchain infrastructure. Supported by a liquidity incentive engine, vote-locking governance model, and veAERO tokens, Aerodrome not only presents a system to attract liquidity providers but also encourages user participation in platform governance.
