Velodrome Finance

From the start, the Velodrome Team has sought to make Velodrome the premier trading and liquidity marketplace on Optimism, something that can help partner ecosystem protocols serve the most users in the best ways. Drawing heavily on our experience playing on Solidly, a decentralized exchange on Fantom, we based most of Velodrome’s primary architecture on Solidly itself. This has given us the potential to build a low-fee, deep-liquidity exchange that will sustainably encourage collaboration among the ecosystem players.

Looking beyond this foundation, we see an opportunity to dramatically improve user experience and sustainability by integrating into a single protocol not just an automated market maker (AMM) but an entire financial platform. Solidly, Curve, and similar ve-based decentralized exchanges seemingly always spawned outside protocols — aggregators, auto-compounders, delegators. That produced a lot of unnecessary inefficiency, value extraction, and user confusion, all of which makes it more difficult for users and protocols to play the game effectively. Velodrome Relay will eliminate that need and streamline the experience.

Introducing Velodrome Relay

Velodrome Relay is our first big step beyond Velodrome’s origins and towards offering a full-stack liquidity marketplace. Relay will take elements from aggregators, delegators, and auto-compounders and incorporate them directly into Velodrome’s core app — routing extra financial returns to Velodrome users while giving them major user experience upgrades such as the ability to passively optimize their yields.

Making adjustments to Velodrome requires maintaining the delicate balance needed to incentivize players to do what’s best for the whole system. In designing Velodrome Relay, we considered not only whether new functions would make the system more efficient, but also whether said functions would maintain or improve the system’s resiliency. We were careful not to introduce any mechanics that could be exploited by antagonistic players out of self-interest.

Velodrome Relay, At a Glance

This initial release of Velodrome Relay will incorporate several key features:

No LP emissions boosts from ownership of veNFTs

We believe that Liquidity Provider (LP) boosts are a legacy feature of the Curve model that are not essential to a full-stack liquidity marketplace. LP boosts put individual players at a disadvantage relative to protocols and whales who can accumulate sufficient voting power to secure the maximum rewards. We opt to give all veVELO voters and Velodrome LPs an equal playing field. Functionally, this removes the need for farmers to rely on the aggregated voting power of independent Convex-esque layers in order to farm optimally. It also protects them against the 15%+ tax that those layers typically extract in exchange for their service.

Incorporation of vote delegation and optimization into the base layer

The original design for Solidly veNFTs allowed for the native delegation of voting power. This feature was cut at the last minute as it interfered with LP boosts. Removing LP boosts frees Velodrome to reintroduce native voting delegation which will allow individuals and protocols alike to delegate their voting power while maintaining custody of the underlying veVELO position.

Voting power delegation unlocks the ability for players to use our natively integrated vote-bribe optimizer and auto-compounder “Relay”, which will take a Votium-like approach to optimizing votes and rewards for passive protocols and users.

Incorporation of LP and bribe auto-compounding into the base layer

It’s worth noting that Relay will offer two types of auto-compounders:

• LP emission auto-compounder for liquidity providers to automatically accumulate voting power, thereby increasing the value of their rewards.
• Fees and bribes auto-compounder for veVELO holders to automatically convert their rewards into VELO.

Centralizing this service is both gas-efficient and controllable, and it may allow the veVELO treasury to diversify its assets. Velodrome Relay will charge a low fee for the service, which will be used to further enable the building and financing of new products.

Liquidity for veNFTs

Solidly’s veNFTs lacked the infrastructure to support easy buying, selling, or borrowing against their underlying positions. This meant that those looking to get liquidity on their locked tokens were left one option: giving up custody of their veNFTs to value extractive Convex layers.

This is antithetical to the original vision Andre laid out and disrupts the incentives of the entire ecosystem. It also eventually led to bank run and fundamentally broke the pegs of the core assets of both 0xDAO and Solidex.

Velodrome wants to encourage liquidity on veNFTs in ways that are value-additive to the flywheel and ecosystem. Through integrated features and partnerships with key OP protocols, we will develop instruments for healthy deployment of veVELO NFTs. We believe that this will better encourage players to seek to compound their voting power and thus their rewards.