INTRODUCTION

Velodrome Finance is the liquidity base layer for the entire Optimism ecosystem. Launched in June 2022, it focuses on properly incentivizing liquidity for DeFi protocols.

Velodrome Finance is designed to solve one of the main problems for any DEX; incentivizing liquidity reduces the value of the DEX’s token. They address this problem by aligning protocol growth with fee generation, not just liquidity. In other words, take Curve Finance‘s sophisticated AMM and Solidly’s incentive structure, combine, shake well, and serve.

On a typical DEX, Liquidity Providers reap the lion’s share of rewards. However, that drives mercenary behavior as Liquidity Providers are not invested in the long-term growth of the protocol. They withdraw their funds and migrate as soon as another DEX proposes better rewards. Curve Finance’s solution is to reward 50% of the total protocol fees to $CRV Lockers. Velodrome takes this a step further. Velodrome Finance aligns protocol and user interests, by strongly encouraging users to lock their $VELO tokens. Users who lock their tokens claim 100% of the fees of the Liquidity Pool they vote for. This pushes users to vote for the most traded pool and increases liquidity mining in this pool.

Velodrome Finance offers few ways to earn, so let’s go through each of them:

• Traders: Velodrome uses two types of Swap Curve Formula an sAMM and a vAMM. The sAMM is for correlated assets, i.e. stable assets. The vAMM is for volatile assets. The sAMM offers better swap rates and is similar to what Curve Finance offers on certain pools. In addition, the whitelisting of trading pairs is permissionless, so adding tokens is very easy.
• Liquidity Providers: By depositing liquidity into the sAMM or the vAMM pools, liquidity providers earn $VELO tokens in proportion to their deposit share in the LP and the number of gauge votes the LP received.
• Lockers: The $VELO token can be locked for up to 4 years and provides voting power in the gauge votes that allocate the weekly emissions of $VELO to the Liquidity Pools. Lockers are entitled to 100% of the trading fees and 100% of the bribes for the voted pool. In addition, Velodrome Finance received 3,000,000 $OP tokens as a grant from the Optimism Foundation. These tokens will be distributed alongside other rewards to incentivize liquidity on the protocol. While $OP emissions are running, additional bribes/vote power will also be distributed.

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==METHODOLOGY==

In this dashboard, we will try to evaluate how healthy is this project even the bad market conditions over the past few days, weeks and months.

For that, we have been calculated several important metrics over the past 90 days. The most important ones are:

• Number of swaps
• Active and new swappers
• Volume swapped
• Different pools used
• LP actions
• LP users
• LP liquidity volume netflow
• Top 10 Velodrome Finance pools netflow

Looking at the swap activity, we can see how since October, both the number of daily swaps and the number of swappers started to increase. Even the bad news about FTX and BTC holdings, it seems that the numbers are remaining above the previous days of October, which is a good healthy signal for the platform.

Looking at the number of new swappers, we can see how in this case, the variable not looks too good because of the number is so low. However, since finals October it seems that the amount of new users started to increase a little bit but it seems too low as well.

Finally, looking at the daily volume swapped, we can see how it had a downtrend from mid August to mid October, but since then, it entered in an uptrend. In November 8th, it reached the previous August value above 40M but now seems starting to decay again.

In this section, we are gonna take a look at the liquidity posistions. In the first image, we can see the amount of mints and burnts. In both cases, we can see an spike on September 19th. And since October 11th, the amount of transactions seems to be increasing day by day. It is to say that in October 12th, a huge amount of mints were done reaching the highest number. During the two first days after the FTX announcement, seems that the activity were affected but now its recovering its numebrs and the uptrend is still remaining. The positive thing is that the mints are higher than the burns.

The amount of active LP users registered a similar trend, we can see the same spike on September 19th and an uptrend since Ocotber 11th. Again more users are minting than burning which is a healthy signal.

Considering the netflow on the platform, we can see how even the amount of mints are being higher than the amount of burns, the volume are not saying the same. In this case, more volume are being burnt than minted and its not good for the health of the ecosystem.

In fact, if we take a look at the cumulative netflow over the past 90 days, we can see how it has been negative since the beginning, reaching more than 30M in negative numbers.

Looking at the top 10 pools, their netflow has not also been good. The major of them lost liquidity over the past months. USDC/DAI and USDC/LUSD are the most affected ones.

Regarding the number of different pools Velodrome users are using, we can see how in this case, the trend went up from the beginning until the end, which is good for the network.

It seems that even the bear market, the users are using many Velodrome pools. In fact, if we take a look at the dark blue line, we can see how the average of pools used has also remained in an uptrend even the FTX news during the first and second week of November.

CONCLUSIONS

• Even the bad news about FTX and BTC holdings, it seems that the numbers are remaining above the previous days of October, which is a good healthy signal for the platform.
• Regarding the number of different pools Velodrome users are using, we can see how in this case, the trend went up from the beginning until the end, which is good for the network.
• Considering the LP activity, during the two first days after the FTX announcement, seems that the activity were affected but now its recovering its numebrs and the uptrend is still remaining. The positive thing is that the mints are higher than the burns.
• The amount of active LP users registered a similar trend, we can see the same spike on September 19th and an uptrend since Ocotber 11th. Again more users are minting than burning which is a healthy signal.
• More volume are being burnt than minted and its not good for the health of the ecosystem.
• Looking at the top 10 pools, their netflow has not also been good. The major of them lost liquidity over the past months. USDC/DAI and USDC/LUSD are the most affected ones.

Swapping activity

Liquidity actions activity