What is Optimism?

Optimism is a Layer 2 scaling solution for Ethereum that can support all of Ethereum's Dapps. Instead of running all computation and data on the Ethereum network, Optimism puts all transaction data on-chain and runs computation off-chain, increasing Ethereum's transactions per second and decreasing transaction fees.

What is Velodrome?

Velodrome Finance, at its core, is a solution for protocols on Optimism to properly incentivize liquidity for their own use cases. Building on top of the groundwork laid out by Solidly, the team has addressed that first iteration's core issues to realize its full potential.

What just happened to Velodrome?

On Aug. 4, one of Velodrome’s high-worth wallets — dedicated for operating funds such as salaries — was drained off $350,000 before it could be transferred to the company’s treasury multisig wallet. A subsequent internal investigation revealed the attacker’s identification, which allowed the company to recover the entire loot.

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Methodology

In this dashboard we are looking to see how the activity on Velodrome has changed given recent hack of the team’s wallet. The specific activity we are looking to observe in this dashboard are swaps and lp actions these two types of activity will be found in the optimism.velodrome.ez_swaps and optimism.velodrome.ez_lp_actions tables of flipside’s database. In addition to looking at a change in Velodromes activity, we are look to see if any of their users started to use other DEXs on Optimism at increasing rates after the hack.

Observations

• The Day after the Velodrome hack the swap volume on the DEX fell 97%, but within 5 days the swap volume on the DEX was near its volume before the hack.
• On average the DEX has more daily activity after the hack than before the hack, but there is a significant decrease in the activity from right before the hack.
• If comparing current DEX volumes to the volumes in mid-June the daily swap volume is up around 500%, This is very strong growth in 2 months.

Observations

• Since the hack there has only been one day of Liquidity inflows to Velodrome.
• All the large liquidity outflows on Velodrome have happened since the hack with two days have over 5 million in liquidity outflows
• Before the hack on average each day there was $2.1 Million net being deposited into the protocol. Since the hack on average each day there is $3.8 Million net being withdrawn from the protocol

Observations

• There has been a local spike of in Velodrome user swaps on other DEXs since the hack.
• the number of Velodrome users swapping on other DEX makes up less than 1%-3% of these users swaps most days
• No significant number of Velodrome users started using other Optimism DEXs after the hack occurred.

Conclusion

When the hack occurred on Velodrome there was a brief period where the swappers where deterred from using the DEX, but within days the DEX swap volume shot back up to near where it was before the hack. Velodrome swappers have not seemed to move to other DEXs because of this hack. Although there does not seem to be a sustained difference in Velodrome Swapper activity, Since the hack Liquidity providers have been consistently withdrawing liquidity from Velodrome with net liquidity being negative for the DEX in 10 of the 11 days since the hack. Overall, it seems that Velodrome lost the trust of a portion of liquidity providers due to the hack but is still very popular amongst the DEX swappers on optimism.