veDAO launched with the purpose of giving ordinary people an opportunity to own and control a portion of Solidly.

In the course of this work, the veDAO team developed deep subject matter expertise on both Solidly and ve(3,3), learning what is and isn’t working for Solidly and its broader ecosystem — expertise that we’ll apply to evolve Solidly and bring its next-generation capabilities to Optimism.

We’ll continue to roll out details in the coming weeks, but if you’re looking to catch up, check out…

In today’s post, we want to give you all a better idea of how we’re thinking about the new protocol we’re building and its underlying mechanics. While these details are still subject to change, we wanted to share our working thinking so that we could continue the conversation with our community as we finalize the design of the new protocol.

Velodrome is an AMM modeled on Solidly and designed to be a public good that provides deep liquidity and low slippage to token pairs critical for the growth of the Optimism ecosystem. Powered by the VELO token and veNFTs, Velodrome’s model incentivizes liquidity by giving token lockers the ability to direct the protocol’s emissions to their chosen pairs. In return, lockers receive 100% of the trading fees generated by the pairs they vote for, any bribes directed toward these pairs, and an anti-dilutive rebase. Fees and bribes as incentives will naturally pull voting towards the most beneficial pairs for the ecosystem.

Distribution of the VELO token will kick off with an airdrop for users and protocols most likely to contribute to Velodrome’s mission to become the liquidity base layer of the Optimism ecosystem. The airdrop will be meaningful but will also leave enough room for new players joining the VELO races to capture voting share through emissions or token acquisition. It will also ensure that Velodrome as a protocol is able to successfully bootstrap and retain a team to ensure its longterm success.

These are the initial distribution mechanisms as we currently see them, but could change based on partner/community input and market conditions .

Overview of Distribution

Community (65%)

An airdrop of VELO tokens for the people who have played the biggest role in incubating Velodrome and those most likely to contribute to its long term success including:

Protocols/DAOs (25%)

Airdropped as locked veNFTs aimed at attracting and engaging the protocols most likely to contribute to Velodrome and Optimism’s long term success. We will consider a variety of metrics in assessing the recipients including TVL, transaction volume, unique wallets, and OP Team input.

Optimism Team (5%)

The Optimism Team has a vested interest in ensuring that Velodrome achieves its mission of serving as an ecosystem public good. The team will receive 5% of the initial distribution, airdropped as a locked veNFT, to support that interest.

Velodrome Team (5%)

The Velodrome Team must be incentivized to bootstrap and support the long-term health of the protocol and ecosystem. Its 5% initial distribution will be used to that end.

A healthy interplay between initial distribution and protocol emissions will be key to attract and sustain liquidity. Velodrome’s weekly token emissions will start off at 15 million VELO — about 3.5% of the initial supply — and decay at 1% per week, maintaining a fast but sustainable pace.

These incentives will be split between liquidity providers (LPs) and veNFT holders. veNFT holders receive the (veSupply / Total_Supply)² share of incentives in the form of a locked rebase and LPs take the rest.

For example if 50% of the supply is locked in week 1, veNFTs will get 50%² = 25% of the 15 million tokens, or 3.75 million VELO as a rebase. LPs receive the rest. The higher the share of locked tokens, the lower the dilution for lockers. This mechanism creates a strong incentive to vote-lock but leaves plenty of room to reward LPs.

Checks and balances for token whitelisting are critical to ensuring that that the protocol cannot be exploited by actors attempting to game emissions. Velodrome will adopt low-friction gauge votes for the addition of new tokens and a Curve-esque “Emergency DAO” that can act in any edge cases.

Because fees go to voters rather than to LPs, incentivizing proper voting behavior over emissions requires an appropriate fee level and native bribing mechanisms. Velodrome will introduce balanced fees and improved voting and farming mechanisms.

A great DeFi protocol is about more than just the underlying mechanics. It is about how those mechanics come to life through the UI, UX, and documentation. Our goal with Velodrome is to ensure that not only does the protocol deliver the functionality it promises, but provides an experience that makes it easy to use and navigate.

While a fully autonomous and immutable protocol is an admirable objective, it comes at a cost. Velodrome will ensure its long-term sustainability by employing a dedicated team focused on supporting the product, documentation, community, and ecosystem. As the protocol evolves, team can consider introducing more immutability or DAO components as appropriate.

The veDAO Team is working closely with their Optimism partners to finalize these details and development is already underway. In the coming weeks, the team will continue to share details about the future of Velodrome and veDAO, including more details on the benefits to WeVE holders.

We’d love your thoughts and feedback on the direction we’re heading, especially as we work towards a series of VIPs for the community’s consideration. Please join the conversation on Discord and on Friday’s Twitter Spaces AMA!