A Quick Look at Velodrome V2: Further Improving Asset Efficiency and Enhancing the Vision of OP Super Chain

Written by: Velodrome

Compilation: Deep Tide TechFlow

TLDR

• Velodrome launched V2 to solidify its position as the most capital-efficient liquidity center in DeFi and lay the groundwork for centralized liquidity pools (clAMM) and automated voting management (Relay).
• Velodrome V2 has set new records, generating more weekly bills than ever before in its third cycle, almost 6 times faster than V1.
• Velodrome's implementation of clAMM will improve trade execution and reduce slippage, bringing benefits such as increased fee rewards for veVELO voters, low-cost liquidity for partner agreements, and diversity in LP pools.
• Velodrome's governance system gives veVELO voters control over circulation. Relay will further improve the user experience and system efficiency for voters and strengthen the governance foundation through automatic voting.
• Velodrome is committed to enhancing the Optimism ecosystem and Superchain vision by building a leading efficient, user-centric platform on L2 Ethereum.

introduce

The launch of V2 officially kicked off a period of accelerated development for Velodrome. A full-stack protocol redesign, V2 lays the foundation for powerful features including customizable fees, centralized liquidity pools (clAMM), and automated voting management (Relay). These enhancements will solidify Velodrome's position as the most capital-efficient liquidity center in DeFi, support a growing number of tokens and protocols, and drive the expansion of the Optimism Superchain. We can already see the impact of V2 through significantly increased rewards for veVELO voters and a seamless user experience on the Nightride UI.

Charge digital products

Despite the recent challenges facing the crypto industry, the potential for digital goods and decentralized applications remains enormous. The DeFi space is constantly evolving, with a growing ecosystem of services, low-cost and fast transactions on second-layer networks, and increasingly intuitive user interfaces. As the online economy expands, the use cases for cryptocurrencies and decentralized transparent financial services will multiply.

Velodrome aims to simplify the process of attracting liquidity for an increasingly diverse range of digital goods, providing a user-friendly interface and flexible incentive mechanisms that allow teams to maintain control over incentives.

Velodrome issues VELO to liquidity pools based on the veVELO votes received each epoch. Projects can attract votes to their pools by depositing incentives in any token. The partnership agreement provides access to the growing Velodrome community, and their token holders find stable, user-friendly opportunities to provide liquidity.

V2 emissions are about 1.5% of the total supply. Compared to V1, this represents a 20% increase over 4 years and aims to drive a new wave of growth before clAMM is released and enters Superchain.

This scalability allows Velodrome to service a growing number of projects. Liquidity staking protocols, stablecoins, lending, yield aggregators, games, and even other decentralized exchanges are leveraging this flywheel to build liquidity for over 120 different trading pairs, accumulating rewards for veVELO voters.

Scaling Through Capital Efficiency

The implementation of the centralized liquidity pool (clAMM) will be another major leap forward for Velodrome's economic engine. By focusing allocations issued by VELO on Liquidity Provider (LP) positions within the active price range of the trading pair, clAMM will significantly improve trade execution, enabling Velodrome to capture more trades with the same Total Value Locked (TVL) volume, and effectively provide the protocol with a powerful and precise tool to bootstrap liquidity. This increased capital efficiency will benefit all aspects of Flywheel.

Partner Agreement

• Enhanced Liquidity and Reduced Slippage: Velodrome will support trade execution by concentrating more issuances in tighter price ranges, incentivizing Liquidity Providers (LPs) to maintain active positions. This will enable the protocol to offer low-slippage transactions and provide incentives for more liquidity pools.
• Self-sustaining liquidity pools: Lower slippage will attract more volume and fees. Fee-generating liquidity pools are self-sustaining, reducing the need for partner agreements to provide additional incentives. This not only increases the efficiency of the liquidity pool, but also reduces the cost of partner agreements, enhancing the overall sustainability of their operations.

Liquidity Provider

• Continuous rewards: The time-based mining method will provide liquidity providers with more stable rewards. Unlike other clAMM implementations where liquidity providers rely on market conditions to drive fee generation, Velodrome will allow liquidity providers to be continuously rewarded for providing liquidity within a range.
• Flexible Reward Accumulation: In the event of market volatility, liquidity providers can choose to unstake and accumulate transaction fees captured by their liquidity. This approach ensures that liquidity pools remain liquid during volatility and compensates liquidity providers for higher risk. Fees accrue on every trade, enabling liquidity providers to maximize short-term returns. A higher activity baseline will reward veVELO voters and liquidity providers appropriately.

veVELO voters

• Increased Fee Rewards: clAMM liquidity pool will significantly increase trade volume by improving trade execution. Combined with dynamic fees, which can be adjusted based on market conditions, clAMM will substantially increase the rewards for veVELO voters, incentivizing them to vote for the most productive liquidity pools.
• Growing Reward Stream: The increased utility of the protocol will help attract more projects, resulting in higher incentives for voters. More projects using Velodrome will increase the diversity of voter rewards and increase the attractiveness of locking veVELO.

Strengthen the foundation

Velodrome's veVELO governance system is probably the most innovative and comprehensive system in DeFi. With over 14,000 participants, veVELO voters control 100% of the protocol's circulation and receive 100% of the protocol's fees and voting incentives, establishing a fully consistent incentive mechanism.

With V2, Velodrome will improve user experience through Relay, strengthen governance processes, and give veVELO voters greater control over protocol mechanics. Relay is an automated veVELO manager that allows veVELO voters to delegate their NFTs to vote for the best. Users can choose to automatically allocate voting rights, or maintain active voting rights in specific liquidity pools, while accruing rewards.

Velodrome is also committed to actively participating in the governance of Optimism and building with the Optimism Foundation. Currently, Velodrome proposes the development of govNFTs, a new token standard that will facilitate the management of issued OP tokens. Future projects could utilize govNFTs to distribute issued OP grants, ensuring recipients are aligned with the incentives of the ecosystem as a whole. And, like veVELO, govNFTs could eventually enable new governance features, such as adding voting power to OP lockers.

Velodrome V2 is another example of protocol resilience and long-term commitment to building an efficient, user-centric platform. Velodrome wants to attract projects to L2 and become the ultimate market for liquidity on Superchain.