Velodrome Surprises Investors with Surge on Optimism Blockchain
Overlooked DEX Challenges Uniswap by Taking Four of Top 10 Places on Layer 2
By: Owen FernauDive
Velodrome, a decentralized exchange deployed on the Optimism blockchain, is giving Uniswap a run for its money.
Velodrome’s trading pairs held four of the top ten slots in terms of 24-hour volume on Optimism as of July 26, according to DEX Screener.
Those four pairs accounted for $16.88M in volume in the past day. That’s good for 39.1% of the $43.21M of volume generated by those top 10 trading pairs on Optimism, which is a Layer 2 network designed to improve the transaction speed and efficiency of Ethereum.
Top 10 Trading Pairs
Optimism hit $54M in total 24-hour volume on July 26. Uniswap leads and accounts for the other 60.9% of volume of the top 10 trading pairs on the Layer 2.
Still, Velodrome is showing surprising strength for a project boostrapped with a $150,000 grant, according to Gabagool.ETH, a member of Information Token, a venture studio which incubated a project which would then pivot to become Velodrome.
So Velodrome’s history is a bit complex, but recent results have recently been straightforward — the DEX is on an upswing. Velodrome’s volume hit $15M for three straight days for the first time ever from July 18 through 20, according to a Dune Analytics query.
Total value locked on the decentralized exchange (DEX) has also skyrocketed, spiking to an all-time high of $76.2M on July 20 and remaining above $70M since then, according to another Dune query.
The VELO token has been on a hot streak of its own — it’s up 27.7% to $0.05 in the past 24-hours and up an eye-popping 544.4% in the past 30 days, according to CoinGecko. That’s almost good for the all-time high of $0.06 reached two days after the token went live on June 1.
VELO price since June 1 inception. Source: CoinGecko
Velodrome originated as a fork of Solidly, the bug-ridden, but innovative DEX designed by Yearn Finance founder Andre Cronje.
Velodrome’s key feature is that it incentives trading fees, rather than simply providing liquidity. The protocol does this by first rewarding liquidity providers with VELO tokens.
Those tokens can then be locked, allowing them to be used to vote on which pools to direct further VELO emissions too. Voters will receive 100% of the fees, and any so-called bribes, of the pools they vote for.
Velodrome’s team believes that this system will incentivize the most valuable trading pairs to have the most liquidity. “Fees and bribes as incentives will naturally pull voting towards the most beneficial pairs for the ecosystem,” says the project’s Medium post outlining its mechanisms and token distribution.
A diagram of the Velodrome system. Source: Velodrome
Velodrome has supported the increased value of assets on Optimism as well. The Layer 2 (L2) is the only solution of its kind which has seen its value locked in the past seven days among the top five L2s, according to L2BEAT.
If Velodrome’s success continues, DEX designers and developers will doubtless take notes as its volume-incentivizing design may influence future iterations of trading protocols.