Hi all,
I’d like to add a bit of structure to this comment section by addressing the key themes raised so far. Follow-up comments are welcome. However, sourcing data asks takes meaningful time away from our daily work, so we’d appreciate if commenters could explicitly outline their “thesis” and offer data that could support it.
This way, interactions can be additive and build the common understanding for all readers. For example: “Velodrome would be better off directing OP incentives to XXX, as it would drive higher transaction volume / user growth / user retention. Here’s my data to demonstrate why”
Here are 5 themes we’ve identified so far:
1) Part of the data provided is based on a snapshot (e.g., 24hr Volume) and may not be representative of recent performance
- We have now included 30-day Avg Volume and 30-day Avg TVL.
- There are slight differences in the figures but the overall results are directionally unchanged:
2) Velodrome attracts lower Volume per TVL than alternative DEXes
- When comparing same asset pairs (e.g., OP/USDC, ETH/USDC), Velodrome’s Volume per TVL is similar to that of both Uniswap and Curve (see charts below).
- We believe Uniswap and Curve are perhaps the top 2 DEXes in all crypto. Performing on par with them is a testament in itself.
- We acknowledge UniV3 pools can offer very low slippage for large trades. Although Velodrome remains competitive for the majority of trades using pools with similar liquidity depth, we like the concentrated liquidity architecture and plan on implementing a similar model for our pools.
- Some Velodrome pools attract lower volume, as they serve different types of protocols. We welcome these pools, as supporting a wide variety of assets is part of our value proposition.
Volume/TVL for pools with >$100K TVL on Uniswap and Velodrome
Volume/TVL and Volume/$1 incentives for sETH and sUSD pools on Curve and Velodrome
3) Grant ask is too large
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As a share of the Optimism ecosystem, Velodrome represents 10% of TVL, 12% of transaction volume, 16% of transactions, and 13% of users, while requesting 1.72% of the Governance Fund.
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Using these metrics, the Governance Fund could distribute a similar ratio of OP tokens to ALL existing protocols and still keep 82%- 89% of funds to be used for other grants:
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Even including Velodrome’s grant from OP Labs, the ratio of impact per grant size is extremely favorable
4) What is Velodrome providing to the ecosystem / what about protocol revenue?
- For Liquidity Providers on Optimism, Velodrome has distributed over $7M in VELO emissions, continuing at a pace of ~$300K per week
- Yes OPUser, the emissions are part of the protocol. You can see details at https://velodrome-docs.pages.dev/tokenomics
- For veVELO holders, Velodrome has delivered ~$450K in fees from >$2B in volume and ~$1M in bribes from partner protocols (net of Velodrome’s OP incentive program)
5) Velodrome has hit escape velocity / Velodrome should prove itself without incentives
- Velodrome’s success is strongly correlated to the success of Optimism. We cannot consider the protocol to have “hit escape velocity” until Optimism itself is fully cemented as the go-to chain for the next generation of DeFi users.
- We believe eliminating incentives now will have predictable results (lower TVL, lower overall activity), and would hamper our ability as a protocol to compete with other L2s / alt-L1s planning to deploy incentives in their own ecosystems. Attracting liquidity and users back to an ecosystem is significantly more expensive than maintaining them, since incentives (e.g., APRs) must be attractive enough to drive actions such as bridging capital and LPing.
- Despite the attractive returns on Velodrome, we still notice a lack of confidence from DeFi players to participate in Velodrome’s model. For example, veVELO voters have received >200% APRs in bribes and fees consistently for the past 4-5 weeks, 3-5x higher than other ve token protocols such as Curve, pointing to lower willingness to lock VELO.
- This grant would allow Velodrome to continue building confidence from interested players, while we focus on further developing the platform and onboarding new partners. The grant will effectively run longer than the time period Velodrome has been live to date.
- As outlined above, we’re happy to structure the grant in stages to measure ongoing results.
We greatly appreciate your support.