[READY][GF: Phase 1 Proposal] Velodrome Finance

Hey there,

Personally I would like to see Velodrome survive without incentives.

My understanding is, the 1.5 Million allocation is for locked up velo. Which seems like the incentive is designed for buy pressure on your token ‘velo’. This is not what this fund is for and previous proposals were slammed for an incentive mechanism like this.

Do you agree that this incentive will directly increase the price of Velo?

Very well written proposal with substantial data to support the ask.

I think it goes without saying that Velodrome has been a critical contributor to Optimism’s growth. They seem to be continuously engaged with protocols not yet on Optimism, and are the only grant recipient I know of that have taken on the voluntary burden of being an unofficial ambassador for the ecosystem. I think this deserves recognition. Several of these protocols who moved to Optimism are posting in this thread in support of the proposal.

While this thread has clearly not avoided standard online forum shenanigans, I urge any voters to not miss the forest for the trees. At the current time Velodrome is the very definition of critical infrastructure to Optimism, and the way the $OP incentives flow, both from the prior grant and as proposed, support the whole ecosystem of participants.

I am in agreement with @ramblers99’s comments.

I believe the ask amount is appropriate and I like the two-phase compromise.


Glad to see this proposal from Velodrome Finance. Clearly one of the main contributors of growth for the Optimism ecosystem, which is demonstrated throughout different data points.
From the voice of a regular Optimism user, I would like to see this proposal move forward to a vote.

Why? Velodrome would survive just fine without incentives. It is the rate of ecosystem growth that would suffer. The cost of liquidity incentives would increase, putting strain on ecosystem treasuries. Projects would need to increase the rate at which they are spending their granted OP to close the gap, depleting governance funds faster and increasing OP sell pressure. And it’d make it harder for new projects to bootstrap and onboard, slowing the growth in economic activity and losing builders to other networks.

It would also put Governance in an awkward position where it is directing millions in incentives to multi-chain DEXs worth billions of dollars that are offering somewhere between $0 to a few hundred thousand in co-incentives, while passing on their only homegrown public good DEX’s offer to pump another $6.5mm in stimulus into the ecosystem.

According to the data shared by the Foundation on the Governance Grants to date, Velodrome actually attracted more TVL growth ($66mm) than all the governance grants combined ($60mm). Velodrome did this with a grant of 3mm in OP compared to the 40mm OP distributed by governance. You are essentially suggesting ending the most successful ecosystem growth program funded to date.

You are referring to the “lock bonus” here. The purpose of it is made explicit in the proposal, namely to lower barriers of entry for protocols seeking to invest and build in the Optimism ecosystem.

From the proposal:

To onboard new protocols to the Optimism ecosystem during uncertain times and in the face of competing incentives, we must ensure that they are able to bootstrap their liquidity in the most cost-effective method possible. At the same time, these incentives should be paired with mechanisms that require protocols to meaningfully invest in the ecosystem for the long term and thus discourage mercenary and exploitative behaviors.

Incentivizing the acquisition and locking of veVELO is an ideal strategy in this regard, as it requires a multi-year lock of capital in the ecosystem to receive the lock bonus and access Velodrome’s voting and revenue generation capabilities. It is to our knowledge the only currently running incentive program that requires the locking of capital in the Optimism ecosystem. Incentivizing locking lowers the underlying costs of building an initial veVELO position (by an average of ~25% ) while simultaneously giving any protocol the power to direct emissions and attract liquidity for the long term.

Whereas other incentives programs, particularly proposed by DEXs, focus on direct rewards to liquidity providers who have demonstrated a willingness to quickly exit ecosystems when they taper, this locking incentive requires protocols to lock their investment into ecosystem for four years to access the bonus. Indeed, it has already helped lead to $11.2mm (70% of all supply) being locked in the ecosystem for an average of 3.6 years, a feat we have not seen repeated by any other ecosystem incentive program and that isn’t currently possible for protocols like Curve who require you stake on mainnet.

These locked positions further increase the capital efficiency of their incentive programs, reduce the need for protocols to rely on external incentives (such as OP) long term, and actually drive revenue back to them (at a pace of over $10M a year returned to lockers atm).

If there are indeed second order positive effects on token price, it only would only serve to accelerate a flywheel designed to support the ecosystem: further lowering costs, deepening liquidity, increasing volume, attracting users, delivering more revenue to protocols.

In short, the more protocols locking value into the ecosystem the better off the ecosystem will be.

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I think it would be helpful to evaluate what Velodrome’s “competitors” have received vs. what Velodrome has received. That could help people put in perspective the ask.

I don’t have a complete list, but this is what I came up with off the top of my head. Can (edit) if needed.

Uniswap - 1m OP - Partner Fund
xToken/Gamma/Uni v3 Staker - 1m OP - Governance Fund
Revert - 240k OP - Governance Fund

Curve - 1m OP
Arrakis - 500k OP

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Thanks for the response @alexcutlerdoteth
this wall of text as a response is not necessary

I take it this was the response for my Question

I feel I should ask it again… but I digress It is Obviously going to have a direct impact on the price of your token.

I fear Velo would end up relying too heavily on this Fund creating an even bigger problem in the future. whereby without additional funding would lead to a collapse that would hurt the whole Optimism ecosystem, effectively holding us ransom. In my view this is not sustainable growth

Definition of sustainable growth
refers to “the maximum growth rate that a company can sustain without having to increase financial leverage.”

This is my point we can’t be expected to " pump another $Xmm in stimulus into the ecosystem" every time the incentives dry up It’s just not sustainable…

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Hi @Butterbum

It is not very nice to dismiss @alexcutlerdoteth 's thoughtful and well written reply as a wall of text, especially when your response contains only conjecture.

If you are implying that the OP locking incentives are used to pump the token price, then you can look at the price history of the token thus far. The price of the VELO token has been in the same range since August despite ongoing locking incentives. There was an initial run up after the June market wide collapse once protocols had begun onboarding onto Optimism, which coincided with the initial OP bribe incentives. At this time VELO/USDC liquidity was a mere $500,000. This July run up also coincided with a 70% ETH run off the June lows.

This is besides the point however, a second read of the wall of text in the initial proposal may be in order to refresh your understanding of the reasoning behind locking incentives.

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I did my best to provide through answers to your questions, ser.

I actually do not believe it is obvious that it will have any kind of significant impact, but would welcome any analysis indicating otherwise. Incentives have actually remained consistent since July 15th or so and we’ve seen massive price movements both up and down. Indeed, we actually announced that we were decreasing the lock incentive on 10/19 and have seen the token go up by 15% since.

Again, the primary purpose and impact of the incentive is reduce the costs to protocols looking to build long term revenue positive liquidity programs on Optimism and the 20+ net new protocols we’ve onboarded (even as price has gone up and down), the increasing number of protocol accumulators, and $11mm+ we’ve locked in the ecosystem should be evidence that it is working as intended.

I don’t think you’ve understood our proposal. We are the ones pumping 6.5mm in stimulus into the ecosystem. This not only represents over 1.6x the grant request size but also equals over half of all $OP incentives projected to be distributed via governance over the same period. The ecosystem needs to grow before it can become self-sustaining. Limiting stimulus in its prime growth phase or over-investing in inefficient incentives is recipe for ecosystem stagnation (especially when competitors come with their own programs). Once sufficient economic activity exists on the network (which we’re actively onboarding), organic revenue and retroactive public good funding will be more than enough to sustain it.

This is how scaling works.


Sure, happy to pull some numbers for you. Added to them and corrected a few data points.

You’ll see that Velodrome on average between our two proposals is offering 1.7x its grant request in co-incentives and is supporting 3.2x the number of projects as the others combined. For the most part, the other projects have offered zero in co-incentives, with the few that have representing an estimated $400,000 or so (difficult to estimate precisely).

That means Velodrome is offering 31x the co-incentives as the other 7 projects combined while only asking for 1.6x the grant size.

Most of the other proposals are a mix between haven’t started yet, still waiting on approval, or currently in a progress so as of the moment there is no way to measure if they are achieving a similar 2x-3x ROI on their underlying grant value, though we’d suspect that is unlikely due to most of them using direct incentives (a 1:1 return) and lack of meaningful co-incentives.

However if they do, we’d expect them to do exactly what we are doing upon the conclusion of their programs: come back with results and ask for support in continuing the programs if there is still an ecosystem growth case to be made.

We’d reiterate that we do not think of incentivizing DEXs as some sort of zero-sum game where investing in one harms the others. The goal of governance is to maximize growth and it absolutely should invest more heavily where co-investment is higher and results are proven.

We pulled the numbers quick so definitely let us know if we got any wrong.



Total Grant: 7,000,000 OP

Total Co-Incentives: $12,500,000

Total Projects Supported: 29

Total Projected ROI: 2x-3x (minimum)

Other Protocols:

Total Grant: 4,240,000 OP

Total Co-Incentives: $360,000 (estimated)

Total Projects Supported: 9

Total Projected ROI: TBD


Velodrome (OG Grant)

  • Grant Received: 3,000,000 OP
  • Grant Source: OP Labs
  • Distribution Date: 7/15/2022
  • Distributed to Date: ~2.5mm OP
  • Co-Incentives: $6mm
  • Projects Supported: 29
  • Demonstrated ROI: 2x-3x

Velodrome (New Request)

  • Grant Received: 4,000,000 OP
  • Grant Source: Governance
  • Distribution Date: TBD
  • Distributed to Date: TBD
  • Co-Incentives: $6.5mm
  • Projects Supported: TBD
  • Estimated ROI: 2x-3x


  • Grant Received: 1,000,000 $OP
  • Grant Source: Governance (not partner fund)
  • Distribution Date: 9/7/2022 ( ~2 months ago)
  • Distributed to Date: 0 $OP (not active)
  • Co-Incentives: $0
  • Projects Supported: 9 (overlapping between protocols #s below)
  • Estimated ROI: TBD


  • Grant Requested: 504,828 $OP
  • Grant Source: Governance
  • Distribution Date: TBD
  • Distributed to Date: 0 $OP (not active)
  • Co-Incentives: TBD ($90,000 average previous 2 months)
  • Projects Supported: 7
  • Estimated ROI: TBD


  • Grant Received: 500,000
  • Grant Source: Governance
  • Distribution Date: 8/8/2022 (3 months ago)
  • Distributed to Date: Unknown
  • Co-Incentives: ~$20,000 to date
  • Projects Supported: 9
  • Estimated ROI: TBD


  • Grant Received: 500,000 $OP
  • Grant Source: Governance
  • Distribution Date: 9/7/2022 ( ~2 months ago)
  • Distributed to Date: 0 $OP (not active)
  • Co-Incentives: $250,000
  • Projects Supported: 0
  • Estimated ROI: TBD


  • Grant Received: 900,000
  • Grant Source: Governance
  • Distribution Date: 9/13/22
  • Distributed to Date: 60,000 OP (xToken)
  • Co-Incentives: $0
  • Projects Supported: 2 (?)
  • Estimated ROI: TBD


  • Grant Requested: 240,000 OP
  • Grant Source: Governance
  • Distribution Date: TBD
  • Distributed to Date: 0 $OP (not active)
  • Co-Incentives: $0
  • Projects Supported: TBD
  • Estimated ROI: TBD


  • Grant Requested: 500,000 $OP
  • Grant Source: Governance
  • Distribution Date: TBD
  • Distributed to Date: 0 $OP (not active)
  • Co-Incentives: $0
  • Projects Supported: 6 (currently)
  • Estimated ROI: TBD

I apologize for my poor choice of words. :v:

I understand what you saying I like seeing more of organic growth. but I understand where you coming from

Thanks again for the response.


No problem, ser. Appreciate the conversation.

Our thought is if we build it (a strong ecosystem), they (users and growth) will come. :slight_smile:

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

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

  • 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.

  • 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:

  • 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
  • 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.


I’m with you in saying building a strong ecosystem is the plan, this is also my intention but sustainability is key in building a safe ecosystem.

And I disagree with your statement

the impact is evident in the chart

My fear would be, that Velodrome will continuously demand incentive plans from the Fund to keep it going. I just want to avoid the risk, of the Fund being forced to perpetually support a protocol to avoid a scenario.
So this is why I would like to see Velodrome grow more organically without OP incentives.

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No ser, it is not. I have added a line to the chart that shows the pace of lock bonuses to demonstrate this. As you can see, the lock bonus rate has remained constant for months while the price of the token has had movements up as high as 300% and down as low as 85%. You can also see in the chart where the lock bonus was decreased by 20% and price rose 15%.

The opposite effect you would expect if what you were claiming was true.

So I’ll reiterate that there is no obvious significant correlation between the bonus and price. There are too many other variables that drive price more significantly.

You can also see this in the fact that other ecosystem tokens pumped at the exact same time.

Where there is a more clear relationship is in the weekly lock rate, which increased upon the start of the incentives and has maintained a steady rate, mostly exceeding weekly emissions. Exactly what we’d expect a bonus focused on reducing barriers to locking (not price pumping) to do.

Finally, I will just note again that even if there were a clear positive correlation with price, that still wouldn’t be a bad thing as it would only lead to better outcomes for the ecosystem. If VELO were to 3x tomorrow, liquidity for the 30+ ecosystem projects we support would triple as well. There is no other token on the network that can have this kind of outsized impact.

But to reiterate, that is not really what is important. What is important is relative value of locking vs bribing and the overall health of our liquidity economy as we’ve documented in our proposal.

This is just not how investing to grow/scale works. Perhaps an analogy would help.

Think of Optimism as new city that is trying to attract citizens and businesses to it. One day in that future, it will have a broad enough base of them that the economic activity they generate will sufficient to not only drive sustainable revenue t businesses but also it’s taxes (sequencer revenue) will be sufficient to support and maintain the City of Optimism’s essential infrastructure (public goods).

But, we are not not there yet. We need to grow substantially more before the city’s economy is self-sustaining. That is why the grant programs exist.

That is where Velodrome comes in. It is part of the city’s essential infrastructure. You can think of it as the roads and highways that people use to get to the City of Optimism and that businesses use to move their goods throughout it. It charges the lowest possible fees for its use and returns 100% the value it generates back to the public, while simultaneously reducing liquidity costs ecosystem wide.

Why is this important? Because investing in infrastructure is one of the best ways to drive economic growth. It creates one of the best multiplier effects (2x-3x in our case) on the underlying investment and drives growth in economic activity across the network. As @ramblers99 put it, a “grant to velodrome is like granting the entire ecosystem”, but getting 2x-3x the results of direct grants.

As long as growth remains the focus of governance and we can demonstrate that we are one of the single best means of facilitating it, we will request grant funds (as anyone in a similar position should). But there will be a day where the city has attracted enough economic activity that investing heavily in growth will no longer be needed. That is when Optimism can pull back on economic stimulus and let public goods self-sustain through the taxes and fees they collect.

Pulling back too early will only serve to slow or reverse the hard earned growth we’ve achieved so far, long before the city is in a position to sustain itself.

(btw you could write a similar analogy for how startups scale here)


Maybe I am mistaken, but isn’t the price action of VELO actually heavily influenced by the locking bonuses via the airdrop campaign?

One could find the following points in the chart:
08/7 – it was announced that Velodrome received the grant, start of the price increase
13/7 to 27/7 – heavy campaign of the OP airdrop
29/7 – hype from the campaign ended, followed by heavy price decrease

Not sure how it’s fair to conclude that lock bonuses do not affect the price – I would definitely count extra OP for locking as a version of a lock bonus.

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Yes, the data I shared above would suggest you are indeed mistaken.

But, here let’s take a look at it again with your frame.

Seems vaguely plausible right?

The problem is that is the SNX chart, not VELO. And if you look at Thales, Lyra, or almost any ecosystem token you’ll see they follow almost the same trajectory. Suggesting the significant factors driving the price changes cannot reasonably be attributed to the ongoing lock bonus.

The frame is also false because you are misrepresenting the nature of our communications around it, which have been as steady as the bonus itself. If you’d done us the kindness of checking your assertions before dropping them here, you would’ve seen us talking about it every week since it began.

It is fair because no one has provided a single data point to suggest there was any correlation between the lock bonus and Velodrome price. You cannot on one hand suggest it was a significant factor causing a 300% pump and while suggesting it’s claimed pumping ability was powerless against an 85% decline, especially when those same patterns were playing out on every single ecosystem token.

We also have over a week of data after decreasing the bonus showing the exact opposite of your claimed effect, the lock bonus has gone down and the price has gone up.

While the idea that you created an account last week to exclusively to comment on our proposal is certainly flattering, I do not get the sense that you are here in good faith. Now that you’ve made your voice heard on Velodrome, perhaps you can reallocate your time to any of the other 8+ proposals currently up for review and in need of feedback?



I really don’t think these kinds of responses are constructive. You answered the question fine. Trying to discredit someone doesn’t make the grant application look professional. It’s defensive and adversarial.

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You know what? You’re actually right, I apologize.

This process is intensive and at times it has felt like there has been an army of new accounts created with express purpose of kicking up dust with the goal of damaging our proposal. They even managed to get our post locked for a good 24 hours during the short feedback window which was frustrating.

I don’t know @Ardordo’s intentions and shouldn’t presume. A genuinely good call.

Can I ask that we both commit to doing better on that?
Screenshot 2022-10-28 at 7.02.56 PM

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I think before this turns into a bare-knuckle fight, let’s all take a beat and focus on the proposal at hand. (sorry alex)