Overview
Velodrome launched in June 2022 as the central DEX and liquidity layer for Optimism, built on the ve(3,3) model inspired by Andre Cronje's Solidly experiment on Fantom. Where Solidly's original implementation was poorly executed and quickly abandoned, Velodrome took the core idea — combining Curve's vote-escrowed tokenomics with Olympus DAO's (3,3) game theory — and built a functional, well-designed protocol around it.
The team (operating as the Velodrome collective) received an initial grant from the Optimism Foundation and systematically built Velodrome into Optimism's dominant liquidity hub. Velodrome V2 (launched in 2023) introduced concentrated liquidity (Slipstream), improved the gauge voting system, and refined the bribe marketplace. The same team later launched Aerodrome on Base, applying the proven model to Coinbase's L2.
As of early 2026, Velodrome consistently holds the largest TVL on Optimism and processes the majority of DEX volume on the chain. Dozens of protocols actively participate in the bribe market to direct liquidity.
Smart Contracts
Architecture
Velodrome V2 offers three pool types: stable pools (using a StableSwap curve for pegged assets), volatile pools (constant product x*y=k), and Slipstream concentrated liquidity pools. The gauge system directs weekly VELO emissions based on veVELO votes. A bribe marketplace allows protocols to incentivize votes toward their pools. The architecture is a refined fork of Solidly with significant improvements to the original design's flaws.
Code Quality
Velodrome V2 was a substantial rewrite of the original Solidly contracts, addressing known issues including emission miscalculations, voting exploits, and gas inefficiencies. The Slipstream concentrated liquidity implementation adapts the concept for the ve(3,3) framework. The codebase is open-source, well-documented, and has benefited from the iterative refinement process.
Upgradeability
Core AMM pool contracts are immutable. The voter, gauge, and governance contracts use proxy patterns allowing upgrades via a team multisig. This layered approach keeps trading logic immutable while allowing iteration on the tokenomics and governance layer. Emergency functions exist for critical situations.
Security
Audit History
Velodrome V2 was audited by Spearbit, one of the top DeFi audit firms. The Slipstream concentrated liquidity module received a dedicated audit. The V2 rewrite specifically addressed vulnerabilities found in Solidly forks across the ecosystem. The team engaged with security researchers proactively throughout development.
Bug Bounty
Velodrome maintains a bug bounty program through Immunefi covering core AMM, gauge, voter, and bribe contracts. The program has attracted responsible disclosures from researchers.
Track Record
Velodrome has not suffered a major exploit since launch. The protocol benefits from lessons learned across the Solidly fork ecosystem — many vulnerabilities were discovered in other forks (like Thena, Ramses, Equalizer) and proactively addressed in Velodrome. The V2 rewrite was specifically motivated by hardening against known attack vectors.
Liquidity
Depth & Stability
Velodrome holds $200-600 million in TVL, making it Optimism's largest protocol by a significant margin. Major pools include ETH/USDC, OP/ETH, wstETH/WETH, USDC/USDT, and dozens of protocol-specific pairs. The ve(3,3) emission model effectively directs liquidity to where protocols need it most, as measured by bribe spending.
LP Economics
LPs earn VELO emissions proportional to their pool's gauge weight, plus trading fees. Emission APYs vary by pool, with higher emissions directed to pools that receive more veVELO votes (driven by bribe incentives). Stable pool LPs face minimal impermanent loss. Slipstream LPs can concentrate positions for higher fee income with active management.
Capital Efficiency
Slipstream pools provide concentrated liquidity efficiency comparable to Uniswap V3. The ve(3,3) model improves market-level efficiency by directing emissions to pools with genuine liquidity demand (as signaled by bribe spending). This demand-responsive emission allocation is more efficient than static liquidity mining programs.
Adoption
Volume & Users
Velodrome processes $50-300 million in daily volume on Optimism. The protocol serves as the default swap venue for Optimism users and is deeply integrated with the broader Optimism DeFi ecosystem. The bribe market attracts 30+ protocols actively directing liquidity. Aggregators consistently route through Velodrome pools.
Market Share
Velodrome captures 60-80% of DEX volume on Optimism, far ahead of Uniswap and other competitors on the chain. This dominance is the direct result of the ve(3,3) flywheel successfully bootstrapping liquidity. The protocol has proven that ve(3,3) can outcompete traditional AMMs for chain-level liquidity dominance.
Multichain Presence
Velodrome is Optimism-only. The team's multichain strategy operates through Aerodrome on Base (same model, separate token). This focused approach allows deep integration with the Optimism ecosystem and OP governance.
Tokenomics
Token Overview
VELO has an inflationary supply with weekly emissions distributed through gauges. The emission schedule includes a decay factor (epoch-based reduction). VELO can be locked for up to 4 years as veVELO, providing voting power on gauge emissions. The initial supply was distributed to Optimism ecosystem participants, the team, and partner protocols.
Fee Distribution
The ve(3,3) model's key innovation: 100% of trading fees from a pool are directed to the veVELO voters who voted for that pool's gauge — not to LPs directly. Additionally, protocols pay bribes in various tokens (OP, USDC, their native token) to veVELO voters to attract emissions. veVELO holders earn: (1) trading fees from pools they vote for, (2) bribes from protocols, and (3) rebase protection against dilution.
Governance
veVELO holders vote weekly on emission allocation across gauges. This is the core governance mechanism and has real, immediate economic consequences. Governance participation is extremely high (typically 80-90%+ of veVELO votes weekly) because voting directly generates income. Additional governance covers protocol parameters and upgrades.
Risk Factors
- Emission Dependency: The flywheel requires VELO emissions to maintain value. A sustained price decline could create a negative spiral where reduced emission value leads to less LP incentive, reducing liquidity and fees.
- Optimism Chain Risk: Full dependency on Optimism means Velodrome's fate is tied to the chain's growth and security.
- Bribe Market Sustainability: Protocols must continue spending on bribes to direct liquidity. In a bear market, bribe budgets could shrink, weakening the flywheel.
- Inflationary Tokenomics: Continuous VELO emissions create sell pressure. The ve-locking mechanism mitigates this but cannot eliminate it.
- Solidly Fork Competition: The ve(3,3) model can be forked. Competing DEXs on Optimism or other chains could fragment liquidity.
- Regulatory Uncertainty: The bribe market and vote-incentive mechanisms could face regulatory scrutiny as a form of financial incentive coordination.
Conclusion
Velodrome is the proof that the ve(3,3) model works when executed properly. Where Solidly on Fantom failed due to poor implementation and Andre Cronje's departure, Velodrome succeeded through disciplined execution, community engagement, and iterative improvement. The protocol has become Optimism's liquidity infrastructure — a role that generates real economic value through the bribe market and fee distribution.
The ve(3,3) flywheel creates a genuine product-market fit: protocols need liquidity, veVELO voters direct it, LPs provide it, and everyone is compensated. This is more than yield farming — it is a functional liquidity marketplace. The risk remains that the flywheel is ultimately emission-dependent, and its sustainability over full market cycles is unproven. But Velodrome has survived and thrived through both bull and bear conditions, earning its position as the most successful ve(3,3) implementation in DeFi.