Velodrome Finance

What traders pay vs. who earns it

Velodrome Slipstream currently routes 0% of swap fees to LPs and 100% of swap fees to the protocol side (veVELO voters).

• LP share of fees: 0.0%
• Protocol take rate: 100.0%
• LP fees (24h): $0
• Protocol revenue (24h): $7.9K (equals fees)

Recent fee levels (earning capacity for voters)

• Fees (24h): $7.9K
• Fees (7d): $69.0K
• Fees (30d): $268.6K
• Fees (all-time): $15.9M over 738 days of fee history

A useful reality check: the 30d fees of $268.6K imply a daily average of about $8.95K/day, so the latest $7.9K is slightly below the recent run-rate.

How fees are distributed

Velodrome runs weekly epochs (7 days). veVELO voters are rewarded with 100% of protocol trading fees from the previous epoch, plus any additional “voter incentives” offered in the current epoch. Practically, this means the main “fee APR” on Velodrome accrues to lockers/voters—not to passive LPs.

Implication: if you want fee-driven yield, your primary route is locking $VELO → voting → earning weekly fee distributions + incentives, not just providing liquidity.

How LPs earn on Velodrome

Liquidity providers primarily earn via $VELO emissions (reward APY) allocated to pools based on weekly voting. In the current configuration shown here, base fee APY is not reported and LP fee share is 0%, so the displayed APYs are effectively incentive-driven.

Top pools (TVL leaders) and current incentive yields

Risk-adjusted takeaways

• More conservative LPs: stablecoin pairs like USDC-USDT (1.7%) and USDC-OUSDT (1.4%) generally have lower directional risk and typically lower impermanent loss (IL), but yields here are modest.
• Balanced LPs: large, liquid majors like USDC-WETH (14.3%) or WETH-WBTC (18.4%) can be reasonable if you accept IL in exchange for incentives.
• Aggressive LPs: high-incentive volatile pairs like WETH-OP (115.0%) and USDC-WSTETH (68.5%) can outperform, but IL/rebalancing risk is meaningfully higher—especially with concentrated liquidity where positions can go out of range.

Protocol-level context: across 26 pools, total pool TVL is $8.8M with 22.5% weighted average APY and 18.4% median APY (25 pools currently incentivized).

The core passive-income primitive: veVELO locks (vote-escrow)

Velodrome’s primary “staking” is locking $VELO to receive veVELO in the form of an NFT (a veNFT). Locking is what enables voting and fee capture.

Lock mechanics (voting power):

• Lock duration can be up to 4 years and voting power scales linearly.
• Example given by the protocol: 100 VELO locked for 4 years → 100 veVELO; 100 VELO locked for 1 year → 25 veVELO.
• v2 also supports permanently max-locked veNFTs (“permalocked”), treated as always at the 4-year max without decay.

What veVELO holders earn

veVELO voters are paid in two main streams each epoch (weekly):
1) 100% of protocol trading fees from the previous epoch.
2) Additional voter incentives (often called bribes) from the current epoch.

Using recent realized fees as the size of the fee pot:

• 7d fees: $69.0K (roughly one epoch’s worth)
• 30d fees: $268.6K (annualized ≈ $3.22M/year paid to voters before considering voter incentives)

What about single-token staking or auto-compounding?

The protocol’s core passive yield is lock → vote → earn fees + incentives rather than a simple “deposit token, earn token” module with a quoted APY. Your realized return depends on your share of total voting power and which pools you vote for (since incentives vary by pool/epoch).

Emission incentives for LPs (weekly, vote-directed)

Velodrome explicitly positions liquidity provision as earning $VELO emissions: “Provide liquidity… and earn VELO emissions.” These emissions are allocated via a governance/voting process:

• Every epoch (7 days), LPs receive $VELO emissions proportionally to the votes their pools accumulate.
• Only staked liquidity in protocol gauges receives emissions (i.e., simply holding LP tokens is not enough).

Incentives for voters (fee capture + bribes)

Velodrome’s flywheel is designed so that lockers/voters get paid:

• veVELO voters are rewarded… with 100% of the protocol trading fees from the previous epoch.
• Voters also receive “additional voters incentives” from the current epoch (third parties can incentivize votes toward specific pools).

Epoch schedule (operational detail that matters)

• Epoch length: 7 days
• Starts Thursday 00:00 UTC, ends Wednesday 23:59 UTC
• Votes, emissions, fees, and incentives are calculated per epoch

Launch-linked incentives (fee capture for new pools)

For teams and treasuries, Velodrome’s Velo Launch flow highlights an incentive angle: launching liquidity can let you “Earn 100% of swap fees—no platform cut.” This is positioned as a bootstrapping tool to attract LPs by advertising fee-based APRs, and qualifying launch pools can “graduate” into emission-based pools.

Below are playbooks mapped to how Velodrome actually pays: LPs earn mostly emissions, while voters earn fees + incentives.

🛡️ Conservative (capital preservation focus)

Target: minimize IL, accept lower yield.
1) LP stablecoin pools (lower volatility): USDC-USDT (1.7% APY) or USDC-OUSDT (1.4% APY) on Optimism.
2) Stake/attach liquidity to the gauge (required) to receive emissions.
3) Re-check APY weekly (epoch-based).

• Expected APY range: ~1%–3% (based on current stablecoin pool APYs)

⚖️ Balanced (moderate risk/reward)

Target: majors liquidity + emissions, manageable IL.
1) Split across larger TVL majors pools: USDC-WETH (14.3% APY) and/or WETH-WBTC (18.4% APY).
2) Prefer deeper liquidity pools (e.g., USDC-WETH TVL $2.9M) to reduce execution impact when rebalancing.
3) Add a small veVELO position to start capturing fee flow and learn voting.

• Expected APY range: ~12%–25% (current majors pool APYs)

🔥 Aggressive (max yield focus)

Target: maximize incentives; accept high IL and active management.
1) Farm high-emission volatile pools like WETH-OP (115.0% APY) or USDC-WSTETH (68.5% APY).
2) Use concentrated liquidity (Slipstream) only if you can actively manage ranges; out-of-range risk can turn APY into underperformance.
3) Lock $VELO (longer locks increase voting power) and vote into pools offering strong voter incentives to stack fees + incentives.

• Expected APY range: ~50%–115% (based on current high-incentive pool APYs; realized returns highly path-dependent)

Audit coverage and recency

Velodrome has multiple audits across major releases:

• v1 audit: Code4rena review (23rd–30th of May, prior to v1 launch on 2nd of June, 2022)
• v2 & Relay v1 audits: Spearbit (7th–20th of Feb 2023), with a second Spearbit audit completed (16th of June 2023) and report published (17th of July 2023)
• Slipstream (concentrated liquidity) audit: Spearbit completed (5th of Dec 2023), report published (22nd of Jan 2024)
• Superchain release audits: ChainSecurity and Sherlock (release noted 8th of Nov 2024), including extended and Slipstream-focused work by ChainSecurity

Bug bounty

• Immunefi bug bounty launched 29th of June
• Velodrome’s $100,000 bounty matched by Optimism Foundation
• Total program offers up to $200,000 for smart contract reports

Governance / emergency controls

Velodrome discloses an Emergency Council with the ability to kill or revive a gauge and perform other emergency actions. This is useful for incident response but introduces governance-centralization risk around gauge operations.

Impermanent loss (IL) risk — quantified examples

For classic 50/50 AMMs (baseline reference), IL vs. HODL depends on relative price change (r):

• If one asset moves +50% vs the other (r=1.5): IL ≈ -2.02%
• If one asset doubles (r=2.0): IL ≈ -5.72%
• If one asset triples (r=3.0): IL ≈ -13.40%

Applying this to Velodrome’s volatile leaders (e.g., WETH-OP, USDC-WBTC, USDC-WETH), IL can materially offset emissions—especially in concentrated liquidity where being out of range can further reduce fee/position performance.

Velo Launch: earn fees as a project/treasury (and bootstrap liquidity)

Velodrome’s Velo Launch is a distinctive, protocol-native path for token teams and treasuries to monetize early liquidity while building depth across the Superchain.

Key earning-related properties stated by the protocol:

• “Earn 100% of swap fees—no platform cut.” (i.e., fee capture is positioned as a treasury growth / incentive funding tool)
• Permissionless pool creation: “Launch any token effortlessly, no listing or verification required.”
• Deploy basic or concentrated pools, deposit as a pair or single-sided (broadens how liquidity can be seeded)
• Lock liquidity natively, fee-free (credibility / commitment signal to the market)
• Cross-chain visibility: launch flow emphasizes day-one visibility on 10+ chains

Why it matters for earners:

• For projects, it’s a direct fee monetization route to fund operations or incentives.
• For LPs, launch pools can advertise attractive fee-based APRs (per the launch positioning) and may later “graduate” into emission-based pools, potentially adding a second yield leg.

Velodrome Slipstream’s earning stack is strongest when you treat it as a vote-and-incentives marketplace: LPs farm emissions, while veVELO voters capture 100% of trading fees plus voter incentives on a weekly epoch cadence.

Top 3 strengths

1) Clear fee capture for voters: 100% of fees are distributed to veVELO voters (fee pot size evidenced by $268.6K fees over 30d).
2) Deep incentive surface area: 25 of 26 pools incentivized, with standout APYs like 115.0% (WETH-OP).
3) Strong security investment: multiple audits (Code4rena, Spearbit, ChainSecurity, Sherlock) plus Immunefi up to $200K bounty.

Top 3 weaknesses

1) LPs do not earn swap fees (0% LP fee share): LP returns are highly dependent on emissions remaining attractive.
2) High IL risk on best-paying pools: volatile pairs (e.g., WETH-OP) can see IL that meaningfully offsets headline APY.
3) Returns are epoch/vote-dependent: both emissions and voter incentives change weekly, requiring active monitoring.

One-sentence recommendation: Best for users willing to engage with locking/voting and incentive rotation; less compelling for passive LPs seeking reliable fee income.