Intro
Over the past few years, cryptocurrency has attracted attention from users due to its decentralized nature and the ability to perform a large number of financial operations. As its popularity continues to grow, it is likely to soon become an alternative to the traditional financial sector.
Liquidity pool provision is that part of the cryptocurrency market that has brought trading and borrowing on various DeFi to a completely new level. By providing funds to pools, users help various DEXs provide liquidity.
A liquidity pool is a combination of funds deposited by users to smart contracts by users. These cryptocurrency assets can be used for financial services such as trading, lending, and others.
There are now a huge number of cryptocurrency platforms where users can deposit their funds into a liquidity pool to receive rewards. One of the popular platforms for depositing assets into pools is the Velodrome.
In this article from Notum, we will look at the main advantages and operating principles of this project, pay attention to its advantages and disadvantages, and also talk about several investment strategies for generating income in 2024.
Velodrome: The Essentials
- TVL: $151,940,000
- Median APY: 0.83%-39.47%
- Risk Level: Medium
- Blockchains: Optimism
- Foundation Date: June, 2022
As you know, most DeFi protocols and decentralized exchanges use automated market makers (AMMs). These are algorithms that use liquidity pools instead of real market makers to safely trade crypto assets. The main advantage of AMMs is that users and investors can take advantage of smart contracts instead of directly interacting with each other.
Velodrome Finance is a fairly popular platform, which is also a new generation AMM, created as Optimism's central liquidity hub. This project supports the development of eco-system optimism and was created to ensure high liquidity, low slippage and low swapping fees.
«Velodrome’s flywheel allows protocols to build deep liquidity in a capital-efficient manner by directing $VELO emissions to their pools» - Velodrome.
Source: Velodrome
By attracting liquidity, the protocol ensures the exchange of tokens and receives the commissions from traders. The Velodrome is a relatively new project, as it was launched only on June 2, 2022. However, the protocol underwent some changes and its fully updated version was presented on June 22, 2023. and was called Velodrome V2.
Velodrome Version 1
As you know, the initial version of the protocol is intended for token swaps by attracting liquidity. For depositing assets, Velodrome rewards liquidity providers with the issuance of Velodrome crypto (VELO tokens). They are distributed among liquidity pools in proportion to the votes each pool has.
In addition, investors must stake their contributed assets to receive $VELO crypto. Those users who already directly own VELO can lock the tokens in order to gain the right to participate in voting regarding the distribution of emissions.
Velodrome Version 2
In order to provide new functionality to the protocol, it was completely redesigned from scratch. The new version of Velodrome allowed the protocol to implement a number of new features, such as decentralization, dynamic fees and emissions rate, concentrated liquidity support and Velodrome Relay. Besides, Velodrome V2 boasts updated performance and an improved user experience thanks to the new dApp. Thus, the updated version of Velodrome app represents an important architecture for v1.
An important part of Velodrome V2 is a liquidity pool factory registry which allows you to add new types of liquidity pools, thereby providing users with more options. Thanks to the V2 architecture, investors will have access to multi-tokens, custom pools and much more. It was also Velodrome V2 that released a new $veVELO token, convertible 1 to 1 with the V1 token - $VELO.
It is necessary to mention that Velodrome V1 and V2, as well as their tokens, operate in parallel and ensure that emissions are completed according to schedule.
Source: Velodrome
Velodrome Tokenomics
Velodrome token
- Total supply: 400,000,000 VELO
- All-time high VELO price: $0.2534
- All-time low VELO price: $0.005446
- Current VELO price (Jan, 2024): $0.0606
Velodrome Finance has two native tokens - $VELO and $veVELO. $VELO is an ERC-20 utility protocol token and is distributed as a reward to liquidity providers. $veVELO, in turn, is a governance ERC-721 NFT token.
Any user who owns $VELO crypto can vote-escrow their tokens and receive $veVELO in return. In addition, holders of both tokens can vote on which liquidity pools will receive the VELO issuance.
Why Invest in Liquidity Pool Provision with Velodrome?
As you know, liquidity pool provision is a fairly important part of the world of decentralized finance, since it allows users and investors to make swaps and receive fairly high profits. By providing liquidity to the pools, users receive additional tokens that can be used for staking, yield farming, and other purposes in the crypto space. However, why should you pay attention to this investment strategy with Velodrome?
- High profit. Users who provide their assets to liquidity pools Velodrome earn a portion of the transaction fees that occur in the pool. Thus, the depositor of assets on Velodrome, investors receive a fairly good income. However, it is important to remember that the APR will depend on the asset provided and the pool selected.
- Wide variety of pools. Velodrome offers investors a large number of pool types to choose from. For example, a user can deposit assets in stable, volatile, incentivized and low TVL pools depending on his preparation and willingness to take risks.
- Decentralization. Velodrome Version 2 introduced new functionality to the protocol, an important part of which was decentralization, which is a very valuable part of the crypto space.
- Simple and convenient interface. The updated version of the Velodrome allows users to easily navigate the site and make the necessary financial transactions, such as providing liquidity to pools and do swaps with a huge amount of supported assets.
Source: Velodrome
In today's article from Notum, we will look at two popular investment strategies on Velodrome that will allow you to get fairly high rewards by providing liquidity to the pools.
Investment Strategies on Velodrome
Currently, Velodrome offers users more than 600 liquidity pools and 111 listed tokens. With such a wide variety of options, it can be quite difficult to choose the right investment strategy for you.
Today we will look at two popular pools, by investing in which you can get fairly high rewards in 2024. However, remember that in order to deposit liquidity to Velodrome, you need an Ethereum Wallet, for example WalletConnect, Coinbase Wallet and others.
OP-USDC
Total APY – 40.34%, TVL – $7,09m
This investment strategy allows users to provide liquidity to the OP-USDC pool to receive fairly high rewards that often range from 38% to 42%. The Velodrome V2 pool itself consists of two assets - USDC and Optimism, and profits are generated due to swap fees paid by traders when exchanging. Rewards in this pool are paid in the form of VELO coins.
Source: DefiLlama
WETH-USDC
Total APY – 10.77%, TVL – $4,37m
Another popular pool on Optimism that brings quite good rewards is WETH-USDC, consisting of wrapped Ethereum and USD coin. The income of this pool consists of trading commissions for buying and selling WETH and USDC on the Optimism blockchain and is often around 9% - 12% APY.
Source: DefiLlama
The big advantage of Velodrome Fi is that users can choose the type of liquidity pool that suits their wants and needs. For example, if investors wants to receive a more stable income, they should consider stable pools, and more experienced users who are ready for some risks may prefer volatile options. You can learn more about all the liquidity pools offered by Velodrome here.
Notum’s Verdict
Velodrome is a fairly popular AMM that allows people to invest in a liquidity pool provision to receive high rewards. The platform offers users different pool types and a huge variety of options, so both new and experienced investors can find strategies that suit their needs.
Velodrome Version 2 features improved functionality, namely the proper level of decentralization, an updated and simplified interface, liquid concentrated support, dynamic fees and emissions rate, Velodrome Relay and more. Moreover, Velodrome Finance has two native tokens - $VELO and $veVELO, each of which performs its own functions in the project ecosystem.
Despite existing risks such as market volatility and smart contract vulnerabilities, Velodrome is an excellent platform where you can invest in liquidity pools and earn rewards while contributing to the development of the DeFi space.
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Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.