[FIP - 362] Velodrome on Fraxtal - Proposal for Incentives for Liquidity Growth

Governance Proposals Miscellaneous
1

Executive Summary:

This proposal aims to develop an impactful liquidity program to support Velodrome’s expansion on Fraxtal. Velodrome’s vision to expand the MetaDEX across the Superchain is an ideal fit for Fraxtal’s goals to rapidly grow its ecosystem.

This proposal asks for $1M in incentives to build deep liquidity on strategic pools for Fraxtal. Liquidity incentives are critical for bootstrapping a new ecosystem, and getting emissions flowing early will kickstart the flywheel. Deep liquidity is essential for ecosystem development, and Velodrome has a proven track record of attracting users, boosting economic activity, and retaining TVL. From there, organic activity from new DApps, users, and protocol integrations will sustain Fraxtal network activity.

Introduction to Velodrome and Superchain Vision

Velodrome’s MetaDEX design is a powerful tool for bootstrapping liquidity at both the protocol level and chain layer. By bringing multiple primitives under the same roof, Velodrome provides a seamless, interactive experience for traders, protocols, and governance participants.

Velodrome has a unique flywheel design (docs). veVELO holders vote each week to direct $VELO emissions to liquidity pools. In exchange, voters receive 100% of swap fees and protocol incentives from the pools they vote for, creating a self-balancing mechanism that drives $VELO rewards to the most productive pools. Protocols and chains can bootstrap liquidity for their pools by depositing voting incentives. The trading volume supported by the pools will attract additional $VELO by capturing fees for veVELO voters.

Velodrome launched in June, 2022 on Optimism and has since attracted over $150M in TVL and generated >$9.2b in trading volume. Optimism has granted >5M OP grants to Velodrome to help grow liquidity and tooling for the expanding Superchain ecosystem. Velodrome has one of the most engaged and educated DeFi communities, with over 13,000 veVELO addresses who participate in weekly governance.

With its Superchain vision, Velodrome is developing the architecture to provide a liquidity layer for the interoperable, scalable Optimism stack ecosystem. Velodrome launched its first multichain implementation on Mode, reaching a TVL of ~$4.5m before VELO incentives are live. Velodrome has also announced plans to service BOB, Lisk, Metal and many other unannounced Superchain L2 deployments.

Proposal

Velodrome requests $1M to provide voting incentives to be allocated across the pools with the Fraxtal team’s guidance. Each $1 of voting incentives would lead to roughly 1.5X VELO rewards for LPs. The incentives will be deployed over a period of 12 months, prioritizing liquidity for strategic pairs for the Fraxtal ecosystem. A draft model for the first month of liquidity incentives and pool details can be found here.

Milestones

Initial Velodrome Deployment on Fraxtal

  • Velodrome Superchain Beta or Superchain 1.0 (whichever is code complete) will launch on Fraxtal. Abovementioned pools will be created and liquidity will be seeded by a combination of the Fraxtal and Velodrome teams.

Emissions Go Live

  • Rewards will either be deposited directly or directed by veVELO voters to the original list of pools to generate the expected APRs for LPs.
  • $5m TVL is the goal by the end of the first epoch following the start of LP emissions.

Expansion

  • Marketing - Velodrome will regularly highlight the APRs available for LPs on Fraxtal in order to increase awareness and bring in greater liquidity to the ecosystem. Velodrome has an active Discord server and X account with over 238,000 followers.
  • Business Development - Velodrome will actively seek out our existing liquidity partners that make a good fit for Fraxtal. We regularly coordinate with >100 liquidity partners (DeFi, RWAs, Perps, memecoins, etc) across the Optimism Superchain and many are interested in going multichain.
  • Direct voting - The Frax and Fraxtal teams can deposit POL to accrue VELO and increase veVELO voting power and boost LP rewards for select pools.
  • $10m TVL is the goal by the end of the first month following the start of LP emissions.

Future

  • Velodrome’s concentrated liquidity pools, Slipstream, will be deployed for maximum capital efficiency for LPs and order execution for traders
  • DEX aggregator integration
  • Maintenance with liquidity partners on Fraxtal - coordinate weekly incentives strategy to ensure satisfactory TVLs for all stakeholders (protocols, chain, traders)

About the Velodrome Core Team

  • Alexander: Background in politics, technology, and consulting, including time working for the Obama campaign, Apple Inc, and consulting with numerous Fortune 500s.
  • Tao: Background in economics and finance; experience as strategy lead for a large asset manager in Switzerland and at Big Three consulting firm.
  • Jack: Optimism delegate and growth grants committee member
  • Stas: Open Source contributor to Ubuntu, Mozilla, WordPress. Tech lead and maintainer of multiple open source projects on Github. Prior to Velodrome I led the architecture and integrated able.com with multiple banking/fintech services and wrote their initial US tax calculator.
  • ZoomerAnon: Software developer working in crypto on dapps, analytics, and open source tools since 2019. Maintaining free wallet tracking software and publicizing information about smart contract exploits.
  • Methodic: Enterprise tech sales background; experience across the full sales cycle, sales development team management and recruitment.
  • Dan: Data strategist with experience in the U.S. education sector at public, non-profit and private organizations. Educational background in economics and public policy.
  • Ace: Co-founder of Four Moons. Experience in liquid fund management and crypto startup advisory. Previously executive in renewable energy project development and operations.

Vote

  • For: Allocate $1M worth of FXS in incentives to build deep liquidity on strategic pools for Fraxtal on Veloderome for period of 12 months
  • Against: Do nothing
4 Likes
2

You mention “In partnership with the Fraxtal team”. Can we get a team member to confirm this partnership? Is this proposal made in collaboration with them?

During your milestones part “emissions go live” you mention $5M TVL is the goal by the end of the first epoch. How long is an epoch? Is it the whole year the incentives will run? A week? A month?

Other than that, looks like a solid proposal that have the potential to be positive for Fraxtal.

1 Like
3

I’ll let the team respond to your question about the partnership, but yes we have been working with Frax for a long time (liquidity partners on both Velodrome and Aerodrome), and spoke about posting this proposal in the DAO before anything can move forward on Fraxtal.

Each epoch is 7 days long (00 UTC Thurs is the flip). And yes, incentives are proposed for one year.

1 Like
4

I support this proposal, but would like to hear from the team to confirm where the $1m incentives would come from and it’s money they have to spend. Less of a concern, more just details I’d like to know.

5

Hey @Sharkysnakefish, we acknowledge that this proposal comes from a respected and credible team. We have reviewed it internally but were not involved in setting specific terms like the total budget. However, we plan to collaborate closely with the Velodrome team to create a detailed, milestone-based fund allocation upon acceptance. We welcome any feedback, questions, or new ideas from our community.

1 Like
6

1 Million seems too high off the bat. A more measured approach would be more acceptable. Perhaps start with asking for $250,000 for 6 months and we can see how the program goes.

I think @amirnader is on the right path here. Having a KPI based allocation as opposed to giving a lump sum “trust us bro” deal is a bit more prudent.

1 Like
7

Committing to the $1m over a full year demonstrates Fraxtal’s commitment to growing liquidity for the chain and allows both teams enough time to strategically allocate incentives and be flexible when opportunities arise. I’m sure all of the stakeholders would prefer to spend time on growing the chain for efficiency’s sake.

Just to reiterate, the $1m in voting incentives will yield >$1.5m in VELO incentives for liquidity providers. Additional voting incentives should be anticipated from future liquidity partners that expand to Fraxtal, and new protocols that choose to utilize Velodrome on Fraxtal as their liquidity hub. This framework has been proven to build significant TVL on Optimism and Base (Aerodrome).

Also, $1m is the same number all Superchain L2s are pledging, it is not an arbitrary number. A monthly budget of ~$83k across a minimum of 8 pools is very reasonable.

Mode: x.com
Lisk: x.com

Obviously, fewer voting incentives would lead to fewer votes and VELO rewards for LPs. There is a direct relationship between VELO and TVL, so I’d pose the question back to you about what you see as success? How would you like to see the program go?

1 Like
8

I am positive for the proposal, however $83k being reasonable depends wholly on how much of our monthly profits this will be. It is a big difference if its 20% of our profits, or 1%. Would be nice if you could get a estimate number on that by talking with the team.

Also another question. Do you have any statistics on how sticky the liquidity is after the incentive period have ended? Or is the idea to be a ongoing incentives program with y2, y3… coming in the future?

1 Like
9

It’s a good proposal. Nevertheless still want to understand the reason behind 1mn rewards. Is it in Frax denomination or $fxs ?

Also care to explain how doe it work “$1m in voting incentives will yield >$1.5m in VELO incentives for liquidity providers”

Wouldn’t it be the other way around, with larger VELO inflation, LPs might actually loose out on dilution ?

10

The goal for any liquidity bootstrapping is to attract liquidity from protocols that generate organic trading volume/demand. Eventually, veVELO voters are expecting to generate the majority of rewards from swap fees.

Long term, we believe the Velodrome team’s focus on security, decentralization, and a strong social layer differentiate us from other DEXs, and the deepest liquidity will remain on the DEX, which drives volume.

However, Velodrome has always been creative at building new incentives programs or seizing opportunities provided by the Optimism foundation. We will continue to work at the Superchain governance level should opportunities for Fraxtal arise.

11

The denomination is up to the Fraxtal team. FXS is obviously one of the assets on the Superchain L2, but it’s possible the points will lead to another token. That’s not information we are privy to, so we left this open.

The $1 voting incentives/$1.5 VELO is the current multiplier protocols are benefiting from. This is a function of the price of VELO and TVL across the DEX. veVELO voters receive the voting incentives in exchange for their votes that direct VELO to LPs.

VELO inflation is immutable. That is not part of this proposal and will not be changing from the stated tokenomics: Velodrome Finance

12

This proposal is up for voting here: Snapshot

13

This proposal is up for voting here: Snapshot

14

I’m in favor.

Reasons:

  • I expect liquidity incentives to be a nett positive for FRAX
  • FRAX was airdropped a large VELO position (veNFT), current value >500k USD (DeBank | The Real User Based Web3 Community)
  • Velodrome has been highly successful and is the leading DEX on the OP Stack
  • More shit to do on Fraxtal