Aerodrome Finance is a further development of the Velodrome AMM model; it is an AMM endowed additionally with a liquidity incentive program and a governance model.
The primary function of the AERO token is yield-incentivized governance:
This means that token holders can obtain protocol fees under two conditions: (1) locking AERO in veAERO and (2) participating in voting using the veAERO position.
Please note, that veAERO holders receive all trading fees generated by LPs. In turn, LPs receive newly minted AERO tokens according to governance decisions.
Value drivers
represents the necessity to lock AERO in vote-escrow contract in order to activate its utility
Represents AERO lock-up for a period of up to 4 years, with a natively enabled permalock feature (in the sense of the ability to automatically extend the lock indefinitely). Voting power is linearly proportional to remaining lock time.
Note, that locking transforms ERC20 AERO tokens into an ERC721 NFT representing a user's locked position.
[7] = ƒ(lock_time, price_at_lock, locked_quantity)
Represents participation in protocol governance (voting) to acquire governance value (bribes) and receive additional incentive (protocol fees)
Represents participation in protocol governance (voting) to acquire governance value (bribes) and receive additional incentive (protocol fees)
Base deployment addresses are available here).
The AERO inherit VELO codebase. The token's value capture implementation follows a structured flow where users interact with multiple protocol components.
[8] = binary
represents Aerodrome protocol fees yield, distributed to active governance participants
Reflects cashflow, originating from Aerodrome trading fees and distributed accordingly to veAERO weight .
All trading fees of each pool are given up by the LPs and used to remunerate the veAERO holders voting for emission of AERO to this pool proportionally to the weight of their vote.
The LPs are instead compensated in the form of AERO emission (see Governance).
[21] = ƒ([8], pool_fees, pool_incentives)
represents governance value that originates from influencing AERO emission distribution and emission policy
Represents governance value originating from influencing protocol-wise decisions, first of all AERO emission.
Holders of veAERO NFTs are able to vote on the following questions:
The governance value is accounted in monetary form (bribes). Bribes existence allows veAERO holders to generate value from external stakeholder interests (bribes/incentives), creating a market for governance power. Added to the cashflow section chart.
[3] = ƒ([8], user_vote_allocation, user_strategy_representation)
This token function represents the yield originating from the protocol's anti-dilution mechanism (rebase emissions). It ensures that long-term holders maintain their proportional ownership of the protocol.
This yield becomes available immediately after the veAERO token lock-up, with no additional actions required.
Value drivers
represents the necessity to lock AERO in vote-escrow contract in order to activate its utility
Represents AERO lock-up for a period of up to 4 years, with a natively enabled permalock feature (in the sense of the ability to automatically extend the lock indefinitely). Voting power is linearly proportional to remaining lock time.
Note, that locking transforms ERC20 AERO tokens into an ERC721 NFT representing a user's locked position.
[7] = ƒ(lock_time, price_at_lock, locked_quantity)
represents the yield and protects veAERO from inflationary dilution. It arrives from rebase mechanics and is received proportionally to the amount of veAERO.
Reflects the rebase yield distributed to veAERO holders for inflationary dilution protection. Typically, when an inflationary token is vote-locked, the relative weight of a user's position decays due to inflation. However, AERO inherits the VELO mechanism design and uses an integral offset of this risk in the form of emissions (rebases) directed to all veAERO holders.
[22] = ƒ([7], veAERO_supply, AERO_supply, emission_total)
emission_total — is the total token epochal emission volumeveAERO_supply — is the supply of veAERO; that is, the totality of the voting power that determines the size of the locked portion of AEROAERO_supply — is the total supply of AERO. Acts as a normalising coefficientAERO inherits token model and value-capturing mechanisms first appeared in Velodrome (VELO).
AERO has a single Value-Capturing Mechanism composed of two OoVs (Future Cashflow and Governance) conditioned on Risk Exposure-activated Conditional Action and one OoV (Future Cashflow) conditioned only on Risk Exposure (veAERO lock-up).
The value-capturing mechanism operates through a dual-track value capture system:
The first stream requires active participation through voting or delegation to capture both governance benefits over emission distribution and associated rewards from fees and incentives. The second stream automatically generates value through rebases based solely on the locked position, creating a baseline reward for lock-up commitment.
This architecture creates a balanced system that rewards both passive commitment and active protocol participation, while ensuring that maximum value capture requires full engagement with protocol governance.
Aerodrome uses a portion of its fee proceedings to finance AERO buybacks through various programs.
The bought-back tokens are not burned, but rather, locked to veAERO, which decreases the liquid supply but increases the supply of revenue-generating tokens.
This does not engender a deflationary appreciation in the usual way.
Value drivers
Reflects the passive appreciation for all AERO holders due to the buyback program
Due to the AERO buyback program, all AERO holders have an unconditional exposure to passive appreciation of the token due to the constantly exerted upward price pressure.
[23] = ƒ(circulating_supply, buyback_volume)
circulating_supply — is the total circulating supply of AERObuyback_volume — is the bought back amount of AERO in a given timeframe