Aerodrome Finance

AERO 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:

• First, users lock AERO to veAERO (the lock-up condition)
• Then, the AERO->veAERO lock-up unlocks two distinct value streams

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.

The primary function of the AERO token is yield-incentivized governance:

• The governance rights are only activated after the AERO -> veAERO lock-up.
• Locked veAERO position enables participation in governance decisions regarding emission distribution and other matters.
• Active participation in governance is rewarded with protocol fees

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.

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.

• The mechanism automatically distributes rebase emissions to veAERO holders based on their proportion of the total veAERO supply.
• The yield generation is calculated by the relationship between the locked veAERO supply and the total AERO supply.