Velodrome Finance

Velodrome created this value-capturing mechanism as a version of original Curve vote-escrow. The differences with Curve's veCRV are: (1) dilution protection, offsetting inflation to all veVELO lockers (via rebase) (2) protocol fees are obtainable only for active governance participants (3) all LP fees are distributed to veVELO stakers, accordingly to particular pools they voted for emissions; in turn, LPs receive new VELO token emissions

VELO 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 (veVELO lock-up).

The value-capturing mechanism operates through a dual-track value capture system:

• First, users lock VELO to veVELO (the lock-up condition)
• Then, the VELO->veVELO 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.

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

• The governance rights are only activated after the VELO -> veVELO 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 VELO in veVELO and (2) participating in voting using the veAERO position.

Please note, that veVELO holders receive all trading fees generated by LPs. In turn, LPs receive newly minted VELO 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 veVELO token lock-up, with no additional actions required.

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