The Base ‘MetaDEX’ has become one of the fastest-growing protocols of the year.
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Since its launch, “MetaDEX” has consistently ranked among the most popular applications on the Base L2. The protocol now manages $1.3 billion in total value locked (TVL), accounting for 50% of all Base smart contract deposits, and its AERO token has been a standout DeFi asset this fall, rising 125% since early September.
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Previously, Aerodrome’s TVL had been stable around $500 million, but a sharp increase in early September fueled renewed interest. The earlier stagnation had been a significant obstacle for AERO’s price, with the token trading 80% below its all-time highs before rallying in September’s bullish surge.QU
Like many decentralized exchanges (DEXs), Aerodrome uses an automated market maker (AMM) model, enabling quick, low-slippage trades and easy liquidity provisioning across hundreds of cryptocurrencies.
As a “MetaDEX,” Aerodrome stands out with its unique tokenomics, combining Curve and Convex liquidity mechanics with Uniswap’s passive market-making technology. This approach creates an AMM exchange on Base with veTokenomics, allowing token holders to vote on emission allocations to specific liquidity pools, enhancing both liquidity and user engagement.
In contrast to Curve, which allocates only 50% of its swap fee revenues to veCRV holders, Aerodrome ensures that 100% of its application swap fees are returned to veAERO participants. This model allows those who lock more tokens for extended periods to enjoy enhanced voting power and increased reward rates. Although liquidity providers on Aerodrome do not benefit directly from token swap proceeds, they receive compensation through inflationary AERO emissions, which can be retained, sold, or utilized for vote-escrowing.
Through Aerodrome’s incentives market, users have the opportunity to lock their cryptocurrency tokens as rewards for veAERO voters, who then direct emissions to specific pools. This mechanism creates a functional liquidity bribery market within Aerodrome, providing an additional revenue stream for veAERO participants. Such a system not only incentivizes participation but also enhances the overall liquidity of the platform.
The week concluding on October 23, 2024, marked Epoch 60, which was recorded as Aerodrome’s sixth-most lucrative week in terms of total rewards and the second-highest in volume. During this period, veAERO lockers accrued $5.85 million in fees and incentives, juxtaposed against an impressive trading volume of $3.63 billion. This performance underscores the effectiveness of Aerodrome’s incentive structures in driving user engagement and liquidity.
The tokenomics of Aerodrome are designed to incentivize long-term holders to secure their tokens, aiming to mitigate the significant inflation rates of AERO, which were recorded at an annualized rate of 37% during the analysis period. This strategic approach encourages participants to commit their assets for extended periods, fostering a more stable investment environment.
Currently, 50% of the AERO supply is locked for an average of 3.86 years, which facilitates price increases even with lower buying activity. The restricted availability of tokens for sale leads to a mismatch between supply and demand, allowing for potential price appreciation as the market reacts to the limited circulation of AERO.
Increases in Aerodrome’s market capitalization is highly advantageous, as they enhance the value of emissions, thereby improving the yields for liquidity providers. This, in turn, attracts new deposits, reinforcing the fundamental bullish outlook for the Protocol and encouraging investors to pay a premium for AERO. However, it is important to note that while veTokenomics can elevate token prices and deposits, they also introduce a level of reflexivity that can lead to volatility, as evidenced by AERO’s significant 80% decline despite stable total value locked (TVL) levels following its peak in April.
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