Written by Blockworks Research

Compiled by Alex Liu, Foresight News

@AerodromeFi is a "MetaDEX" that combines elements of various DEXs such as Uniswap V2 and V3, Curve, Convex, and Votium. Since its launch, it has become the largest protocol on Base by TVL, with a total locked value of over $495 million, more than double Uniswap on Base.

TVL growth curve of Aerodrome and Uniswap on Base

Architecture

Aerodrome’s success can be attributed to its unique architecture — which aligns incentives between different protocol participants, including traders, LPs, and protocols seeking to bring liquidity to the token, and does so through its Ve governance model.

Participants must lock up AERO tokens in order to collect fees. Locking up AERO tokens enables users to direct the protocol’s token emissions to specific pools where they will receive 100% of the fees and emissions.

Due to incentives, voters direct token emissions to the pools with the highest transaction volume in order to receive the most rewards. This creates a flywheel effect that attracts LPs (liquidity providers), which in turn provides traders with a low-slippage trading experience on popular token pairs. This has brought significant growth to the protocol, which is well reflected in the surge in transaction volume.

Innovation

The latest protocol upgrades include Relay and Slipstream. Relay automates the governance of liquidity providers, allowing them to deposit voting tokens in vaults to optimize voting and automatically re-vote for reward compounding.

Slipstream brings a centralized liquidity pool to Aerodrome, providing better execution prices for high-volume token pairs. Since launching Slipstream on April 22, Aerodrome has achieved higher TVL, higher fees, and higher volume share than Uniswap, at 68%, 51%, and 60%, respectively.

Ecology

Another important factor in Aerodrome’s success is their bet on Base. The Base ecosystem has experienced incredible growth since its launch, currently seeing over 3 million transactions per day (excluding known system transactions).

With over 110 million customers, Coinbase’s Smart Wallet will provide a mechanism to bring millions of users directly into Base through a simple user interface reminiscent of Web 2.0 applications.

The overall correlation between Base’s daily transaction volume and the AERO token is 0.86. While it is difficult to prove whether this correlation is statistically significant, it is compelling evidence that AERO will benefit from increased adoption of Base.

Aerodrome has experienced significant growth, but investors should be aware of potential risks, including competition from Uniswap. Learn more about it in @_dshap’s latest report.