Aerodrome: The Onchain Liquidity Engine

Aerodrome combines the best features of previous DEXs—tokenomics inspired by Curve/Convex for improved governance and emissions, centralized automated market makers (clAMM) inspired by Uni v3 for capital-efficient exchanges, and enhancements to the Solidly codebase.

Original Title: "Aerodrome: The Onchain Liquidity Engine"

Authors: Bryan Tan & Arthur Cheong

Compiled by: Felix, PANews

Before discussing Aerodrome, let's understand some background knowledge about DEXs.

Breaking the Stalemate of DEXs: Why Traditional Models Fall Short

The development of DEXs has been accompanied by a fundamental struggle: balancing the interests of multiple stakeholders while maintaining sustainable growth. Two key challenges have plagued traditional DEX models:

1. Balancing Interests:

DEXs must serve three different groups simultaneously: traders seeking efficient markets, liquidity providers (LPs) pursuing yields, and token holders demanding appreciation.

Uniswap, as a typical representative, directs 100% of the fees to LPs, leaving UNI holders without direct protocol revenue. Meanwhile, Curve adopts a neutral stance, splitting CRV between LPs and veCRV holders. However, as the release volume decreases, this model faces sustainability issues.

The result is a continuous tug-of-war, leading to suboptimal returns for all parties involved.

2. Issuance Dilemma:

The summer of DeFi in 2020/21 exposed the flaws of strict issuance plans, with countless Uniswap v2 forks attracting liquidity through token inflation, resulting in fierce competition.

Curve's innovative veCRV system introduced bribery as a mechanism to guide liquidity, but it produced unintended consequences: voters maximized personal interests through bribery rather than supporting pools that generated sustainable protocol revenue.

Even Andre Cronje's Solidly, which attempted to address these issues, fell victim to its design flaws—early issuance and token whitelisting ultimately undermined its effectiveness.

Every iteration of DEX design has attempted to tackle these fundamental challenges, but none have fully resolved them to date.

Aerodrome: The MetaDEX Revolution

Aerodrome combines the best features of previous DEXs—tokenomics inspired by Curve/Convex for improved governance and emissions, centralized automated market makers (clAMM) inspired by Uni v3 for capital-efficient exchanges, and enhancements to the Solidly codebase.

These features provide a solution to align incentives across parties and position it as the preferred venue for user trading.

veAERO holders can earn 100% of the fees and bribes from the pools they vote on as compensation. This incentivizes them to direct emissions and fees toward the pools with the highest returns, ultimately benefiting the protocol.

LPs will receive 100% of AERO emission incentives and will fund the pools with the highest yields.

Traders benefit from the high liquidity of the DEX, allowing for better execution compared to other exchanges.

Notably, since the launch of Aerodrome Slipstream (Uni v3-style clAMM) in April this year, Aerodrome's market share in the Base DEX market has surged to 63%, effectively replacing Uniswap.

Compared to Uniswap V3 on Base, Aerodrome Slipstream has achieved absolute growth in numbers while overall achieving higher capital efficiency. This dominance becomes even more apparent considering the numerous scam tokens present on Uniswap.

Moreover, Aerodrome is also the highest fee-generating application among all dApps on Base.

The Rapid Rise of Aerodrome

In the past year, Aerodrome's TVL has skyrocketed 12 times to $1.3 billion, accounting for nearly 50% of Base's TVL. Notably, from March to September, Aerodrome's TVL continued to grow amidst a turbulent market, demonstrating resilience.

At the same time, Aerodrome's monthly trading volume surged 111 times, reaching $16.5 billion by the end of October. Additionally, Aerodrome's share of total DEX trading volume has risen to 8.5%. In recent months, despite an overall decline in DEX trading volume, Aerodrome's trading volume has continued to grow.

The Coinbase Effect

Base plays a key role in Coinbase's strategy to promote crypto utility and reduce on-chain transaction complexity. They have pioneered several ecosystem initiatives, such as integrating Base into the Coinbase smart wallet, hosting hackathons, and partnering with institutions like Stripe for fiat-to-crypto conversions on Base. As a result, Base is currently the largest rollup by TVL, with approximately $2.7 billion.

As the largest dApp on Base, Aerodrome is benefiting from Base's rapid expansion. Base's DAU and daily trading volume have steadily increased over the year, contributing to the usage of Aerodrome.

Protocols on Base hold nearly 10% of veAERO, aiming to enhance the liquidity of their governance tokens by locking AERO and voting to direct issued tokens to their own pools. With the growth of users and economic activity on Base, it is expected that future protocols launched on Base will follow suit, stimulating demand for the $AERO token.

With Coinbase's decision to launch cbBTC to challenge WBTC, economic activity on Base is