Research Summary
This report provides an in-depth analysis of Aerodrome’s core mechanism Ve(3,3) and the Flywheel Effect, which allowed the protocol to attract nearly $200 million in Total Value Locked (TVL) within just 24 hours of its launch. The report explores the Ve(3,3) mechanism, its evolution, and its game theory. It also discusses the operation of a flywheel, the upward and downward spirals, and strategies to regain the upward spiral. The report concludes with a brief outlook on the future of ve(3,3) protocols.
Key Takeaways
Aerodrome’s Core Mechanism Ve(3,3)
- Ve(3,3) Mechanism: The Ve(3,3) mechanism of Aerodrome is a combination of Curve’s veCRV model and OlympusDAO’s 3v3 game, aiming to balance the holder and trader in the supply and bring more protocol revenue to projects that join the Ve(3,3) protocol.
- Ve and (3,3) Mechanisms: ‘Ve’ stands for Voting Escrow, representing the process of staking Curve’s governance token, CRV, to obtain VeCRV, which allows for more rewards as a liquidity provider. ‘(3,3)’ is derived from OlympusDAO’s (3,3) game theory, offering three options for the $AERO they acquire: providing liquidity with $AERO, locking $AERO to obtain $veAERO for long-term holding, and selling $AERO.
- Ve(3,3) Core Participant’s Profit Game: The game between $AERO liquidity providers and $AERO lockers, long-term holders, will collectively determine the fate of the protocol. The game can result in three distinct outcomes: win-win, one-sided profit, and mutual loss.
The Operation of a Flywheel
- Flywheel Effect: The flywheel effect in Aerodrome refers to the protocol’s fundamentals (TVL, trading volume, and the total amount of external protocol bribes) and the protocol token $AERO making up a two-tiered flywheel. This creates an upward spiral in the protocol’s value.
- Upward Spiral and Downward Spiral: The upward spiral can be broken when selling pressure and buying pressure reach equilibrium. If selling pressure outweighs buying pressure, the $AERO price will decline, ushering in a downward spiral.
- Breaking the Downward Spiral: Increasing the lock-up rate, firmly aligning the interests of protocol participants with the protocol’s development, can help break the downward spiral.
Actionable Insights
- Granting Lockup Rewards: Providing a one-time reward to protocol lock-up participants is a direct approach to increase the lock-up rate for the core health indicator of ve(3,3) tokens.
- Launchpad Empowerment: ve(3,3) protocols can empower token lockers through a Launchpad, thereby increasing the protocol’s locking rate and enhancing its overall health.
- Maximizing Profits: Many participants in ve(3,3) protocols still do not know how to maximize their profits through such protocols. Understanding the mechanisms and strategies can help participants make informed decisions.
