Today marks the launch of Velodrome’s V2 AMM model, the latest update promising to deliver a host of new features to the protocol, and kick things up a gear for DeFi users on the Optimism blockchain. As long-standing partners of Velodrome, we’re looking forward to ushering in the new design, and capitalizing on lots of new opportunities for Beefy vaults.
Velodrome V2 also means important updates to some of our vaults and our $beVELO token - which is a liquid-staking derivative of Velodrome’s $VELO governance token. This post has all the details you need to understand the background, what the V2 update includes and how the change impacts on $beVELO. Let’s dive in. 👇
As a quick recap, Velodrome launched as the first native AMM on Optimism in May 2022, just as Optimism was beginning to pick up speed. As an early example of a successful ve(3,3) AMM, Velodrome was able to embed the cutting edge of decentralized exchange technology in the roots of Optimism’s ecosystem, delivering a strong DeFi experience and bountiful farming opportunities for new arrivals.
After the $OP airdrop, Velodrome has become one of the most important DEXs on Optimism. It was also promptly joined in the list of largest protocols on the chain by Beefy, as the two projects launched scores of new Velodrome vaults for our users.
Together, Beefy and Velodrome have had a strong first year on Optimism. Both were recipients of Optimism community grants and have used them to distribute massive quantities of $OP tokens to users throughout the year. Velodrome has hosted two of Beefy’s largest liquidity pools with new $BIFI-OP and $BIFI-ETH pools. And Beefy launched $beVELO - the largest liquid-staking derivative of Velodrome’s $VELO token. That all adds up to an enormous amount of added value for our users.
With its V2 update, Velodrome will now be supporting concentrated liquidity pools, allowing users to optimize trading fees on their liquidity. As a reminder, concentrated liquidity was pioneered in Uniswap’s V3 update, and allows the liquidity provider to specify a price range for their liquidity… the narrower the range, the more focused the liquidity and the more trading fees are earned on it. On the flipside, if the pool’s price falls outside the range, the provider won’t earn any fees.
Velodrome will be launching a new governance token to facilitate the new functionality - $VELO V2. The V2 update will include a V1 token convertor pool, where existing $VELO tokens can be swapped to the V2 version at a 1:1 rate at any time without limitation. The pool will also be able to be used as a router for seamless integration into other smart contracts.
As with all major protocol upgrades in DeFi, the V2 launch will not directly impact the existing V1 contracts, but is instead designed to sit alongside and interact with V1 to introduce the new functionality. Over time, it’s expected that liquidity will gradually migrate to the newer solution leaving the V1 contracts to gradually fall out of use. However, Beefy will continue to maintain and support any live V1 contracts which retain their functionality and TVL after the V2 launch.
With the move to Velodrome V2, Beefy will be gradually introducing new vaults covering V2 liquidity pools and deprecating old vaults as Velodrome’s liquidity migrates to the new version. In particular, vaults using the $VELO tokens will be promptly upgraded as $VELO V2 takes over the reins and the existing tokens are retired.
Naturally, this means that our existing $beVELO token and vault will no longer operate as designed as the $VELO V1 token is gradually retired. Instead, we’ve been working closely with the Velodrome team on a migration plan to ensure the funds in our $beVELO vault continue earning until redeemed.
With the launch of V2, Velodrome will implement a special gauge to allow current $beVELO votes to be used in exchange for $VELO V2 emissions. The V2 tokens will then be returned back to the $beVELO vault that stakers can claim from. As $beVELO will still hold V1 tokens, the V2 tokens won’t be compounded into the vault and instead the vault will function like an Earnings Pool, allowing rewards to be claimed and then put to use elsewhere at any time. The underlying $VELO V1 in the $beVELO pool will still have the same redemption options, and Velodrome have committed to allow V1 to V2 swaps at a 1:1 ratio at any time.
As with any major upgrade, Velodrome’s V2 gear shift presents Beefy with new opportunities to farm yield and deliver value to our users. We’re excited to be kicking things off on launch day, and seizing on all the new opportunities for yield on Velodrome V2.
So what are you waiting for? Time to shift gears, and get more mileage out of Velodrome V2 with Beefy. 🚴♀️🚴♀️🚴♀️