Velodrome Liquidity Program Extension

Summary:
Across Protocol’s pilot program on Velodrome ended in October. This proposal aims to extend its initial program for 16 weeks in order to ensure sufficient liquidity for ACX on L2s.

The Velodrome team presented this strategy to the Across community on the 29th of November. A summary of the pilot program as well as this proposed extension can be viewed here.

After discussing with the community, this proposal will reduce the amount of ACX incentives required by 70% (from $5K to $1.5K per week) and have Across deploy $200K worth of POL in order to sustain about $400K+ worth of TVL for effectively zero net cost.

Motivation:
L2 adoption continues to gain significant momentum with Across Protocol taking a leadership position in supporting cross-chain activity. Building ACX liquidity on Optimism will further strengthen Across’s presence in the growing ecosystem and allow L2 users to trade and hold ACX at a low cost.

On Velodrome’s pilot program, Across protocol attracted nearly $600K in liquidity by directing ~2X in VELO emissions per ACX incentive to ACX/WETH, following an uptick in incentive efficiency.

By extending the program, Across can leverage the increase in incentive efficiency which, complemented by Velodrome’s renewed OP grant program, will provide significant support for ACX/WETH.

Specification:
On Velodrome, $VELO emissions are directed to liquidity pools based on votes by veVELO (vote-escrow VELO) holders. Protocols such as Across can use veVELO or voter incentives (bribes) to attract votes and emissions for their liquidity pairs.

Protocols bribing on Velodrome tend to receive $2-$3 in $VELO for every $1 they deposit. Major DeFi protocols such as Yearn, Lido, Synthetix and Stargate leverage Velodrome’s mechanics to maintain deep liquidity on Optimism in a capital-efficient way.

Across will extend its initial program for another 16 weeks while strategically reducing incentives from $5K worth of ACX tokens to $1.5K. These will be deposited weekly to attract votes for ACX/WETH. After each epoch is completed on Wednesday at 23:59 UTC, the resulting $VELO emissions from votes will flow to ACX/WETH LPs.

Across may also be eligible for a share of 4000 OP every week whilst it remains in the Top 15 ecosystem pools by voter incentives as part of the current “Tour de OP” incentive program. This amount will be proportional to all other pools in this category and will be deposited as an extra bribe to boost votes further. Details about the current Tour de OP program below.

Protocol Owned Liquidity (POL)
Across Protocol will also create a $200K ACX/WETH POL position and deploy it on Velodrome. This POL will allow Across able to capture a significant portion of the $VELO rewards that will be streamed to the ACX/WETH pool. To build the POL position, Across will convert up to $100K ACX into WETH as needed.

Across will lock farmed $VELO as veVELO in order to build a voting position - Protocol Owned Votepower (POV) - that will direct additional emissions in perpetuity, while earning rewards in fees and incentives. Protocols pursuing a similar strategy are able to reduce reliance on voter incentives over time. They include Stargate, Yearn, Inverse, QiDAO, Thales among others.

Rationale:
Velodrome is the single largest protocol on Optimism and the largest DEX on Layer 2 Ethereum with ~150M TVL. Velodrome’s governance community is one of the most active and diverse in crypto, with ~15K veVELO holders participating in Velodrome’s weekly voting epochs.

Incentivizing liquidity on Velodrome will naturally boost exposure for Across Protocol, as veVELO voters and Liquidity Providers will find ACX near the top of the voting and LP pages respectively.

Costs:
Across Protocol will deploy $1.5K weekly incentives for 16 weeks which totals USD $24K. This is is $11K less than its pilot program which cost $35K. Assuming incentive efficiency remains constant at 2X, Across would capture $1.5K in VELO emissions per week at a 40% APR. In other words, Across can receive 100% of the value of its weekly incentives in VELO, allowing the protocol to sustain $390K worth of TVL for effectively zero net cost.

As Across locks its farmed VELO into veVELO throughout the 16 weeks, it will also end up with a veVELO position which will enable the DAO to claim weekly rewards made up of fees generated by the pool as well as claim back a portion of the weekly incentives deposited.

At the end of the 16 week period, the DAO can assess results and decide on whether to continue or suspend its program. The Velodrome team will also conduct a review at the end of the program and provide recommended optimizations to its strategy

Implementation:

  1. Risk Labs to swap $100K worth of ACX to WETH
  2. Deposit $200K ACX/WETH LP position and stake this on Velodrome
  3. $24K worth of ACX tokens to be sent to Risk Labs multisig (0x8180D59b7175d4064bDFA8138A58e9baBFFdA44a)
  4. Risk Labs to deposit $1.5K worth of ACX incentives every week for a period of 16 weeks
  5. Lock farmed VELO emissions into veVELO to build Protocol Owned Votepower and vote for the ACX/WETH pair

Voting:
Yes - move forward with program extension
No - do not move forward with program extension
Abstain - no vote

Do you support this proposal?

  • Yes
  • No
  • Abstain
0 voters
8 Likes

Hey all looking forward to your thoughts/comments/feedback. Particularly around whether you’d support the implementation of a more optimized liquidity program starting with some POL. As Across currently does not have any POL, this would require the DAO to approve swapping some $ACX tokens for WETH to deposit into the ACX/WETH pool.

2 Likes

I am a big fan of having liquidity on L2’s to allow users to trade ACX in a more affordable gas environment. However, after looking over the numbers here this seems like a very expensive and unsustainable option to maintain L2 liquidity. We paid $35K in ACX($42K by today’s price) in order to facilitate $277K in volume. I feel like we should continue to support L2 liquidity but the cost was higher than necessary in my opinion and I’d like to explore what other options we may have.

4 Likes

I 've been using velodrome since we started the liquidity programme and been happy with the returns but take the point that it sounds expensive.

2 Likes

use and like both Velodrome and Across.
Sounds good, Go ahead.

ref: A proposal is live to extend’s pilot program on Velodrome for 16 weeks,

1 Like

One of the best combos on Optimism! Big yes from me! Lets keep it and make it bigger! Across is working hard to enhance the Cryptoverse and having strong liquidity helps!

i think @TheRealTuna_Across highlights some important points about cost.
@Methodic how does this compare with what we had with Aura in the past? And also comparison to volumes we have on L1.
L2 liquidity is always nice to have, but L1 liquidity probably more important given LPs are all on L1 and all rewards are paid there.

I think this is too expensive in terms of $ACX to pay for liquidity on L2s. I’d prefer to see something more cost effective or not incentivize liquidity of the token at all.

I’ll have a chat with the team to see if we can do some kind of direct comparison.

In the meantime, a couple things we noticed but it looks like throughout program the Velodrome pool wasn’t listed on the Across farm page Across Protocol – Transfer Assets Between Layer 2s and Mainnet - could this be updated on the UI if this extension gets aproved?

Also correct me if I’m wrong but I believe Across gives out extra ACX to Balancer LPs? So on raw stats it’s hard to benchmark apples to apples.

In terms of VOL/TVL, looks like Velodrome liquidity is pretty much on par with Balancer

But yeah definitely if you’re looking for something cost effective, that is why we are suggesting in this program extension to trial a more optimized strategy incorporating Protocol Owned Liquidity.

With a large enough POL position relative to total TVL of the ACX/WETH pool, VELO rewards farmed could match or exceed the value of incentives deposited every week. Or at the very least, reduce the net cost of incentives.

Stargate’s program shows how effective this is where they own a sizable % of their TVL with POL and locked most of the VELO farmed to build a veVELO voting position. Now in addition to the value they’re capturing from their POL, they’re also capturing a large percentage of the rewards from their pool each week to be incentivizing on Velodrome for a profit. To be exact, they’ve averaged about $8K in profit every week during the entirety of their program (total value of emissions from their POL and rewards from their veVELO position vs the value of the incentive they deposited).

What would help here is if we knew how much $ACX tokens could be earmarked to be converted into $WETH to pair with on Velodrome. Then we can run some calculations to project the net cost (or profit) of the program. If no specific numbers can be given, we can go ahead with some example scenarios e.g. $25K POL, $50K POL, $100K POL so on.

Just to clarify a few things. Across rewards page is only for LP tokens that can be staked to earn ACX. Balancer LP tokens can be staked for reward locking now; however, when Across DAO was paying bribes to Aura it was not on the reward page. So it’s only meant for reward locking.

The DAO voted to stop Aura bribes and instead use Across’ own reward locking. That is why there are ACX reward being paid. It actually is a very good comparison for Velodrome.
Across reward locking base emissions were equivalent to about 98k ACX per 2 weeks - this was in comparison to Aura bribes of 150k ACX per 2 weeks which we discontinued.
Velodrome was given 150k ACX per 2 weeks as well. So pretty much an apples to apples comparison. For the Across DAO I believe we should be evaluating how much liquidity we get given how much ACX we are spending.
hope that makes sense

yes vol/tvl sure, but roughly the same amount of ACX was spent for incentives - 98k ACX per 2 weeks in base emissions (multiplier grows if you don’t claim your rewards) for Balancer LP and 150k ACX per 2 weeks on bribes for Velodrome LP. However, the Balancer LP attracted $1.41M TVL vs Velodrome only attracted $444k TVL. Maybe Balancer pool has been around longer so it accumulated more LPs (?), but still a big diff it seems.

Definitely for this program to stake incentives. As someone who uses Velodrome it is a great way to buy ACX tokens with low gas fees. So I 100% encourage this.

Hi All, thanks for letting us join the community call last week and providing feedback on the proposal.

We’ve made some final changes to the proposal namely:

  • Reducing amount of ACX incentives from $5K to $1.5K per week
  • Recommending Across deploy $200K worth of POL

Not only will this decrease ACX emissions used as incentives but assuming incentive efficiency remains constant at 2X, Across would capture $1.5K in VELO emissions per week at a 40% APR allowing Across to sustain about $390K worth of TVL for effectively zero net cost.

This will also mean Across can start to build a veVELO position to help reduce reliance on incentives over time.

1 Like

This is something I will definitely vote against. My arguments might be too personal but its hard not to be after being drained twice, both after using Velodrome. The two hack attacks on the UI were not covered enough by their team, and the lack of support recevived in my two separate incidents showed a clear lack of communication and transparency.
I am around since 2015 and I know how to be careful. The links I use are bookmarked pages, and the dapps I use more often are always open in metamask. The chances I clicked a wrong fake link are zero!
So what happened? On the 20th I used Velodrome to swap ACX three times, small amounts as the price impact for one go was huge. Third swap failed but didnt gave much attention. Later on I was drained of ACX and OP (7k). The ticket I opened on 20th of December was ignored until 3rd of Jan, when I was told “the drain is UNLIKELY to be related with us”. However, Metamask support highlighted the same failed swap and said its very likely that malicious things may still be in their code since the UI attacks

2 Likes

But that’s not all. In January I used Velodrome again and got drained again. All the $POOL I had was gone, along the USDC! Lost another $22k and again no reaction. Was asked if I was using the correct link and was recommended to change the wallet. That’s my tl;dr on why I don’t trust Velodrome and I don’t want for this be renewed. Raising awareness and trying to keep everyone’s safe :blue_heart:

2 Likes

We have repeatedly demonstrated to you that your wallet was in someway compromised and it has nothing to do with Velodrome – you continuing to both use that wallet and blaming Velodrome for the continued loss of funds is absurd.

Here is the attacker’s address who drained your funds on 12/20. You can see they are exploiting a number of wallets, none of which have any history of interacting with Velodrome at all.

0x447edbf56d58468b621867cf6dc455d7e31e6c36

Velodrome has thousands of transactions every day and no one has reported any issues outside of the context of the attack on our DNS provider. I would highly recommend you review your own personal OPSec and if you want to know the true cause, investigate any similarities between your wallet’s approvals and those of the other victims of the attacker.

3 Likes

Nothing was demonstrated, my ticket was answered after 14 days, and was told its “unlikely” it was caused by my interaction with Velo. Poor support and lack of empathy as well!

If you have any evidence that Velodrome played any role in that exploit, then you are welcome to present it, until then you are just posting what is essentially slander rather than seeking to understand the actual attack vector or taking steps to insulate yourself from further attacks.

Anyone who reviews your exploiter’s transactions can see clearly that there is no demonstrable link to Velodrome. If someone tried to blame Across in a similar manner, I’m sure their team would pushback as well.

4 Likes