Velodrome Liquidity Program Extension

Proposals Active Proposals
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Summary:
Across Protocol’s pilot program on Velodrome is ending soon. This proposal aims to extend the program for 16 weeks in order to ensure sufficient liquidity for $ACX on L2s and incentivise holders to LP in a capital efficient way.

Motivation:
L2 adoption continues to gain significant momentum as we head into 2024 and as a core cross-chain bridge, Across Protocol stands to benefit by maintaining a strong presence for its native token $ACX.

On Velodrome, Across protocol has attracted $560K in liquidity with the protocol’s incentives currently directing ~2X as much value to ACX/WETH, following an initial ramping up period and improved market conditions. This uptick in incentive efficiency, complemented by Velodrome’s renewed OP grant program, will continue to provide significant support for the ACX/WETH pool.

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A summary of Across Protocol’s pilot program to date can be found here.

Specification & Implementation:
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 Lido, Synthetix and Stargate leverage Velodrome’s mechanics to maintain deep liquidity on Optimism in a capital-efficient way.

Across will extend its existing program by 16 weeks and allocate $5K worth of $ACX tokens to deposit as voter incentives for its AXC/WETH pool every week. Once an epoch is completed on Wednesday at 23:59 UTC, $VELO emissions will begin to flow to Across Protocols’ LP.

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.

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Protocol Owned Liquidity (POL)
Across Protocol can also allocate some treasury assets towards a small POL position on Velodrome. Protocols with POL are able to capture and farm a portion of $VELO rewards that are streamed to their pool/s.

With a POL position, Across can 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. Other protocols that are doing this include Stargate, Yearn, Inverse, QiDAO among many others.

Protocols with POV which are tracked in the Velodrome veVELO Leaderboard have the flexibility to decide whether to compound their weekly rewards into [a] building more POV or [b] growing their POL - both of which will reduce reliance on voter incentives over time.

Across DAO could focus on locking all farmed $VELO as veVELO over the 16 weeks in order to accumulate significant POV. A third option that unlocks with having POL is also [c] recycling $VELO emissions as bribes for the following epoch.

The Velodrome team can suggest a comprehensive and optimized strategy utilizing all 3 options should Protocol Owned Liquidity become a possibility.

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.

Velodrome will also actively support Across Protocol’s marketing initiatives during the pilot program which means the community will not only benefit from having the option to provide liquidity and trade $ACX but also generate demand towards Across Protocol’s bridge services.

Downsides:
Liquidity incentives on Optimism can represent an additional expense for Across Protocol. However, this expense can be significantly reduced through Velodrome’s bribe-emissions multiplier, Tour de OP bribe matches, as well as any farmed $VELO emissions (through POL) and the rewards (through POV) described above.

Finally, given this program extension will run for 16 weeks, the DAO may use this time to assess results and decide on whether to continue or suspend its program on Velodrome after this period.

The total cost to maintain liquidity via voter incentives without farming and locking $VELO emissions for $5K every 16 weeks will be USD $80K worth of $ACX tokens (~1.5M $ACX at current prices).

If the DAO would like to go ahead with testing out a more optimized strategy with some POL, the Velodrome team can provide a detailed estimate of net costs. Depending on the size of POL deposited, some partners are able to reduce net cost by 100% or more i.e. when the total value of $VELO emissions farmed is greater than the cost of incentives deposited on any given week.

We call this strategy “Paid by Liquidity” to contrast the legacy “Pay for Liquidity” approach.

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

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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.

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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.

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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.

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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,

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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!

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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.

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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.

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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.

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

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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.

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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

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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.

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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.