Aerodrome Finance

• Aerodrome is the primary decentralised exchange on Base, Coinbase's Ethereum Layer 2.

• It uses a vote-escrow model where locked tokens direct emissions toward chosen liquidity pools.

• AERO is locked for veAERO, which votes on emission allocation and collects trading fees.

• Locking AERO produces veAERO, with voting power proportional to lock duration.

• Voters receive the trading fees from the pools they direct emissions to.

• Emissions are high, so holders who do not lock are diluted continuously.

Pros:

• Dominant liquidity venue on Base by a wide margin.

• Fee flow to lockers is direct and measurable rather than notional.

• The vote-escrow model has been refined over several iterations across chains.

Cons:

• Emissions are aggressive and unlocked holders are diluted quickly.

• Vote-escrow systems concentrate power among large lockers, who direct rewards to pools they benefit from.

• Entirely dependent on Base's activity level.

• Exposure to the main liquidity layer of a growing Layer 2.

• Locked positions receive real fee revenue.

• Weigh dilution if you do not intend to lock.

• The default liquidity venue on Base, with emissions directed by lockers who receive the resulting fees.

• New chains struggle to attract liquidity because early providers earn little.

• Directing emissions by vote lets the market decide which pools deserve subsidy, and pays the voters from those pools' fees.

• Built by the team behind Velodrome on Optimism.

• Launched in 2023 with support from the Base ecosystem.

• No public ICO. AERO was distributed through an initial airdrop to Velodrome lockers and ongoing emissions.

• High emissions dilute unlocked holders.

• Governance concentration among large lockers.

• Complete dependency on Base activity.

• Competition from other Base DEXs and aggregators.