What is Aerodrome Finance ($AERO)? How Does it Work?

The growing popularity of layer two (L2) chains on Ethereum (ETH) has given birth to new ecosystems of decentralized applications (dApps). Some of these L2 and their dApps have become incredibly popular among crypto users.

One such case is that of Base L2 and its decentralized exchange (DEX) called Aerodrome Finance (AERO).

What is Aerodrome Finance? Let’s find out.

Table of Contents Table of Contents

1. Key Takeaways
2. What is Aerodrome Finance?
3. How Does Aerodrome Work?
4. AERO Tokens: Tokenomics and More
5. Allocation of AERO and veAERO Tokens
6. AERO Inflation and Governance
7. Latest Aerodrome News
8. AERO Token Price Analysis
9. The Bottom Line
10. FAQs
11. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. What is Aerodrome Finance?
3. How Does Aerodrome Work?
Show Full Guide
4. AERO Tokens: Tokenomics and More
5. Allocation of AERO and veAERO Tokens
6. AERO Inflation and Governance
7. Latest Aerodrome News
8. AERO Token Price Analysis
9. The Bottom Line
10. FAQs
11. References

What is Aerodrome Finance?

Aerodrome Finance is a DEX on Ethereum-based L2 chain Base.

The Aerodrome DEX launched in August 2023 and was developed by the team that launched the Velodrome DEX on Optimism L2. Aerodrome has similar features to Velodrome.

Today, Aerodrome is one of the most popular DEX on Base L2 alongside Uniswap (UNI).

According to data compiled by on-chain analyst Sealaunch on Dune, Aerodrome’s DEX volume percentage on Base stood at 48.6% on July 31, 2024, ahead of Uniswap (41.8%).

However, Uniswap had a higher daily active user percentage on Base at 84.4% compared to Aerodrome’s 4.4%, as of July 31, 2024. Aerodrome’s low daily active user percentage and high DEX volume percentage on Base suggested that the DEX is preferred by high-volume traders and whales.

At the time of writing, Aerodrome was the top dApp on Base in terms of total value locked (TVL).

DefiLlama data showed Aerodrome’s TVL stood at 644.5 million, as of July 31, 2024.

How Does Aerodrome Work?

Like Uniswap, Aerodrome is an automated market maker (AMM) that uses liquidity pools to facilitate crypto trading without the need for a centralized operator.

Liquidity pools collect tokens from users who deposit cryptocurrencies in pairs in exchange for a share of the trading fees collected by the liquidity pools.

For example, the ETH-USDT liquidity pool on Aerodrome has ETH and USDT tokens in it. A user will have to deposit an equal dollar amount of ETH and USDT to the pool. In exchange you will receive a liquidity provider (LP) token as a receipt.

Aerodrome is different from older DEXs like Uniswap due to its unique token mechanics.

Aerodrome liquidity providers who stake their LP tokens are rewarded a token called AERO every seven days. LP token stakers also receive a governance token called veAERO.

veAERO token holders who vote received protocol trading fees proportional to their staked amounts.

AERO Tokens: Tokenomics and More

AERO is the native token of Aerodrome Finance. As of August 1, 2024, AERO was the 208th largest crypto by market cap, valued at $443.9 million.

Initially, AERO’s initial supply was set at 500 million tokens, of which 450 million or 90% were locked as veAERO tokens.

Allocation of AERO and veAERO Tokens

Here is how 450 million veAERO were allocated:

Here is how 50 million AERO tokens were allocated:

AERO Inflation and Governance

AERO’s supply is not fixed. Initially, 10 million new AERO tokens were released every week. AERO emissions were designed to increase by 3% per week during the first 14 weeks after launch.

AERO emissions were distributed to liquidity providers on Aerodrome.

After the first 14 weeks, AERO emissions were designed to fall by 1% per week.

When weekly AERO emissions drop under 9 million per week, veAERO holders will take control of AERO’s monetary policy.

veAERO holders will collectively make one of three choices each week:

As we mentioned earlier, veAERO holders who vote will receive AERO tokens based on their share of stake.

Latest Aerodrome News

Here are some notable Aerodrome Finance news events.

• In November 2023, Aerodrome and Velodrome experienced a domain name system (DNS) attack that resulted in an estimated loss of $250,000 to users who interacted with the websites at the time. According to Aerodrome, the attacker used a social engineering attack to gain ownership of the account that holds domain names and route legitimate domain traffic to malicious websites.

• In March 2024, Aerodrome and Velodrome introduced a new upgrade called Slipstream for concentrated liquidity pool. Slipstream is a fork of Uniswap v3 protocol.

• In late-February 2024, the Base Ecosystem Fund, led by CB Ventures, invested in Aerodrome Finance’s AERO token. The size of the investment was undisclosed.

AERO Token Price Analysis

Early market data on CoinMarketCap showed AERO token trading at about $0.09 in early February 2024.

As of August 1, 2024, AERO token price had risen to about $0.78, a 750% increase from $0.09 in early February 2024.

AERO saw its best day on March 1, 2024, rising 91%, two days after Base Ecosystem Fund announced that it acquired a position in AERO.

The token hit an all-time high of $2.33 on April 22, 2024.

The Bottom Line

DEXes like Aerodrome Finance are at the heart of their blockchain ecosystem.

Aerodrome Finance has quickly gained popularity for its token mechanics and high-volume trading, and has becoming popular among liquidity providers looking to earn via fees.

FAQs