Aerodrome Finance (AERO)

Aerodrome Finance (AERO)

Most recent update: [April 26, 2024]

What is AERO?

Aerodrome Finance is the premier trading and liquidity platform on Base, positioning itself as a cutting-edge automated market maker (AMM) intended to be the central liquidity hub for Base. It integrates an effective liquidity incentive system, a vote-lock governance structure, and a user-friendly interface. Aerodrome builds upon the advanced functionalities of Velodrome, which is the second-largest decentralized exchange (DEX) on Optimism.

The launch of Aerodrome Finance occurred on August 28, 2023, on the Base network.

Who is behind AERO?

Aerodrome was introduced in 2023 by the team behind Velodrome. The launch featured a complete community-focused token distribution, eschewing sales to venture capitalists or other investors that could lead to significant unlock events impacting token holders and the protocol. The team is recognized for their track record of creating successful products and achieving notable market presence.

How does it work?

Aerodrome Finance functions as a liquidity hub and engine through four main processes:

1. Trade: The platform generates fees from diverse trading activities.
2. Emissions: Liquidity providers are awarded AERO tokens as emissions, which are determined by the number of votes their respective liquidity pool secures.
3. Vote: Holders of AERO tokens can lock their tokens to obtain veAERO, which is used to vote in each epoch.
4. Rewards: Holders of veAERO then receive assorted rewards, including incentives and fees from the pools they voted for.

The AERO Token and Tokenomics

Aerodrome Finance operates using two specific tokens for its utility and governance functions:

• $AERO: This is the ERC-20 utility token of the protocol.
• $veAERO: This is the governance token, which is an ERC-721 non-fungible token (NFT).

The initial distribution of the AERO token started with the issuance of 500 million tokens, out of which 450 million were allocated as veAERO tokens. Weekly emissions commenced at 2% of the initial supply each week, escalating by 3% weekly until the 14th week following the release. Post this period, emissions are set to decrease by 1% weekly until they fall below 9 million per week. At this juncture, voters have the weekly options to:

• Decrease emissions by 0.01% of the total supply for that week;
• Increase emissions by 0.01% of the total supply for that week;
• Keep the emission rates the same for that week.

Security

Aerodrome Finance adopts its contract architecture and robust security measures from Velodrome V2, which has been thoroughly audited and implements a bug-bounty program to ensure ongoing security. Additionally, to maintain the protocol's integrity and the health of the ecosystem, there is a Council. This body includes members from the Aerodrome team and notable individuals from the Optimism and Base communities. The Council is convened in emergencies or activated through a governance proposal that necessitates its intervention for execution.

Drawbacks and risks

Navigating the DeFi landscape, Aerodrome Finance encounters inherent risks and hurdles, such as market volatility, regulatory shifts, and the complexities of novel automated market makers on the blockchain. Despite AERO's promising prospects, investors and users must remain aware of the risks associated with DeFi engagements, including the experimental nature of blockchain financial solutions and the unpredictable market dynamics.

Finally, as common to many ERC-20 tokens and more broadly Proof-of-Stake networks, their blockchain architecture dictates that those with the most staked/locked tokens will have the most sway in the network’s functioning. This effectively places richer wallets in a position of power. Thus, if one person or a group of entities can acquire 50% of the network’s voting power, they would be able to control it.

Due Diligence  

Before listing AERO on the VirgoCX Platform, VirgoCX performed due diligence on AERO and determined that AERO is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following: 

• The creation, governance, and location of AERO and/or its primary development team;
• The supply, demand, maturity and liquidity of AERO; and
• Legal and regulatory risks associated with AERO. 

Statutory Rights under Securities Legislation

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30th 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario) and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.

Further Reading

To learn more about the technology behind AERO, check out these in-depth resources here:

• The official site of AERO
• Coinmarketcap’s overview of AERO
• Coingecko’s overview of AERO
• Coinbase’s overview of AERO, along with the relevant news and blogs related to AERO.