Simple Summary
This proposal showcases the benefits of deploying Velodrome to Derive chain and leveraging the MetaDEX model to access shared liquidity across the Superchain.
Liquidity incentives are critical for bootstrapping a new ecosystem. Derive’s ability to direct more than $375K worth of VELO emissions annually to its chain simply by utilizing its veVELO voting position - which was airdropped to Lyra as part of Velodrome’s launch in 2022 - to kickstart its flywheel immediately puts it in an advantageous position.
Derive can also complement its veVELO votepower with voting incentives to attract and sustain liquidity on the chain. Deploying up to $83K incentives per month for a period of 6 months could help Derive attract ~8.5M in TVL and accelerate activity on the network.
Abstract
On Velodrome, voters determine the distribution of VELO emissions across liquidity pools every week. Whilst voters typically vote on pools based on the amount of voter rewards they expect to receive - which consists of 100% of the fees generated by the pool as well as any incentives available - projects and ecosystem layers (which are often less concerned about claiming and selling their rewards) can utilize veVELO votepower to direct VELO incentives to any pools of their liking to drive liquidity.
Motivation
The last proposal by Velodrome in November 2023, which resulted in Lyra depositing its veVELO votepower into Relay has allowed Derive to now control >1% of total veVELO supply. That grants Derive the ability to earn 1% of Velodrome revenue every week.
And before the transition to Derive, Lyra was utilizing its gifted veVELO votepower to sustain about $1.5M worth of LYRA/USDC TVL at 90% APR for no cost whilst simultaneously earning swap fees every week.
At current prices Derive’s veVELO NFT is valued at ~$1M. Considering that the average voting APR (vAPR) on Velodrome is currently at ~25%, this means that Derive’s voting position could net it $250K in voter rewards per year. Additionally, Derive will be utilizing its voting position to direct VELO emissions to liquidity pools on its chain with an estimated value of $375K per year; resulting in a total of $625K in annual value directed to the ecosystem.
In addition, Derive will also earmark $500K worth of OP and/or DRV to attract ~$8.5M of TVL and boost network activity, as per this model. Setting a budget aside for liquidity incentives in combination with its veVELO NFT position will ensure Derive is set up for success.
Specification
- Derive will transfer $500K worth of OP and DRV tokens to the multisig wallet containing its veVELO NFT 0xd4c00fe7657791c2a43025de483f05e49a5f76a6.
- Velodrome will announce its planned deployment to Derive L2 and support related communications
- Velodrome will deploy its Superchain gauges to Derive L2 in Q1 2025 and regularly highlight APRs available for LPs
- The multisig on the wallet 0xd4c00fe7657791c2a43025de483f05e49a5f76a6 will be responsible for depositing incentives each week on Velodrome and will have the flexibility to make minor adjustments to spend if pools require less or more incentives than forecasted
- Derive’s veVELO NFT is to be deposited into a Derive Relay vault to automate weekly rebase claims and max-locking as well as claiming voting rewards and compounding back into veVELO whilst excluding DRV in any of the autocompounding
- Velodrome is developing the architecture to provide a shared liquidity layer for the Superchain (Superchain 2.0) and will deploy this to Derive once live. This means:
- Deep liquidity for critical assets such as ETH, WBTC, LSTs and stablecoins, as well as Superchain tokens
- Derive will not need to incentivize these LP pools once Superchain 2.0 is live
Rationale
At current prices, Derive’s gifted veVELO voting position could generate $625K annually in value by supporting Velodrome’s expansion to its chain. This NFT was originally airdropped to Lyra when Velodrome launched in June 2022. To achieve $8M or more in TVL on Derive however, it will also need to supplement these rewards with voter incentives.
Test Cases
N/A
Copyright Waiver
Copyright and related rights waived via CC0