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Cryptocurrency Guide | Guides

What Is Aerodrome Finance (AERO)? All You Need To Know

Author

Rickie Sanchez

Tags

Tags Editor's Choice / Slider Posts

Reading time

4 mins
Last update

Author

Rickie Sanchez

Tags

Editor's Choice / Slider Posts

Reading time

4 mins
Last update

Author

Rickie Sanchez

Tags

Editor's Choice, Slider Posts

Reading time

4 mins
Last update


aerodrome

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Key Takeaways

  • Aerodrome Finance (AERO) is a decentralized exchange (DEX) built on the Base blockchain.
  • The project aims to become the central liquidity hub for the Base ecosystem, attracting traders and liquidity providers (LPs).
  • Velodrome Finance served as the blueprint for Aerodrome Finance. Aerodrome essentially took Velodrome’s core functionalities and codebase and adapted them for the Base blockchain.

What Is Aerodrome Finance (AERO)?

Aerodrome Finance (AERO) is a decentralized finance (DeFi) protocol that functions as an automated market maker (AMM) and liquidity hub on the Base network.

How Does Aerodrome Finance (AERO) Work?

Aerodrome Finance is a decentralized exchange (DEX) built on Coinbase’s Layer-2 blockchain, aiming to be the primary liquidity hub for the ecosystem. Here’s a breakdown of how it works:

Core Functions

Trading – Aerodrome facilitates swapping tokens with minimal slippage and fees, similar to other DEXs.

Liquidity Incentives –  Liquidity providers (LPs) earn AERO tokens by depositing crypto assets into Aerodome’s pools. These tokens act as rewards for supplying liquidity.

veAERO Governance – To receive veAERO, Users can lock their AERO tokens for various durations (1 week to 4 years). The locking period determines voting power.

Voting On Rewards – veAERO holders can vote on how future AERO emissions are distributed across different liquidity pools.

Key Mechanisms

Self-Optimizing Liquidity Flywheel – By voting on rewards, veAERO holders can strategically direct AERO emissions to incentivize liquidity in specific pools. This fosters a cycle where deeper liquidity attracts more traders, generating more fees and rewards for LPs and veAERO holders.

Anti-Dilution Rebases – To prevent AERO dilution from constant emissions, the protocol implements anti-dilution rebases. This ensures the voting power of veAERO holders remains relatively stable.

Benefits

Low Trading Fees – Aerodrome offers competitive trading fees compared to other DEXs.

High APYs For LPs – Liquidity providers can potentially earn high yields on their deposited assets through AERO emissions.

Community Governed – veAERO holders have a say in how the protocol evolves through voting on key decisions.

Aerodrome Finance (AERO) Token And Tokenomics

Tokenomics

The AERO token is Aerodrome Finance’s native cryptocurrency. It is used for:

  • Reward For Liquidity Providers
  • Governance

Token Details

Total Supply ∞

Circulating Supply 389,416,893 AERO

Current Price $1.88

Market Capitalization $734,696,605

This information is current as of April 9th, 2024, and the token’s price, market value, and available supply may fluctuate.

Distribution

Aerodrome Finance (AERO) has an initial supply of 500 million tokens with a distribution for community incentives and long-term protocol health. Here’s a breakdown of the distribution:

  • Voter Incentives (8%) + Genesis Liquidity Pool (2%) – 8% goes towards voter incentives, while 2% is used to seed the initial liquidity pool with USDC.
  • Airdrop for veVELO Lockers (40%) – veVELO is the governance token for another DeFi project, Velodrome Finance. This aims to incentivize early participation from the Base community.
  • Ecosystem Pools and Public Goods Funding (21%)
  • Aerodrome Team (Auto Max-Locked) (14%)
  • Protocol Grants (10%) + AERO Pools Votepower (5%)

Where Can I Buy Aerodrome Finance (AERO)?

Coinbase Coinbase is an American-based cryptocurrency exchange that allows you to buy cryptocurrencies using various payment methods, including bank transfers, debit cards, and wire transfers.

Gate.io This exchange provides AERO, other cryptocurrencies, and margin trading options.

Bitget – This exchange allows you to buy cryptocurrencies with fiat currency or trade them for other crypto assets. It also offers various trading features and functionalities.

Is Aerodrome Finance (AERO) A Good Investment?

Pros

  • Low Trading Fees – Aerodrome leverages the Base network, which is known for its lower transaction fees than the Ethereum mainnet.
  • Self-Optimizing Liquidity Flywheel – Aerodrome’s system incentivizes strategically allocating rewards to liquidity pools that need them the most. This fosters a cycle that attracts more traders and liquidity, ultimately benefiting everyone in the ecosystem.
  • Anti-Dilution Rebases – The protocol implements mechanisms to prevent excessive dilution of AERO tokens from constant emissions. This helps maintain the value proposition of holding AERO for governance and potential price appreciation.

Cons

  • New Project – The project was launched in 2023 with a limited track record compared to established DEXs.
  • Competition – The DeFi space is crowded with DEXs, each competing for market share.
  • Impermanent Loss Risk – As with any liquidity-providing platform, users supplying assets to Aerodrome’s pools face the risk of impermanent loss. This occurs when deposited asset prices diverge significantly during the liquidity provision period.

Final Thoughts

Whether Aerodrome Finance (AERO) is a good investment depends on your risk tolerance and goals. Remember, this guide provides a starting point for your research. Always conduct your due diligence before making any investment decisions.