Liquidity providers deposit funds into Velodrome and stake their LP tokens to receive VELO tokens in proportion to their share of the votes (token incentives).

Velodrome is a non-custodial exchange protocol built on Optimism. Velodrome was founded by veDAO members and launched in 2022.

VELO tokenholders own and govern the protocol. They vote which pools they wish to earn trading fees from (revenue), while the pools' unstaked liquidity providers earn the remainder of the trading fees (supply-side fees).

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Velodrome

# Velodrome Earnings Methodology

## 1. Overview

Velodrome earnings represent the net profit generated by the protocol, calculated as total revenue minus total expenses. This metric measures the protocol's financial performance by capturing revenue from trading fees paid to veVELO holders and voting incentives from third parties, then subtracting the cost of liquidity incentives paid out to liquidity providers. The calculation provides insight into Velodrome's profitability as a decentralized exchange and vote-escrowed tokenomics system.

## 2. Data sources

The calculation uses several types of blockchain data and external feeds:

- **Trading pair creation events**: Parsed `PairFactory_PairCreated`, `Factory_PoolCreated`, and `CLPoolFactory_PoolCreated` events from Velodrome V1, V2, and V3 contracts on Optimism to identify all exchange pools
- **Fee claim events**: Parsed `Pair_Claim`, `Pool_Claim`, and `CLPool_CollectFees` events from Velodrome trading pairs on Optimism showing when fees are claimed from pools
- **Liquidity incentive events**: Parsed `Gauge_ClaimRewards` events from Velodrome gauge contracts on Optimism tracking VELO token distributions to liquidity providers
- **Voting incentive events**: Parsed `bribeVotingReward_NotifyReward` events from Velodrome V2 bribe contracts on Optimism tracking incentive payments from third parties
- **Gauge creation events**: Parsed `Voter_GaugeCreated` events from Velodrome voter contracts on Optimism linking gauge addresses to their corresponding trading pools
- **End-of-day price feeds**: Token price data for USD conversion of all token amounts
- **Token metadata**: Token symbols and decimal precision for proper amount calculations

## 3. Step-by-step calculation

### Component A: Trading pair identification
- **Purpose**: Establish the complete set of Velodrome trading pairs across all protocol versions
- **Logic**: Collect all trading pair creation events from Velodrome factory contracts across V1, V2, and V3 versions on Optimism. Extract the pool addresses, token0 and token1 addresses, and version information. Join with token metadata to get decimal precision and symbols for each token pair. Create trading pair names by concatenating token symbols. Exclude any denylisted trading pairs that have limited price feed support.
- **Key fields**: `account_address` (pool address), `token0_address`, `token1_address`, `token0_decimals`, `token1_decimals`, `account_name` (token pair name), `version`

### Component B: Fee claim revenue calculation
- **Purpose**: Calculate revenue from trading fees that are paid to veVELO holders
- **Logic**: Extract all fee claim events from Velodrome trading pairs, capturing both token0 and token1 fee amounts. Filter these claims to only include fees collected by liquidity incentive account addresses, as these represent the portion of fees that go to veVELO holders rather than liquidity providers. Join with trading pair data to get token decimal information. Correct token amounts for proper decimal precision by dividing by 10 raised to the token's decimal places. Convert both token amounts to USD using end-of-day price feeds and sum them together. Aggregate to daily totals.
- **Key fields**: `account_address` (pool), `fee_collector_address`, `token0_amount`, `token1_amount`, `fees` (USD value)

### Component C: Voting incentive revenue calculation  
- **Purpose**: Calculate revenue from voting incentives paid by third-party protocols
- **Logic**: Extract voting incentive notification events from Velodrome V2 bribe contracts. These events indicate when third parties deposit tokens as incentives for veVELO voters. Correct token amounts for decimal precision using token metadata. Convert to USD using end-of-day price feeds. Aggregate to daily totals by bribe contract address and token.
- **Key fields**: `account_address` (bribe contract), `token_address`, `amount` (voting incentive amount), `voting_incentives` (USD value)

### Component D: Liquidity incentive expenses calculation
- **Purpose**: Calculate expenses from VELO token incentives paid to liquidity providers  
- **Logic**: Extract all liquidity incentive claim events from Velodrome gauge contracts, which distribute VELO tokens to liquidity providers. Link gauge addresses to their corresponding trading pools using gauge creation events. Join with trading pair data to get pool names and metadata. Correct VELO token amounts for 18 decimal precision. Convert to USD using end-of-day VELO token prices. Aggregate to daily totals by trading pair.
- **Key fields**: `account_address` (gauge), token incentive `amount`, `token_incentives` (USD value)

### Final aggregation
- **Combining components**: Revenue is calculated by summing fee claim revenue (Component B) and voting incentive revenue (Component C). Expenses are taken directly from liquidity incentive expenses (Component D).
- **Currency conversion**: All token amounts are converted to USD using end-of-day price feeds matched by timestamp, token address, and chain. Missing prices result in zero values.
- **Time aggregation**: All events are aggregated to daily boundaries using timestamp truncation. Data is grouped by day, chain, product version, and other dimensional attributes.
- **Final calculation**: Earnings equals total revenue minus total expenses. The result undergoes final validation and gap-filling, where missing days are filled with zero values to ensure complete time series coverage.

*This methodology was automatically generated by Token Terminal's methodology analyzer.*

Net profit (also profits, net income, profitability) — revenue remaining after subtracting expenses.

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