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 Liquidity turnover Methodology

## 1. Overview

Liquidity turnover is measured to show how efficiently capital is utilized in Velodrome's decentralized exchange by calculating the ratio of daily trading volume to total value locked (TVL). This metric is used to indicate how many times the available liquidity is turned over through trading activity in a given day. A higher turnover ratio is associated with more active trading relative to the amount of capital deployed in the protocol. The calculation is performed using the formula: Liquidity Turnover = Daily Trading Volume / Daily TVL.

## 2. Data sources

- **Blockchain events**: `Swap` events from `Pair` (V1), `Pool` (V2), and `CLPool` (V3) contracts; `Sync` events from `Pair` (V1) and `Pool` (V2) contracts; `Mint`, `Collect`, `CollectFees`, and `Flash` events from `CLPool` (V3) contracts; and `PairCreated` and `PoolCreated` events from factory contracts, covering Optimism
- **External data**: End-of-day price feeds and asset metadata

## 3. Step-by-step calculation

### Component A: Trading pair identification

- **Purpose**: All valid Velodrome trading pairs are identified across protocol versions.
- **Logic**: Trading pair addresses are extracted from factory creation events (`PairCreated` and `PoolCreated`) across Velodrome V1, V2, and V3 contracts. These addresses are joined with asset metadata to obtain the symbol and decimals for both assets in each pair. Denylisted pairs with limited price feed support for low-liquidity assets are filtered out, resulting in the exclusion of one specific pair (`0xa5ee7dfef90310f4444323be3b3505c85ab67755`).
- **Key fields**: `account_address`, `token0_address`, `token1_address`, `token0_decimals`, `token1_decimals`, `account_name`

### Component B: Trading volume calculation

- **Purpose**: Daily USD trading volume is calculated for each trading pair.
- **Logic**: Swap events are processed differently based on the protocol version. For V1 and V2, asset changes are calculated as the difference between incoming and outgoing amounts for both assets. For V3, direct asset amounts are used. Absolute values are taken to determine volume regardless of trade direction. Asset amounts are normalized by decimal precision. USD conversion is performed by joining with end-of-day price feeds for both assets, and the minimum USD value between the two assets is selected to prevent price manipulation. Aggregation is performed by day, transaction hash, and log index.
- **Key fields**: `token0_amount`, `token1_amount`, `trading_volume`

### Component C: TVL calculation via net deposits

- **Purpose**: Total value locked (TVL) is calculated by tracking cumulative net deposits.
- **Logic**: Asset flow tracking is handled differently by protocol version. For V1 and V2, reserve balance changes are tracked using `Sync` events, and daily reserve changes are calculated to determine net inflows and outflows. For V3, `Mint` and `Flash` events (representing positive flows), `Collect` and `CollectFees` events (representing negative flows), and `Swap` events are directly aggregated. All asset amounts are normalized by decimal precision and converted to USD using end-of-day price feeds. Daily net deposits are aggregated, and a cumulative running sum is maintained to represent TVL at each point in time.
- **Key fields**: `net_deposits`, `tvl`

### Component D: Reserve change processing (V1/V2)
- **Purpose**: Changes in trading pair reserves are tracked over time.
- **Logic**: `Sync` events containing current reserve balances for each trading pair are extracted. Grouping is performed by day, and the last reserve value for each day is selected. Daily reserve changes are calculated by subtracting the previous day's reserves. For the first day of data, the full reserve amount is used as the initial deposit. Net deposit and withdrawal activity is captured indirectly through these reserve balance changes.
- **Key fields**: `reserve0_amount`, `reserve1_amount`, `token0_amount`, `token1_amount`

### Component E: Direct flow processing (V3)
- **Purpose**: Explicit deposit and withdrawal events are tracked in concentrated liquidity pools.
- **Logic**: Multiple event types representing asset flows are combined. `Mint` and `Flash` events are added as positive deposits and fees, while both `Collect` and `CollectFees` events are added as negative withdrawals. `Swap` events are included to capture the net asset balance changes from trading activity. All flows are aggregated daily by trading pair, and decimal corrections are applied before USD conversion.
- **Key fields**: `token0_amount`, `token1_amount`

### Component F: Final aggregation

- **Purpose**: Trading volume and TVL are combined to calculate the final liquidity turnover ratio.
- **Logic**: Trading volume is aggregated across all protocol versions and pairs for each day. TVL is calculated as the cumulative value across all pairs at the end of each day. All asset amounts are converted to USD using end-of-day price feeds. For trading volume, the minimum USD value between the two assets in each trade is used to filter out potential price manipulation. All data is aggregated using daily time boundaries. Missing days are filled with zero values for both trading volume and TVL. Liquidity turnover is computed as the simple ratio of daily trading volume divided by daily TVL. Days with zero TVL are assigned null turnover values to avoid division by zero errors.

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

Trading volume divided by total liquidity.

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Liquidity turnover

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