Aerodrome: the DEX Flywheel

This week’s highlight is Aerodrome, which has established itself as the leading decentralized exchange on Base. It is built with a focus on code-based coordination and fully aligned incentives between its three major stakeholders: traders, liquidity providers, and token holders.

You can now claim your share of AERO in the Fluidkey app based on your score.

To better understand the philosophy behind Aerodrome, the recent EthCC talk by Aerodrome core contributor Alex Cutler is a great place to start. In it, he describes how production systems governed by code and enforced by blockchains allow surplus value to be distributed to users:

“The importance of users increase and an organization's primary competitive advantage becomes how much of the value it generates is it distributing to its users. The only real moat that you have left in this world is maximal value distribution. So in a world where software becomes cheaper and easier to build, where switching costs approach zero, where coordination is governed by transparent and immutable code, any value not recycled to participants basically becomes a bounty a competitor can use to undercut you. And this is how DeFi was supposed to beat incumbents.”

Aerodrome is built on these principles, aiming to create a flywheel that accrues any and all surplus value to its AERO token.

This contrasts with incumbent decentralized exchange Uniswap, which currently does not distribute any revenues to token holders.

It is important to note however that Aerodrome is fueling its flywheel with AERO token incentives and its net earnings are negative currently. The Aerodrome blog is an excellent place to dive deeper into the thinking behind its tokenomics and sustainability.

Much can be learnt from Velodrome and Aerodrome’s success in using their token flywheels to bootstrap as late entrants in the highly competitive DEX category.

We’re excited to follow along as they keep pushing at the frontier of DEX innovation, code-coordinated production, and token alignment.

Note that none of our highlights are financial advice. The value of any of the tokens highlighted may go to zero.

See you next week!