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Hello readers,
Aerodrome Finance launched in August of ‘23 as the “primary liquidity hub/DEX” on Base, gaining a 70% market share in less than one year.
Unlike traditional DEXs, the protocol combines Uniswap-style token swaps and Curve-style vote-escrow incentives to create a “liquidity marketplace” on the largest Ethereum L2.
In this week’s edition of The Watch List, we break down the protocol and the fundamentals backing its native token, AERO.
*Please note that you can click the data citation note under each chart to access the supporting dashboard for this week’s report.
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Aerodrome allows users to swap tokens on Base and lets liquidity providers deposit assets into pools (similar to Uniswap). But the key product is not just a DEX. The real product is liquidity coordination.
Protocols on Base want deep liquidity for their tokens. Aerodrome provides a way to attract that liquidity by directing AERO token emissions to specific pools. Each week, veAERO holders vote on which pools should receive AERO rewards, and liquidity providers in those pools earn those emissions.
A key advantage that Aerodrome leverages via its Base integration is Coinbase distribution (Coinbase Ventures is an investor in Aerodrome). This includes feeless trading on Coinbase One (Coinbase’s subscription product) and direct integration with Coinbase’s main app.
User trading fees accrue to veAERO voters who lock AERO into veAERO and vote on pool emissions. Per Aerodrome docs, 100% of the protocol trading fees are paid to veAERO holders (rather than the LPs on Uniswap).
Aerodrome Liquidity Providers are paid in AERO emissions/inflation (rather than trading fees on Uniswap).
Aerodrome conducts “buybacks” with the fees it earns from its protocol-controlled veAERO Public Goods Funds. These buybacks are designed to offset the AERO emissions paid to LPs.
The DeFi Report, Aerodrome docs
In mid-2026, Aerodrome is expected to evolve from a Base-native DEX/liquidity marketplace into a cross-chain liquidity layer. The shift will merge Aerodrome and Velodrome into a single system called Aero, with Base serving as the operating hub. The expansion is expected to bring Aerodrome’s liquidity infrastructure to Ethereum, Optimism, and Circle’s Arc blockchain.
The merger is powered by MetaDEX03, a next-generation DEX operating system designed to internalize additional value streams into AERO — including cross-chain fees, routing, aggregator fees, MEV capture, and liquidity automation.
If successful, the dual-engine architecture could significantly increase protocol revenues.
Over the last 90 days, Aerodrome has generated $15.4m in fees, down 37% q/q.
67% of the fees were generated by Slipstream (Aerodromes concentrated liquidity pool product).
11.1% were generated from its v1 product.
21.7% came from “bribes” — payments from protocols or token teams to veAERO voters to get those voters to direct AERO emissions toward a specific liquidity pool. The way this works is that a protocol/token team might say, “We’ll pay $100k in incentives to veAERO voters to vote for our TOKEN/USDC pool. The protocol then pays the voting incentive —> veAERO voters vote for that pool —> the pool receives more AERO emissions —> LPs move liquidity into the pool to farm AERO —> the protocol/token team gets deeper liquidity —> veAERO holders receive more trading fees.
For reference, Uniswap (the largest Ethereum DEX) generated $121m in fees over the last 90 days (7.8x Aerodrome).
Over the last 90 days, Aerodrome has generated $33.8b of trading volume, down 20% q/q.
For reference, Uniswap generated $178b of volume over the same period (5.3x).
Aerodromes TVL currently sits at $384m, down 6% over the last 90 days.
For reference, Uniswap’s TVL is currently $3.4b (8.8.2x Aerodrome).
Aerodrome’s velocity (daily volume/TVL) averaged 1.08 over the last 90 days, up 5% q/q. This indicates that the protocol “turns over” 100% of its TVL daily.
For reference, Uniswap’s average velocity over the last 90 days was 0.48 (Aerodrome turns over its capital base at 2x the rate of Uniswap).
Over the last 90 days, Aerodrome has averaged 24k traders/day, down 34% q/q.
For reference, Uniswap averaged 767k active addresses over the same period (32x Aerodrome).
Total Supply: 1.89b AERO
Circulating Supply: 871 million AERO (46%)
Emissions: 67.3%
Airdrop (TBD): 9.3%
Ecosystem Fund: 5%
Rebase (TBD): 5%
Team: 8.2%
Protocol Grants: 2.4%
Voter Incentives: 1.9%
Genesis Liquidity Pool: 0.5%
Airdrop: 0.3%
Rebase: 0.1%
*Aerodrome was launched by the Velodrome ecosystem as a Base-native liquidity hub. Rather than conducting a private token sale, Aerodrome distributed 40% of its initial veAERO supply to existing veVELO lockers — the users and protocols already participating in Velodrome’s vote-escrow system on Optimism. This was not a traditional VC/private-sale allocation, but it did reward the prior Velodrome stakeholder base.
Over the last 90 days, Aerodrome has repurchased $4.8m AERO off the market, down 22% q/q.
This represented 31% of total trading fees over the period.
The fees used for Aerodrome buybacks come from Aerodrome-controlled veAERO (the Public Goods Fund/protocol-aligned veAERO position).
“Market Aware Buybacks:” Rather than having the protocol conduct buybacks on a systematic or discretionary basis, Aerodrome recently rolled out the “Momentum Fund” to solve for capital inefficiencies. When market conditions are calm/favorable, the fund is designed to build reserves. When AERO is weak or volatility rises, the fund will deploy those reserves based on pre-set rules.
Aerodrome’s average Net Dilution Rate over the last 90-days (emissions less buybacks, annualized) was 18%.
Inflation is down roughly 70% y/y. However, the protocol still has significant inflation/sell pressure from emissions (which are used to incentivize liquidity).
Team unlocks begin in February of 2028. Aerodrome’s token unlocks up until that point are driven by emissions, which vary based on trading activity, and inventive programs (bribes from protocols).
Investors should note that 54% of AERO circulating is currently “locked” in vote-escrow contracts.
AERO has more direct value accrual than other DeFi tokens, such as Uniswap. It’s also clear that the protocol design revolves around value accrual to the AERO token. Furthermore, we like that they are using buybacks thoughtfully and strategically.
LPs are paid via AERO emissions, which are directed by the veAERO voters. This makes Aerodrome a liquidity incentive marketplace, not just a swap venue.
Aerodrome’s model is more reflexive. Emissions attract liquidity —> liquidity attracts volume —> volume creates fees —> fees/bribes attract veAERO lockers (more liquidity).
We view Aerodrome’s model as a better token-incentive/liquidity coordination protocol than UNI and other DeFi tokens. With that said, the protocol still has very high inflation (18%).
Furthermore, Aerodrome’s buyback capacity depends heavily on revenue generated by its protocol-aligned veAERO position. If that position declines as a share of total veAERO supply, or if the fees/incentives generated by that position fall, the protocol’s ability to buy back AERO and offset future emissions would weaken.
Aerodrome currently has a 43% market share on Base (down from 72% in Q4-24), with Uniswap its closest competitor (32% of Base volumes).
With the expansion to Ethereum via MetaDEX03 in July, it appears that the protocol is now taking on Uniswap across the entire Ethereum ecosystem.
We’ll be monitoring how this goes in Q3/Q4 and provide an update to this report later this year.
Aerodrome currently trades at a p/s ratio of 2.2x based on circulating supply (4.6x based on fully diluted supply).
For reference, Uniswap currently trades at 2.3x based on circulating supply (3.3x based on fully diluted supply).
Aerodrome’s average (annualized) buyback yield over the last 90-days was 6.1%, up 29% q/q.
AERO is currently trading near its all-time low against BTC. It’s down 80% vs BTC since Q2-24.
AERO’s 14-day RSI is currently 64.25 (nearing overbought levels), with the token up 32% over the last month.
It's currently trading 11.5% below its 200-day average, and 52% off its 50-week moving average.
Execution. For Aerodrome to succeed long-term, we think it needs to successfully compete with Uniswap for Ethereum market share. With the protocol expanding operations in July, we’ll be closely monitoring capital flows, given Aerodrome’s superior liquidity-incentive mechanisms.
Token Economics. While the protocol does buybacks, it has to inflate the token supply via emissions to incentivize LPs. The Net Dilution rate of 18% is very high, as a result, even after buybacks.
Perps Trading. Crypto traders prefer Perpetual Futures. We think the market has already spoken on this, and it’s not even close. As such, Aerodrome needs to function more as a “liquidity marketplace” — coordinating capital flows across bridges and trading pools.
Security/smart contract risk. A standard risk for any DeFi protocol.
AERO is currently trading 80% off its cycle peak, and 21% off of our “fair value” range.
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Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.