Ep. 736 How Aerodrome Became a Top DEX on Base and Ethereum

Aerodrome is the largest decentralized exchange on Base and ranks second or third largest on-chain overall depending on the day. Its predecessor, Velodrome, holds the same dominant position on Optimism. Both were built by Dromos Labs, whose CEO is Alex Cutler, on foundations originally created by Andre Cronje for a DEX called Solidly on Fantom. The founding team of five unknowns met in a Discord sub-DAO, raised no money, and allocated themselves no tokens before launching Velodrome directly into the Luna collapse and six months of severe market pain.

The team declined repeated financial offers from other chains during that downturn, believing that chasing every opportunity divides attention and misaligns incentives. Most of the Alt L1s they were urged to deploy on are now largely dead chains. Instead, Dromos Labs made a concentrated bet that Ethereum L2s would be the next major growth area in DeFi. When Coinbase announced Base, most of crypto Twitter dismissed it as a fed chain with no token incentives that would never grow. The team bet on Coinbase's ability to vertically integrate its chain as a distribution channel for builders. Within approximately one year, Base became the top Ethereum L2 globally, on some days doing more volume than Solana and more than Ethereum mainnet, with the vast majority of that volume running through Aerodrome. Incumbent legacy exchanges were slow to lean into Base, and by the time they did, Aerodrome had established a durable moat.

Velodrome has since expanded across the Optimism superchain to chains including Ink, Kraken, and Sonium. Robinhood chose to build its chain on Ethereum as an L2 despite fierce competition from Solana for that business. The team is now launching a combined product called Arrow, extending to Ethereum mainnet and Circle's Arc, with the goal of making Arrow the dominant on-chain exchange across the broader EVM. Vitalik has said the L2 roadmap does not need a hundred VC-backed copy-paste generalized chains, and the team agrees that L2s need a distinct reason to exist, citing Base and Robinhood as examples of chains that have one.

Regulatory clarity is viewed as a major potential catalyst for institutional adoption. The Clarity Act is expected to enable issuance of US equities on chain with real dividends and voting rights rather than synthetic wrappers, and Coinbase has already announced a tokenized equity product along those lines. Brian Armstrong has stated Coinbase's bet is that 10 percent of global GDP comes on chain within five years. Every major financial institution, including previously skeptical ones, is now hiring senior leaders for digital assets and tokenization. Vanguard posted a head of digital assets job listing after its former CEO publicly stated the firm would never make crypto ETFs tradable, and that CEO subsequently left before Vanguard rolled out ETF access. The team treats this as evidence that better, more globally accessible technology tends to win even when incumbents dismiss it. If the Clarity Act does not pass, institutional adoption does not stop but may be discounted or take different paths.

Aerodrome was designed from the start to eliminate centralized points of failure. The protocol has no multi-sigs, no centralized APIs, no reliance on indexers, Google Cloud, or AWS infrastructure. The co-founders did not raise money or allocate themselves tokens, meaning physical coercion of founders would not yield access to protocol funds. Approximately half a billion dollars is currently locked in the protocol. Almost every major hack in DeFi traces back to a single or double point of failure where large capital was concentrated, and centralized dependencies such as multi-sigs are described as negligent when controlling substantial value because the bounty incentivizes targeted attacks on key signers.

Aerodrome oriented its entire protocol around making the token a genuine claim on 100 percent of the value the protocol creates, with fees flowing back to token holders each week. The team contrasts this with approximately 90 percent of top-100 tokens, which they characterize as net value extraction vehicles where holders subsidize costs without receiving value in return. Hyperliquid is cited as the model Aerodrome wants to replicate in spot exchanges, having raised no money, distributed 100 percent of protocol value back to the token via buybacks, and becoming the undisputed leader in on-chain derivatives with roughly 11 employees and billions in revenue. Spot exchanges produce more fees than derivatives exchanges, but tokens have not yet captured that value, which Aerodrome views as its core opportunity. Coinbase Ventures made the largest liquid investment it had ever made by purchasing the Aerodrome token off chain, locking it, and participating for four years. Aerodrome's V3 protocol update remains in audit with no official launch date announced, and the team has stated it will not rush the process.