Decentralized Exchanges:

Introduction to VELA Exchange

Vela Exchange has quickly filtered to the top of decentralized finance’s layer 2 perpetual trading markets. Offering the same pairs as entrenched defi juggernauts like GMX and DYDX, Vela also expands their offerings into forex, metals, and more.

These additional offerings plus VELAs new mover un-saturated status gives opportunity to early adopters of the VELA Network. However, with all things, opportunity does come with increased risk and VELA did have a rocky beginning that we will discuss.

VELA Exchange Quick Facts:

CoinClaro Quick Take: Vela Exchange offers unique trading tactics like forex, metals and extra-high leverage. This is a powerful toolkit that can be quickly accessed via the Arbitrum Network (with permissions easily revoked after for safety). For the highly active defi professional, missing some interaction and opportunity on Vela Network would be a mistake. However, with all exchanges, exposure must always be controlled.

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Vela Exchange Staking and Tokenomics

What is VELA and esVELA on Vela Exchange?

$VELA and $esVELA, when staked, allow users to earn a portion of protocol fees as rewards. The share of these rewards depends on the total staked VELA and esVELA.

Staking these tokens comes with seven key benefits:

1. Discounted trading fees (based on staked tiers)
2. Opportunity to earn esVELA through each VELA buyback, equivalent to 10% of the total perpetual fees.
3. Earn 5% of the total fees in USDC accrued from perpetual exchange fees.
4. Potential to earn 40% of the total spot exchange fees (in the future).
5. Future opportunity to earn esVELA from each VELA buyback, equivalent to 30% of total spot fees.
6. Future prospect of earning 30% of the fee share from the OTC trading platform.
7. Earn varying ecosystem rewards depending on the chain.

Users can deposit $esVELA into a vesting contract to claim an equivalent amount of $VELA, which is unlocked gradually over a one-year linear vesting period. Note, staked $esVELA for vesting won’t earn rewards. All vested $esVELA rewards originate from the $VELA buyback model.

What is VLP on Vela Exchange?

VLP is VELA Exchange’s liquidity provider token, minted through USDC staking. Users can stake USDC.e to mint VLP, thereby earning fees from the platform’s trading volume.

To mint VLP, bridge USDC to Arbitrum via our Multichain Deposit feature and stake USDC.e from your Web3 wallet. Currently, the minting and redeeming fees are 0.05% and 0% respectively. To redeem VLP, enter the desired VLP amount and select a stablecoin (USDC.e is the only option for now). New VLPs trigger a 48-hour cooldown for LP balance, after which VLP can be redeemed for USDC.e anytime unless a new VLP is minted.

VLP brings liquidity for traders while taking on the risk of market losses. Despite being market-neutral, VLP stakers face risks but can earn up to 60% of platform fees. Traders’ profits are paid from the VLP pool, and if USDC depegs, VLP is directly affected. The platform’s open interest is capped by the total USDC in VLP.

VLP’s value can fluctuate with protocol fees and traders’ profits or losses. However, the net inflow is expected to exceed the outflow, likely leading to a gradual VLP price increase.

Staking VLP grants users 10% of the total perpetual fees in esVELA for each rewards cycle. While smart contracts for Vela Exchange are audited, some inherent risks persist with any smart contract.

Vela Exchange Distribution / Emission Schedules

Vela Exchange’s distribution is mostly incentive based, but you should be aware of vesting schedules to not get dumped on.

• Community incentives: 30% of the total supply of VELA tokens, or 15 million tokens. These tokens will be used for liquidity mining, market making, platform liquidity rewards, beta test rewards, and other incentives. The emissions for these tokens are limited to 5% (750K) per year.
  • Linear vesting: The community incentives tokens will be vested over a 36-month period with a 6-month cliff. This means that 62,500 tokens will be released each month, starting June 1, 2023.
• Growth fund: 19% of the total supply of VELA tokens, or 9.5 million tokens. These tokens can be used for future grants, DEX liquidity, market maker allocation for CEXs, team growth, and other expansion efforts. The emissions for these tokens are limited to 10% (950K) per year.
  • Linear vesting: The growth fund tokens will be vested over a 36-month period with a 6-month cliff. This means that 79,166 tokens will be released each month, starting June 1, 2023.
• Marketing: 5% of the total supply of VELA tokens, or 2.5 million tokens. These tokens can be used for distributions via KOL partnerships and co-marketing efforts with partners.
  • No vesting: The marketing tokens will not be vested. This means that all 2.5 million tokens will be released immediately for use as seen fit.
• Core team: 16% of the total supply of VELA tokens, or 8 million tokens. These tokens will be vested over a 36-month period with a 6-month cliff. This means that 200,000 tokens will be released each month, starting June 1, 2023.
• DXP bridging: 18% of the total supply of VELA tokens, or 9 million tokens. These tokens will be bridged from the DXP token to the VELA token on June 1, 2023. All of which will be claimable 1:1 for VELA.
• Investors & partners: 10% of the total supply of VELA tokens, or 5 million tokens. These allocations will be subject to new cliff and vesting periods.
• Advisors: 2% of the total supply of VELA tokens, or 1 million tokens. These tokens will be vested over a 18-month period with a 6-month cliff.

DexPools Exploit and Vela Exchange Rebrand

Dexpools and Vela Exchange have had one exploit in their history. In February 2022, a hacker exploited a vulnerability in the Dexpools smart contract to steal approximately $3.2 million worth of ETH. The hacker was able to exploit the vulnerability by depositing ETH into a smart contract that was supposed to be used for margin trading. However, the hacker was able to withdraw the ETH from the smart contract without actually trading any assets.

The Vela Exchange team was quick to respond to the exploit and they were able to recover most of the stolen ETH. However, some of the ETH was lost and the hacker was never caught.

The exploit was a major setback for Dexpools and it led to a loss of confidence in the exchange. However, the Vela Exchange team has taken steps to improve the security of the exchange and they have implemented a number of security measures to prevent future exploits.

Here are some of the security measures that have been implemented by the Vela Exchange team:

• Smart contract audits: The Vela Exchange team has had their smart contracts audited by a number of independent security firms. This helps to ensure that the smart contracts are secure and that there are no vulnerabilities that could be exploited by hackers.
• Cold storage: The Vela Exchange team stores the majority of their user funds in cold storage. This means that the funds are not connected to the internet and they are not accessible to hackers.
• Multi-signature wallets: The Vela Exchange team uses multi-signature wallets to protect their user funds. This means that multiple people need to sign off on a transaction before it can be processed. This makes it more difficult for hackers to steal funds from the exchange.

The Vela Exchange team is committed to providing a secure and reliable exchange for their users. They have taken steps to improve the security of the exchange and they are constantly monitoring for potential vulnerabilities.