The AER Engine: FAQ

What will the AERO Rewards rate be at launch?

The rate of AERO Rewards for each pool will be based on projected pool-level revenue (trading fees, liquidity payments, MEV fees). On an annualized basis, we expect the effective global inflation rate to range between 8–12%. For comparison, Aerodrome’s current inflation rate is ~12% annually and Velodrome’s is ~16% annually.

Will there be a maximum AERO Rewards rate?

Yes, the current plan is for the Aero Fed to set the minter’s global rewards cap at launch to 20% annualized inflation. Because gauge caps will likely always hold gauges below their theoretical ceiling rate, the sum of all gauge accrual is expected to be less than the minter’s global rate. The difference is never assigned to anyone, so it is never minted and never contributes to inflation. Unclaimed headroom simply never becomes tokens.

What is the plan for the Aero Fed?

The Fed Governor contract remains part of Aero’s economic architecture, however, we do not expect it to play a major role in Aero as the AER Engine will already be dynamically adjusting the rewards rate to maintain the relationship between the value of rewards and the pools’ revenue. The Fed moves from the primary tool for managing protocol monetary policy to a tool to be used as a fall back if needed to manage long-term protocol economics as the onchain economy grows.

How do Gauge Caps actually work?

Each pool will have a Gauge Cap that limits the rate of AERO Rewards it can accrue and distribute to LPs. There will be a global multiplier goal (e.g., 1.2x aggregated pool-level fee + incentive revenue) and each pool’s Gauge Cap will be set to receive its share backed by predicted revenue generation. Caps can be set to vary based on the competitiveness and long-term revenue potential of different pool types.

Can Gauge Caps be adjusted?

Yes, the AER Engine will adjust caps dynamically and algorithmically in response to a changing market and competitive conditions to maximize value capture and reduce value loss.

How often are Gauge Caps updated?

At launch, we expect each pool’s cap to be evaluated every 48hrs, based on projected economic activity in the following window.

How can I track the rate of inflation over time?

Two things will make point-in-time data less useful:

• Aero will use a new accounting-based system that only mints new rewards tokens when they are claimed. The gauge contracts handle accounting for rewards that are owed to LPs.
• Under the old system there was a constant stream of token emissions whose value varied. Gauge Caps allow the number of tokens to vary while streaming a fixed multiple of a pool’s projected revenue.

This means that the minter contract will not produce a steady stream of emissions but reflect both revenue and timing of claims from LPs. We will provide resources to track the average inflation over a trailing period.

How does this all work together?

• The global emissions ceiling will be set high and will be a hard limit on the total possible rate of AERO Rewards being accrued at any time.
• Each pool will have a Gauge Cap set to closely tie the value of AERO Rewards to the projected revenue generation of the pool. These caps will strategically vary by pool type, strategic importance, and market competition.
• The sum total of these caps produces the protocol level multiplier of rewards value over revenue generated by pools.
• With Predictive Allocation, token operators will be able to reallocate AERO Rewards to different pools as markets shift.
• Mint-on-redeem means that new AERO will only be minted when an LP actually redeems their rewards.

How can Aero sustainably reward LPs more than competitive fee reward-based venues? i.e. how can the value of AERO Rewards be higher than the value of swap fees?

Fee-based DEXs can reward a liquidity provider with no more than 100% of trading fees generated by the exchange, effectively capping their ability to reward LPs while passing through all of the economic value created by the exchange and relying on secondary mechanisms such as selling tokens to support their costs. Many exchanges are now actively reducing the reward rates for liquidity providers, redirecting as much as 25% of fees to companies or token holders. This dynamic favors a platform that can sustainably pay LPs more than the fees they generate, and the most direct way to do that is to pay them a claim on the revenue growth they help create rather than what they are able to generate in that moment.

This is what Aero does. It rewards LPs with a token that is a claim on 100% of the protocol’s current and future revenue, from every source: trading fees, launch payments, liquidity payments, bridge fees, aggregator fees, and more to come. The reward streamed to a single pool’s LPs can exceed that pool’s swap fees because it is a share of a far larger, growing, multi-source pie, rather than rebate of one pool’s flow.

The distribution of AERO rewards is in effect the protocol borrowing against its own future revenue (something we call constructive dilution), repaid when the liquidity it attracts generates the volume and fees supporting the token. This holds on one condition: growth outpacing dilution. As long as revenue grows faster than the token inflates, each AERO’s claim grows, and the premium funds itself. The AER Engine is what maintains this discipline: by pegging emissions to a multiple of revenue, it ensures Aero pays LPs a competitive rate but never more than growth can justify.