Key Takeaways
Dolomite is a decentralized money market protocol that enables capital-efficient lending, borrowing, and trading.
The protocol introduces a virtual liquidity system, enabling assets to be reused across multiple functions, including earning yield, borrowing, and governance, all within the Dolomite platform.
Dolomite’s ecosystem utilizes three tokens: DOLO (the base token), veDOLO (locked DOLO used for voting and rewards), and oDOLO (a token earned by providing liquidity).
What Is Dolomite?
Dolomite is a decentralized money market protocol built to maximize the utility of deposited assets. The platform allows users to lend, borrow, or trade while also offering curated strategies that simplify complex decentralized finance (DeFi) activities. The protocol is designed to support a broad range of tokens, working with standard ERC-20 tokens and other types of assets commonly used across DeFi.
Dolomite uses three main tokens to run its ecosystem, each serving a different role in governance, liquidity, and rewards:
DOLO: The native token that powers trading, lending, and governance in Dolomite.
veDOLO: A locked version of DOLO that offers voting rights and additional rewards.
oDOLO: A reward token for liquidity providers that can be converted into discounted veDOLO.
How Dolomite Works
Most DeFi lending platforms require you to give up certain benefits of your tokens once they are deposited. However, Dolomite allows you to retain these benefits, such as staking rewards, vesting, or voting rights, while still using the same tokens as collateral. This is enabled by Dolomite’s virtual liquidity system and modular architecture, which together form the foundation of its capital-efficient design.
Modular architecture
Dolomite is built with a two-layer design:
The core layer is immutable, responsible for enforcing security rules and routing smart contracts. It’s deliberately rigid, allowing only limited parameter adjustments, and provides a stable and reliable foundation for the protocol.
The module layer adds flexibility by handling the day-to-day functions of the platform, such as deposits, trades, and liquidations. This layer is regularly updated to introduce new assets and features, ensuring the protocol can adapt to changing user needs.
When you interact with Dolomite, for example, by depositing funds or opening a trade, the module layer combines your actions into a single operation. This operation is then executed by the core layer, which maintains the system’s security while still allowing it to improve over time.
Virtual liquidity system
Dolomite introduces a virtual liquidity system that pools all user deposits into a single Dolomite Balance. This balance works as a unified account that you can apply across the different services offered by the protocol.
Instead of transferring tokens on-chain each time you take an action, Dolomite records the changes internally. This design enables one token to serve multiple purposes simultaneously. You can earn lending interest on it, use it as collateral for borrowing, and also collect swap fees without needing to move it out of the system.
Behind the scenes, a smart contract updates its internal ledger to reflect these activities. By avoiding frequent on-chain transfers, the protocol reduces transaction costs and makes your capital more efficient. This approach also gives you greater flexibility and helps prevent liquidity from being locked during times of market stress, making it easier for you to manage your positions.