What is Dolomite (DOLO) and How Does It Work?

One of the most significant advantages of Web3 finance has been the introduction of high-end financial concepts to everyday crypto users. Lending platforms like Dolomite offer flexible financial products that enable crypto owners to connect with lenders and borrowers.

This article examines Dolomite (DOLO) and illustrates how it seeks to democratize financial transactions and other cryptocurrency activities.

What is Dolomite?

Dolomite is a money market protocol and decentralized cryptocurrency exchange (DEX) that facilitates borrowing and lending for cryptocurrency users. The platform allows users to borrow, lend, and trade cryptocurrencies with high capital efficiency.

As an Ethereum L2 scaling solution on Arbitrum, Dolomite uses a Dynamic Collateral System different from other Web3 money markets. Users can borrow and still retain the utility of their collateralized assets for voting or staking. Dolomite integrates a virtual liquidity system that combines DEX functionalities, such as yield farming, while supporting integrations with other DeFi platforms.

The Dolomite crypto project was created by Adam Knuckey and Corey Caplan and launched in 2019. Since 2015, the pair has struggled with existing exchanges, including long wait times and a refusal to support more coins. Seeing an opportunity, they combined forces to create an exchange they would want to use. After their first DEX failed, they attracted investor funding and received $2.5 million from Draper Goren Holm and other firms to create Dolomite.

Dolomite’s decentralized money market introduces a variety of functionalities focusing on the needs of DeFi users, including: 

• Over-Collateralized Loans: Allow users to borrow by depositing collateral of a higher value than the borrowed amount.
• Margin Trading: Users can borrow funds to amplify their returns when trading. 
• Spot Trading: Dolomite facilitates direct crypto trading between users.
• Virtual Liquidity System: This unique system enhances capital efficiency while potentially reducing borrowing rates.

Pros

• Wide Asset Support: The exchange allows a broad range of cryptocurrencies as collateral compared to other protocols.
• Composability: The platform’s architecture unlocks additional possibilities by integrating easily with other DeFi protocols.
• Security Focus: Dolomite smart contracts undergo rigorous testing to mitigate potential technical risks.

Cons

• Limited Liquidity: The platform may offer lower liquidity and trading volume.
• Centralized Control: Dolomite uses a 2/3 multisig admin control, which leans towards less trustlessness. 
• Newer Platform: It’s relatively new and has a shorter track record.

How Dolomite works 

Dolomite employs a two-part modular architecture to support the interface, facilitating asset management, mobile apps, and impressive capital efficiency. Dolomite’s core layer creates configuration parameters that manage security protocols and routing for Dolomite smart contracts. To manage tasks such as liquidating accounts, depositing funds, and trading crypto, the platform utilizes smart contracts to automate a sequence of actions. The modular layer is designed to accommodate various user needs and is regularly updated to support new assets and services. Its key features include:  

• Integrated DEX and Lending Protocol: Dolomite integrates the features of a DEX and a lending platform. This enables users to engage in spot and margin trading, as well as over-collateralized lending, all using the same interface. The integration facilitates a seamless transition between trading and earning a lending yield, which enhances the experience and capital efficiency.
• Broad Token Support: The platform supports over 1000 assets, including staked LP tokens and yield-bearing tokens. The broad support enables users to diversify their investment portfolio and implement a strategy.
• Capital Efficiency through Virtual Liquidity: Dolomite’s virtual liquidity system enables traders to make the best of their utility assets. You can deposit an asset and earn yield while participating in other trading activities. The dual functionality offers users multiple income streams that optimize returns.
• Modular Architecture: The platform operates on a modular architecture comprising two layers: a mutable module layer and an immutable core layer. The dual design facilitates adaptability, enabling Dolomite to respond to new DeFi activities while still maintaining its foundational stability.

Dolomite Tokens

The Dolomite crypto project revolves around three tokens:

• DOLO: A standard ERC-20 token that is the foundational currency that fuels the entire Dolomite ecosystem.
• veDOLO: A vote-escrowed token that users receive when they stake their DOLO tokens. They can utilize their veDOLO in community governance votes or implement it as an NFT, where it can be split or merged. Holders can also unlock their veDOLO early by paying a fee to regain their DOLO tokens.
• oDOLO: The oDOLO token is used to reward liquidity providers and is distributed among users who offer liquidity to the ecosystem. Users can also pair their oDOLO with DOLO to acquire veDOLO tokens at a discount. The mechanism is designed to incentivize long-term participation in supporting the platform.  Liquidity providers also have a stake in community governance and can cash out their oDOLO for a small fee.

The three-pronged system promotes self-sustenance, aligning incentives across users and thereby promoting the platform’s overall growth.

What is DOLO?

DOLO is an ERC-20 token that serves as the native token of the Dolomite crypto project. It is also the foundation for the project’s incentives, governance, and liquidity provision. DOLO is a utility token designed to power lending pools, in addition to performing other maintenance tasks within the ecosystem. However, DOLO is the primary token that crypto users trade with on exchanges.

DOLO supply and tokenomics

DOLO comes with a fixed supply of 1 billion tokens. The token’s tokenomics revolve around a cycle surrounding DOLO, the primary token, veDOLO, a time-locked token, and oDOLO, the incentive token. The token allocation includes a 3% annual inflation for 2026 designed to fund the platform’s growth and liquidity incentives.  

Tokens are being distributed according to the following plan:

• Community: 50%
• Core team: 20%
• Foundation: 10%
• Investors: 16%
• Service providers: 3%
• Advisors: 1%

What makes Dolomite’s architecture special?     

Dolomite’s architecture features a highly modular design, which makes it unique by combining two distinct layers. The flexible, mutable layer and the secure, immutable core combine to facilitate capital efficiency. The core immutable layer provides a secure foundation, while the Mutable module layer responds to functional expansion and market changes. The two layers manage this via Smart Collateral for optimizing assets and the Automatic E-Mode for dynamic LTV adjustment. The dual architecture enables users to maximize capital by supporting multi-model decentralized trading and cross-platform interoperability. The result is improved trading depth and lending yield.

How does Dolomite enable capital efficiency?

Decentralized exchanges operating automated market (AMM) makers struggle to raise enough liquidity providers, leading to capital inefficiencies. Unlike the order book system or centralized exchanges that match buy/sell orders directly, AMMs can struggle to optimize liquidity usage. The ensuing capital inefficiency can lead to subpar liquidity usage, which can reduce the utilization rate.

Dolomite uses a system that addresses the liquidity inefficiencies experienced by other DEXs with its capital efficiency model. The Dolomites Dynamic Collateral system enables users to utilize assets as collateral while retaining the asset’s utility. As a result, users don’t lose DeFi-native rights even after supplying liquidity. 

By combining automated arbitrage and position management, Dolomite can save up to 97% of capital requirements. That’s because the innovative virtual liquidity system significantly reduces manual adjustment costs and impermanent loss. The model also ensures liquidity providers make higher profits, thereby enabling a fairer and more efficient decentralized finance market.

How to use Dolomite to earn money?                                   

Dolomite integrates features from various money markets into a single system, making it easy to use their interface. Users have numerous features and trading products to choose from, including liquidity provision, lending, and leveraged trading. Dolomite enables users to employ different strategies to maximize the capital efficiency of their crypto assets. Some of the ways you can use Dolomite to earn money include the following:

1. Arbitrage by trading DOLO

With arbitrage trading, you can exploit temporary price differences across exchanges by buying low and selling high elsewhere. This is a risk-free way to make a profit based on minor price differences:

1. Identify Price Discrepancies: Monitor different crypto exchanges for the smallest priced differences.
2. Execute Simultaneously: When you find DOLO trading lower in one exchange and higher in another, it’s time to act. Buy DOLO from the exchange at a lower price and sell it at a higher price.
3. Account for Fees: Remember to factor in applicable fees like trading fees or gas fees to ensure your trade is profitable. Consider choosing the exchange with low trading fee, as well as any network (gas) fees for transferring the tokens, to ensure the final profit is still substantial.
4. Repeat the Process: Repeat the process as often as you find differences to maximize profits.

2. Earn by staking DOLO

You can stake DOLO on platforms like Bybit Launchpool or Binance Simple Earn and earn rewards. Dolomite also runs a staking program and a yield farming option you can participate in. The steps include:

1. Acquire DOLO: Buy and deposit DOLO tokens into a crypto exchange account.
2. Select a Platform: Choose between participating platforms like Bybit Launch, Binance Simple Earn, or Dolomite to stake.
3. Subscribe to a Product: Navigate the chosen exchange’s platform to the Earn section and select the appropriate DOLO token.
4. Enter Amount and Confirm: Input the amount of DOLO tokens you wish to stake.
5. Earn Rewards: Wait to earn your rewards and see the results in your Earn dashboard beginning the following day.

3. Yield Farming

Yield farming on Dolomite involves earning interest from margin lending, providing liquidity to liquidity pools, and using leverage on the Arbitrum network. You can engage in lending or farming with leverage to maximize your earnings.

• Provide Liquidity to AMMs: Provide liquidity to AMM pools and earn trading fees on the platform.
• Margin Lending: Earn interest by providing capital to users who borrow assets for margin trading.
• Leverage Farming: Utilize leverage in your yield farming strategies to amplify potential profits and mitigate risk of loss.

Conclusions

Dolomite introduces a unique blend of features that distinguish it from conventional DeFi lending protocols. The platform’s competitive edge stems from its ability to preserve DeFi-native rights while maximizing asset efficiency. The DOLO token may be volatile like all other crypto assets, but it highlights a new type of market excitement.

The project’s focus on capital efficiency represents a new proposition to the dynamic DeFi landscape. Dolomite’s future will largely depend on its ability to navigate the DeFi regulatory landscape, build a strong community, and attract users. If the project can adequately address liquidity limitations and progress to a more decentralized model, it could transform the DeFi landscape.   

FAQs                                       

Where can I buy Dolomite (DOLO)?  

You can buy DOLO from different crypto exchanges, including MEXC, Binance, Bitget, Bybit, KuCoin, and BingX. Keep in mind that you may be required to complete KYC verification in most of these exchanges.

How much is Dolomite (DOLO) worth?

At August 29, 2025, the current price of Dolomite (DOLO) is DOLO according to data from CoinGecko. It has a total supply of around 998,289,199 with a circulating supply of 385,530,741.

What is Dolomite used for?

Dolomite (DOLO) is a governance token that can be used for various purposes, including over-collateralized loans, margin trading, spot trading, and other financial purposes.                        

Is DOLO worth investing in or holding?                                                 

Whether or not DOLO is worth holding or investing depends on your knowledge and experience in DeFi. Most of the platform’s features are ideal for experienced DeFi users with some knowledge of crypto borrowing and margin trading. Since DeFi involves a level of risk, consider your risk tolerance and increase your understanding of the DeFi landscape before joining.