Tarot
https://gov.optimism.io/t/review-gf-phase-1-proposal-tarot/3002
Recommendation
We support this proposal and believe the emphasis on providing LP support for TAROT is a clever way to incentivize non-LP activity. Would like to see a breakdown of intended dev activities.
Background
Tarot is a leveraged yield compounder. It’s a tightly scoped protocol that focuses on a few valuable features and has earned a genuine following.
On Tarot, borrowers depositing LP tokens can leverage their positions to amplify yield on their invested capital, though doing so amplifies impermanent loss and introduces liquidation risk. Liquidity providers can also deposit LP tokens without borrowing to enjoy autocompounding, similar to what Beefy offers.
On the other side, lenders can stake single tokens for variable yield, in some cases generating rates well above market with the risk of having their funds temporarily unavailable or incurring bad debt loss.
Protocols benefit from this key defi piece; Tarot encourages liquidity provision on dexes by offering LP autocompounding and juiced rewards, and we see some additional composability possible from the various borrow, lend, and collateral tokens it issues.
Optimism’s seen noteworthy organic adoption of Tarot, despite the lack of incentives to date and the limited LP coverage (only Velodrome and Zipswap). Tarot plans to expand to Beethoven X, and our expectation (and hope) is that Tarot will soon be able to cover other dexes as well.
Asks
540,000 OP over 12 months, or 45,000 OP/month, for liquidity bribes and incentivization mechanisms on various dexes on TAROT pairs
As an incentivized leveraged yield protocol, Tarot is unlike many projects in that it can (and would) directly incentivize general use selectively with token emissions. Borrow and lend on the protocol, get TAROT in addition to your compounded yield.
Because of this, using OP to incentivize liquidity on TAROT is more or less tantamount to directly incentivizing borrowing and lending activity. More liquidity → more capacity to issue TAROT → more users of the protocol.
In this way, Tarot would have the flexibility to juice certain types of activity it wants to promote without having to redirect OP to farmers looking to dump it. Pairing TAROT with OP isn’t necessary but does offer a marginal liquidity backstop for OP.
Although it’s important to critically examine each time a grant proposal asks for native token liquidity provision, we emphasize that Tarot incentivizing its native token is a genuinely beneficial thing for Optimism in this rare case because it encourages protocol use in a cost-efficient way.
Our most material concerns include that the intended term is way, way too long, but we understand that this came about as a result of delegate suggestions. We’d also like to have seen more of a breakdown of anticipated results of this grant, how much incentive would go to individual borrows, etc.
60,000 for dev costs, TAROT-OP POL in interim
We’d like to see some more detail on what Tarot intends to do with these funds; so long as there is a direct link between these costs and value-add for Optimism, we’re on board.
What this means for Optimism
We see a few core benefits:
- Capacity to add more pools and protocols and draw new users to those pools and partners
- Liquidity and activity bootstrapping aid for other protocols; effectively subsidizes some key liquidity enhancers other protocols would otherwise have to build themselves
- Depending on direction of dev costs, new partnerships and defi primitives
We’re especially keen on proposals that immediately promise to subsidize other existing and new protocols’ activities. We’ve seen Tarot be able to do this: one thing they’ve been especially responsive at, for instance, has been adding pools for new lowcap projects (e.g., Layer 2 Dao and Optimism Prime) to further encourage liquidity provision in those tokens. This is a value multiplier for new projects that would otherwise have to resource the same LPing.