Kromatika
https://gov.optimism.io/t/review-gf-phase-1-proposal-cycle-6-kromatika/3306
Recommendation
We’d need to see substantial changes or clarification before supporting this proposal. There is overreliance on supporting a native token without any clear benefit to users, the product hasn’t achieved obvious product-market fit on Optimism or other chains, and the asks are disproportionate to anticipated user growth or welfare on Optimism.
We understand that this has already gone through a round of revisions, but the guidance in our opinion has been ill-advised in the face of some unaddressed fundamental issues. We’d be happy to advise on an additional round of guidance if this proposal doesn’t pass.
Background
Kromatika offers two core swap products: a dApp that places limit orders using Uniswap v3 LP positioning, and what they call a swap ‘metaaggregator’, which aggregates aggregator routing. This proposal concerns the first, which has been live for several months on Optimism, Mainnet, and Arbitrum. Prior to the OP snapshot date, the sum of limit orders on Optimism amounted to $1mm.
In addition, there hasn’t been substantial growth in limit users since June, and a max of 400 user wallets isn’t inspiring—this is before considering individual users and team would likely have multiple wallets.
We’d want to get more user data before making any determinations that this is a high-PMF project we’d want to accelerate.
Employing these solutions can be gas-expensive (though less so on Optimism), and limit orders rely on Chainlink, which charges fees. Rather than visibly pass on these fees to users, Kromatica obscures these fees by employing their own token, $KROM. Users are expected to treat this token as a fee token. If people remember $CHI from 1inch, the idea is similar (and we don’t consider $CHI to have been a successful experiment).
Asks
300k OP total
90k OP for $KROM-$OP protocol-owned liquidity and another 30k OP for liquidity incentives over 3 months
This strikes us as an unnecessary use of OP to support a protocol’s native token without any clear need. The sole purpose for this pool is to provide depth for Chainlink Keepers to dump their $KROM into. Simply not using a native token and offering a fee surcharge would likely have been sufficient to pay these fees, unless there’s demonstrated volume efficiency (would need to know Chainlink’s fee structure), in which case we would reconsider this.
60k OP for ‘gas refund’
Although this is called a gas refund, what it actually does is subsidize the protocol’s intended feature of gassless trading; that is, there is no incremental benefit to users. The question is: is the current business model unable to support this feature otherwise? Is there some threshold of use Kromatika must meet in order for this model to sustain itself? If there’s no direct value to users, this strikes us as a mere handout to the protocol without any obvious objective.
60k OP for limit order airdrop
We believe that this airdrop, no matter how it’s going to be structured, is inviting wash trading by the few insiders and early users who exist. We don’t get the impression that there are enough users for there to be a broadly beneficial airdrop (Dune numbers aside, the distribution of $KROM uses in their proposal suggests a small user base), and it’s trivial to create more addresses to perform limit orders and pad the merkle list.
We also believe that delegate recommendations have in fact made this ask worse by requesting the protocol lower the required order sizes for rewards. Doing so makes it even less capital-intensive to wash trade as sibyls.
30k OP for referral program
This is a fair application with three caveats: 1) these can be sybiled and farmed as well, 2) it’s a program that would after only two months no longer be exclusive to Optimism, and 3) there’s not that much data on efficacy of these programs, nor are there any clear targets laid out. Although Kromatika claim that they would be the first DEX to implement this, it would probably be worth seeing how GMX’s own referral program has worked out. It’s possible that it’s been successful.
30k OP for marketing
In principle we think marketing budgets are in scope for Phase 1 grants, but there needs to be much more planning up front to determine the worth of this one. Otherwise we have no way of knowing how they will spend it, what their objectives are, or whether they’re likely to be effective.
What this means for Optimism
We think there is certainly space (and probably desire) for a Uniswap v3 limit order protocol of this type, but there isn’t enough evidence here that Kromatika is the one to achieve PMF, nor is there evidence laid out that this proposal makes this protocol more likely to be the one to do so.