[DRAFT] [GF: META] Proposal to reserve a share of GF distribution for liquidity backstopping and stronger governance

Yes it is true, we have worked closely with Optimism Foundation, they funded the launch of our project with a grant and Partnership team reviewed this proposal prior to publication and deemed it appropriate for consideration under current frameworks.

can you please provide context as to how you arrive at this opinion?

I am personally a delegate and will be participating in governance discussions and do not have this belief in the slightest. Ty!

hey @gabagool I am happy that you are curious but I dont see how sharing my opinion will change your belief and ideally it should not.

One approach would be to discuss this as a new idea, you can create a tread and involve other users to get their feedback and opinion on this. feel free to quote any comment that i have mention if you need it as an example.

1 Like

hey @bobby @vonnie610 , is this true ? I thought pre-check of proposals from OP foundation was only for Phase 0.

1 Like

how do we know if you are not trolling us by saying that op team reviewed this proposal and supported it @gabagool @jackanorak

1 Like

This is a conflicted post by a member of a competing dex on Optimism, on whose own active proposal
I made a factual statement and offered no opinion or judgment. The facts I offered are inconvenient for his cause.

In response, he’s maligned our protocol’s intent and commitment to the Optimism Collective with no meaningful statement on this proposal’s merits. I hope readers will consider his post with this in mind.

Some additional context is provided in that other thread, and I don’t wish to drag out any ugliness by commenting further.

The Velodrome team did share this proposal with members of the Optimism team before posting on this forum. This is not an endorsement or “pre-check” of the proposal contents, but their statement is true.

Sharing my own opinion as an individual: I think this is a valid Phase 1 proposal because it’s still describing a potential token allocation from the GovFund — but instead of distributing those tokens to a project, they’re held for liquidity pairing.

5 Likes

Thank you for keeping the feedback channel open and being transparent.

1 Like

(I work for OP Labs, but this reflects my own opinion. I have worked closely with the Velodrome team.)

I think this proposal makes a lot of sense.

For obvious legal reasons, OP Labs & employees do not discuss token value, but I don’t think I will rock anyone’s socks if I say that a strong token opens more possibilities for governance to make an impact. I love to see a proposal in this direction, even just as a side effect.

I will also second the fact that liquidity is a real need. I often hear from the bizdev team that liquidity is one of the main concerns of projects. The situation has largely improved already, but it’s still possible to do much better.

Giving the collective governance power in protocols is also something you like to see. It’s a good way to maintain alignment. I think there can even be a discussion about projects having the ability to use their LP funds to vote in Optimism governance. Projects are important and valued actors whose voice should carry weight (though this should be made very carefully, to avoid projects having a disproportionate governance weight). My take away from the recent situation with the delegation of Perpetual Protocol’s OP allocation is that we’d like to give protocol a voice, but we have to be mindful that it does not take over the voices of other token holders.

Finally, we have to be cognizant that there are many dexes on Optimism, and we can’t be playing favorite. On the other hand, this is not Optimism, not Communism and I would like to see the market play a role. I think a fairly simple solution is to let projects decide on which dex they want to deposit their liquidity (subject to governance approval to avoids griefs such as creating a new dex specially for the occasion). They will do what is in their best interest, competition will play its role, and hopefully all will be well. (To be fair, this is implied in the proposal, which mentions Velodrome and Curve, I think it’s worth spelling explicitly though.)

Velodrome did indeed draft this, so I do expect they are confident they’ll be able to benefit from the proposal (though I do think everyone in the ecosystem benefits from it becoming stronger). They don’t have to be the only dex benefitting however.

There’s been a lot of back-and-forth in this thread between the Velodrome team and other parties from other dexes. I’d love to see what less directly involved member of the community think as well.

3 Likes

Appreciate the clarifications earlier. Now that we’ve settled questions about process, I’ll turn to the individual q’s you posted earlier, as they’re similar to the open questions we laid out in the original proposal. There is enough overlap where I’d rather post them here, and then once we’ve discussed, we can amend.

Excited to get back to the proposal at hand.

Who will own the LP address, OP foundation ? or someone else ? This need clear answer.

Foundation multisig is probably the most low-friction way to custody this while final governance is sorted out.

What would you suggest to do with the LP rewards. Give some of your suggestion ?

In our initial proposal, we left this an open question and invited thoughts. The three primary actions are:

  • Sell LP rewards to compound LP positions, possibly through autocompounder
  • Compound LP rewards into more capacity to influence broader liquidity
    – if v3, possibly buy back OP for more public good distribution or acquire votepower in a veDEX
    – if veDEX model, such as Velo or Curve, accumulate voting tokens to gain general votepower
  • Sell LP rewards for some other purpose
    –Buy back OP for public good investment
    –Acquire more governance of partner protocols
    –(pending legal clearance, lol) general treasury mgmt

As you can see, there are a few different paths, but each of them presents an interesting opportunity for the Collective.

My personal suggestion would be some combination of compounding voteshare and buying back OP, both of which directly free up Governance’s hand to facilitate more funding, but this is very much an area where I’d invite some other perspectives.

How long will this LP last ? Who will make a call do dilute the LP and /or its rewards.

Our thinking was that this would be more or less permanent until the protocol signaled a lack of need, at which point the funds would be at Optimism’s disposal. We could say that Optimism commits to holding protocols’ governance tokens in perpetuity while reclaiming its OP for more public goods distribution.

Do you see Impermanent loss as a problem? What would you recommend to mitigate this ?

As an impediment to passing this proposal, no. The analogy I used above is that it’s silly to refuse to accept $100 of free money because you’re worried you might lose $10 of that.

The primary reason for doing this in the first place is to take OP you were already going to give away and put it to work for the same purpose it was originally being requested for–but also put it to work for you. How efficiently it works for you is secondary because your alternative is getting 0 value for yourself.

As an operating matter, yes there are possibilities to mitigate this, but I believe it’s downstream of getting something like this passed.

How this will work ? Lets say OP foundation has the token owned by multi-sig, now who will vote and participate in the DAO ? will it be foundation or the delegates?

This is a super exciting area where I don’t have a clear direction! I think this is a much, much bigger question on which I would be thrilled to have this proposal spark discussion.

Fortunately, even if this passed we would have some time to sort it out. Of primary importance is meeting protocols’ liquidity needs, which currently represent over 1/3 of all approved OP distributions.

1 Like

Process wise, we are still there but like I said, you are motivated about this so I am joining the conversation, may be I am missing something here.

Last time when we try to involve foundation with joining multi-sig with different project they said no because of bureaucracy, So I would start with getting their permission here. Are they willing to take this responsibility. If you are able to resolve this, then I would agree that we have made some progress.

This proposal will impact all upcoming proposals, So I would assume this going to voting on snapshot and for that reason, If I were you, I would do some math here and extend the analogy.
We know how many token are left in GF fund, you are proposing 25% from from our side and 25% from project side. Run some number and show us the data with, even if it has 10% of variance.

As an impediment to passing this proposal, no. The analogy I used above is that it’s silly to refuse to accept $100 of free money because you’re worried you might lose $10 of that.

We have gone through this many time and I dont agree with this logic. So, i wont repeat again.

The primary reason for doing this in the first place is to take OP you were already going to give away and put it to work for the same purpose it was originally being requested for–but also put it to work for you. How efficiently it works for you is secondary because your alternative is getting 0 value for yourself.

Few other thoughts:-

  1. What about those project that does not have token or cant afford to give 25% of their share ?
  2. Buying OP and putting into foundation treasury would be a good idea where both house would vote to distribute it to public good.
  3. I would remove DAO all together if foundation is accepting to hold the address, or mention specifically that decision(on other project DAO) will be done by OP Token house, foundation role would be just cast those votes. Goal here is to keep Foundation as neutral as possible.
  4. We are asking projects to give co-incentives, are you planning to keep that part or remove it ?
  5. Also put 5 dex of your choice where you want to keep the LP.
  6. Would you suggest putting all in a single dex or distribute it between 3-5 ?
  7. Dex selection should also need voting, I think ?
  8. In order for anyone to call Velodrome bias because you are drafting this proposal, I would suggest taking a voting snapshot of the date this proposal was submitted.

Appreciate your thoughts here @norswap. A few things you’re mentioning I’d like to add on to.

  • Delegating donated LP funds to protocols is a fascinating idea I don’t want to lose. Been struggling to propose an actionable approach to getting distributed OP delegated to these major stakeholders, and this feels like it could be a win-win in that it also incentivizers partners to participate. Would hope to see mutual governance influence in the long term, and the discussion on Perp’s distro stands to disenfranchise a major group
  • Agree on the idea of letting projects decide their own dex – had had this thought. Removes a ton of overhead.
  • I want to make clear: my guess is that we would benefit primarily through TVL, through the ecosystem’s sustained growth, and through sustained OP token value (which would allow more OP incentivization over time). I’ll say again that, economically speaking, this has an unclear effect on us because partner protocols see a lower cost of liquidity and thus may end up bribing less. For a non-bribe-oriented dex such as Uniswap, my guess is that this would be a strict improvement.

Overall, I think we need to remember that we are doing these grants as a collective. We’re granting a ton of rewards because we believe they will generate more economic activity throughout the ecosystem.

My call to everyone here is to try more positive-sum thinking when considering these grants and asking “how does everyone win” vs “does that protocol get more than me”. In my view, this proposal stands to positively directly affect all stakeholders and increase the Collective’s capacity to continue to do so.

1 Like

great proposals, good thoughts!

I would break my takes into two parts: high level (concepts) and implementation level (approach to execute/distribute properly)

On a high level

I mostly agree with this statement. Liquidity is one of many key metrics and plays a vital role in adoption whether we want to accept this or not.

Regarding governance fund phase 1, I think it would help protocols on OP to bootstrap users together with liquidity over to OP. However, I have observed that many protocols difficult to match incentives with OP tokens. My take on this is most protocols foresee that the OP token value will be dumped for a while given economic value is limited and still underrealized by the market norms. If the market value of OP dropped, it will lead to difficulty for protocols to inorganically bootstrap new users/liquidity from granted OP.

After I read this proposal, I took EVM (Polygon, BSC) and non-EVM (Osmosis) as references, and it proved that the chain representative tokens are mainly used as the main pair (or second to stablecoin(s)).

Referring back to Optimism, based on what I can find, there are only WETH and VELO that are highly paired with OP. The rest are heavily paired with USDC.

On an implementation level
I would not comment on this since I still could not think of ways to execute the liquidity pairing properly. (not saying your proposal is wrong, maybe just me that is unable to imagine it)

1 Like

I agree with the proposal, in general.
There needs to be a separate fund for “Layer-Owned-Liquidity” aka LOL.
I agree that projects should have voting power in Optimism Collective, but for sure the voting power of projects should not exceed or equal the voting power of the community.
Of course the main goal is to maintain the value of the OP so that public goods have more value.

Context: don’t mix DEXs incentives and Public Goods. This need in stimulus is the result of similar projects with low liquidity. We need more exceptional ideas.
Public Goods is something special, which I hope will focus on research, innovation, education…
And I don’t agree with “metagovernance” = “metamonopoly”.

1 Like

@diligit - thanks for critically engaging with the ideas behind this proposal.

I agree that projects should have voting power in Optimism Collective, but for sure the voting power of projects should not exceed or equal the voting power of the community.

I absolutely agree with this sentiment. Part of what I found appealing about Norswap’s suggestion was that it seemed like a pretty tractable way to both grant and set boundaries around protocols’ governance power. But we’re still in early stages of discussing implementation (assuming there’s appetite for the broader strokes of this proposal), and I’d love for you to stay involved on this front.

Context: don’t mix DEXs incentives and Public Goods. This need in stimulus is the result of similar projects with low liquidity. We need more exceptional ideas.

I couldn’t agree more with this belief. Liquidity provision is foundational to DeFi health at this current stage of development, but it’s also primarily an intermediate means to an end. Most dapps, DeFi or otherwise, don’t even really need tokens!
The observation that a disproportionate amount of rewards went to liquidity provision (again, important at this current stage) was part of the motivation behind wanting to at least in part separate this service from others, so that projects could be encouraged to think more expansively about how best to use the Optimism Collective’s capacity. It doesn’t need to all be going to LPs (which imo is is a pretty convenient way to funnel grants and vote power to project teams, as we may have already seen in some cases).

Public Goods is something special, which I hope will focus on research, innovation, education…
And I don’t agree with “metagovernance” = “metamonopoly”.

Could you please expand on this? Would like to have a discussion around your concerns. We could do this in the forums in case we have to do a back and forth.

1 Like

I agree in principle with much of what you’re saying, and indeed I’m starting to see that, following this initial proposal (not sure whether baader-meinhof phenomenon), there has been a surge in delegates’ interest in pairing tokens with OP.

If there is broad agreement that this is something generally worth pursuing, one way or another we need to make sure it’s done as part of a deliberate campaign. The worst thing would be to push scattershot rewards, fragmenting the centrality of liquidity between, e.g., WETH and OP, which could hurt the systemic efficiency of swap liquidity.

Let this be the first proposal to put forth such a dedicated effort; we can use it to discuss how best to achieve this (and perhaps jog your thinking on how we could do so).

1 Like

That’s good, now I understand how metagovernance will be achieved and how the Optimism Collective will be involved in it. There is too much extra information in the proposal, it would be better if it was structured in “Why” and “For” in details, but yes, I support the proposal.
And I can answer your questions:

From Ecosystem Fund, through GF

Yes

max. 5%

50/50

Yes

The Optimism Foundation

1 Like

No comments.
Thanks.

Would like to take the opportunity to restart the conversation here. I’m not really sure where else we ought to go from here, as this proposal has now had some form of approval from a wide swath of the community, including OP Labs members (in a private capacity) as well as delegates.

But there’s clearly more to hash out here. Perhaps in a way to make this actionable and take advantage in the pause in rewards, could we perhaps start a working group to hash out the details here to submit for a proposal?

Separately, would like to mention that there is some outside support for measures such as this to lend immediate utility to OP. Here’s Crocswap’s founder, Doug Colkitt, remarking on the core problem:

This proposal offers a solution to the issue he’s posing.