Project Name: Curve
Author Name: WormholeOracle
Number of OP tokens requested: 1,000,000
L2 Recipient Address: Curve Grant Council Multisig TBD
Relevant Usage Metrics:
TVL on Optimism: $17.33m 1
TVL across all chains: $6.13B 1
Average weekly volume on Optimism: $3.4m 2
Data sourced on July 24, 2022
Curve is the backbone of the burgeoning DeFi industry. It touches every piece of the stack and strengthens every integrated protocol. There is opportunity for Optimism to leverage Curve’s foundational role to further support its vibrant ecosystem.
Applications integrated into Curve have realized novel use cases. Synthetix heavily utilizes Curve for synth liquidity. Their atomic swap functionality recently integrated with Curve has produced staggering revenues3 for Synthetix stakers.
The stableswap algorithm4, well known for enabling deep liquidity and low slippage swaps, has built a reputation for stabilizing pegs and enhancing stablecoin utility. See: FRAX5, 3CRV6
Curve has a number of integrations with lending markets and yield bearing derivatives. Swap fees compound the interest generated from these activities. See: Aave7, stETH8
Highly configurable V2 pools9 are unlocking new potential for FX markets and volatile crypto pairs. The concentrated liquidity algorithm offers advantages to LPs and traders, combining a composable AMM design with low slippage swaps. See: Tricrypto10, eursusd11
Curve also needs Optimism. A recent Delphi article12 demonstrated that although Curve regularly quotes better pricing than competitors, it underperforms on volume due to mainnet gas costs. Curve requires a scalable L2 where it can absorb liquidity and realize its potential. Optimism is the ideal partner in this regard.
Proposal for token distribution:
How will the OP tokens be distributed?
100% of OP will be distributed to LPs that provide liquidity on Curve.
Many projects with pools on Curve incentivize liquidity as rewards tokens in the Curve gauge contract. The OP will be distributed in much the same way, offered as incentives for a variety of pools.
Curve uses a gauge weight mechanism13 that directs inflationary CRV emissions toward specific pools. Pools receive a gauge by passing an on-chain DAO vote. veCRV owning governance participants vote weekly on where to allocate inflation, which may be pools on any network, including Optimism.
Each week, the
RootChainGauge on Ethereum mints all CRV emissions of the previous week and transfers them over the Optimism bridge where they are received to a
ChildChainGauge contract deployed to the same address. After checkpointing, they are transferred to the
ChildGaugeFactory, the contract which handles distribution to all gauges on Optimism.
|Contract Name||Contract Address|
This decentralized mechanism for rewards distribution will determine how OP is distributed to LPs. There are currently three pools with gauge on Optimism (sUSD15, sETH16, and sBTC17), although the number of pools and opportunities for LPs will be increasing over time.
Current Optimism Gauges Eligible for Incentives:
|Pool Name||Gauge Contract|
We plan to distribute a fixed quantity of OP per week, to the amount of 50,000 OP/week. By calculating the weekly gauge weight allocated to Optimism pools, we can determine the proportional OP allotment toward each pool.
For example, assume the weekly gauge vote weights result in 5,000 CRV toward sUSD pool, 3,000 CRV toward sETH pool, and 2,000 CRV toward sBTC pool. We would then match weekly distribution of OP as:
(5,000 / 10,000) * 50,000 = 25,000 OP toward sUSD pool
(3,000 / 10,000) * 50,000 = 15,000 OP toward sETH pool
(2,000 / 10,000) * 50,000 = 10,000 OP toward sBTC pool
How will this distribution incentivize usage and liquidity on Optimism?
Curve’s stableswap AMM excels for pools involving like-kind assets. LP’s are attracted to these pools as a way to earn real yield from swap fees, while mitigating the risk of impermanent loss (as assets supplied to Curve pools are expected to be mean reverting). Optimism can expect to see an increase in bridged assets, largely stablecoins, to the network as LPs seek superior yield opportunities on Curve.
Users trust the design, implementation, and security of Curve’s contracts. Curve has been live on mainnet since early 2020, and has subsequently expanded to a number of side-chains and L2’s. Its system is robust and battletested. Thanks to the integrity of its team and its brand, Optimism will surely see LP’s onboard en masse to its incentivized pools.
Once onboarded, the goal is to retain LPs on Optimism. Early converts incentivized with a stake in the network are more likely to express long term loyalty toward Optimism . Curve LPs are power users, some of the most capable at traversing the DeFi landscape. Whereas most protocols regard liquidity as mercenary, Curve has found an enduring alignment with its LPs, largely thanks to veTokenomics. Optimism has this opportunity to make allies of the best DeFi has to offer.
Why will the incentivized users and liquidity remain after incentives dry up?
Curve’s value proposition has not only attracted individual depositors, but has spawned new categories of DeFi application as protocols build their services around Curve. When these applications establish themselves, liquidity becomes anchored on Curve.
Use case 1: Synthetix and Curve have a deeply intertwined history that began with the need for Synthetix to offer low-slippage exposure to their sTokens. The partnership eventually expanded with the ability to accomplish cross-asset swaps using a combination of Curve and Synthetix. Now atomic swaps are fully realizing this functionality. For example, a user might swap USDC → sUSD on Curve, sUSD → sETH on Synthetix, and sETH → ETH on Curve, all in a single transaction. This is a powerful tool for LPs, who can provide liquidity in a single token without exposure to impermanent loss, and both Curve and Synthetix are seeing a surge in volumes thanks to this functionality.
Use case 2: Yearn was one of the first protocols built on Curve with their Y pool21. They essentially invented the yield aggregator that kicked off the farming craze of 2020. Their service involves accepting user stablecoin deposits and optimizing yield on those assets across several lending applications (later expanding to a variety of other strategies). Its viability depends on Curve’s deep liquidity and the assurance that their users can withdraw their stables without suffering impermanent loss. This use case was simply not possible before Curve.
Use case 3: Lido has chosen Curve as the source of liquidity for their liquid staked ETH derivative, stETH. Their service involves accepting user deposits of ETH and staking them on the ETH2 beacon chain. While deposits are temporarily locked before the merge, the stETH pool22 allows depositors to exit their position back to ETH. The deep liquidity and composability offered by Curve’s stableswap AMM made it an excellent choice for Lido’s integration.
From these examples, it is evident that Curve has a stickiness within the DeFi ecosystem. It does not exist in isolation, but rather as a building block that lays the foundation for novel use cases. Once those applications establish themselves, liquidity becomes firmly cemented within Curve, ultimately becoming the fuel that powers the Optimism flywheel.
Over what period of time will the tokens be distributed?
The distribution will take place over 20 weeks (50,000 OP will be distributed weekly for the total of 1,000,000 OP).
Has your project previously received an OP token grant? If yes, what’s the status of these tokens?
How much will your project match in co-incentives?
Curve is currently incentivizing liquidity on Optimism in the form of CRV emissions. Emissions are controlled by veCRV voters, so it is impossible to predict exactly how much weighting they will give to Optimism pools going forward. However, we can expect that the influx of LPs to Optimism will create a virtuous cycle.
Increased incentives attract LPs → Influx of liquidity stimulates utility of Optimism pools → Utility incentivizes veCRV to more heavily weight those pools → Incentives attract more LPs to Optimism.
Curve’s inflation schedule23 takes place over the course of ~250 years, so Optimism can be confident that there are many years of incentives ahead.
Note: the superscript numbers in this draft are links that the forum prevented me from publishing. Links will be included when possible