[DRAFT PROPOSAL]: Protocol Delegation Program

Please read Guide to Season 3: Course Correcting for full context before reading this proposal.

The Protocol Delegation Program will be voted on by the Token House in Special Voting Cycle #9a.

Protocols building on Optimism are among its most important stakeholders and they value having a voice in the development of this ecosystem. Throughout Season 1 & 2, protocols have repeatedly expressed this interest by requesting that they be able to self-delegate grants as an means to participate in Token House governance. Self-delegation of grants has historically been discouraged.

After much debate, delegates have requested a comprehensive and consistent approach to protocol delegation. This proposal presents a more incentive-aligned way for protocols to get involved in governance in Seasons 3 and 4.

The Protocol Delegation Program would delegate a portion of idle OP from the Governance Fund to value-aligned protocols based on the objective criteria outlined below. This is an experimental program in which delegations are meant to last two Seasons in total, at which point protocols will need to reaffirm their commitment to Optimism governance via their own treasuries. The continuation of this program for a second Season will be voted on in the Special Voting Cycle following Season 3.

If this proposal is approved by the Token House:

  • A total of 5M OP (or not more 1/3 of the active votable supply, defined as the average executed voting power in Voting Cycle #8) would be delegated across 20 protocols, using idle tokens in the Other Initiatives category of the Governance Fund. Delegations will be made pro-rata at the beginning of each Season, for a maximum of 2 Seasons, according to the below criteria:

    • total gas fees generated on Optimism during the proceeding Season
  • Protocol delegations will be capped at the point at which a protocol reaches a total of 2M delegated OP. The cap is on total OP delegated. If a protocol already has 2M OP in delegation, they will not be delegated additional OP through this program. Any OP that is not delegated due to this restriction will be re-allocated on a pro-rata basis among the remaining protocols.

  • Only protocols that maintain >70% voting participation rate will be eligible for renewal for a subsequent Season of delegation.

  • Protocol delegates will be subject to the Delegate Code of Conduct. Protocols will be contacted before delegation occurs and given the opportunity to opt-out if they aren’t able to meet the requirements or do not wish to participate. Any protocol that the Token House finds to be in severe violation of the Delegate Code of Conduct will have their Protocol Delegate Program delegations removed.

18 Likes

From someone who was against self-delegation, this proposal set a clear defined rule and process around protocol doing self-delegation which will remove the continuous debate from last 2 season.

query :- I see cap is 2M OP, so what about protocol that has a head start in self-delegation ? They will get another 2M OP ?

1 Like

Recommend making this “1/3rd of active votable supply” - a majority of the votable supply is dormant, so in reality at 8M OP you’re ending up with >70% in many proposals. At that point, delegates’ votes are meaningless, so Optimsm governance will effectively end up being controlled by the 20 protocols outright (actually less than that - maybe 10-15 - will qualify for >51%).

7 Likes

I echo @polynya here in putting a % limit of this in relation to the active votable supply.

Otherwise indeed delegation and us individual delegates will become meaningless and will stop participating alltogether.

4 Likes

Who are the 20 protocols?

Protocols from Phase 0? or a mixture of Phase 0 Protocols with Phase 1?

Even with 8M $OP per season, a project will only get 400K $OP for self-delegation so to reach the max cap of 2M a project need to eligible for continuous 5 season.

If 10 proposal manage to be in top 20 for continuous 5 season and looking at how tightly coupled Optimism is on protocol level, this will put token house and gov fund at 10 protocol disposal.

If we take % active votable then :-

1/3 would be 4 M OP and it will take 10 season or close to 1 year before causing the same effect as mentioned above.

total gas fees generated on Optimism during the proceeding Season

This make sense, they are generating fee so giving them voice in gov is logical. Imo, I dont see this as a problem, total active supply or votable supply, we will see the same effect sooner or later, echo-chamber and centralization.

From yesterday’s community call, it seems OF is working on solving voter’s apathy but no promise on any commitment yet, but we have this proposition to support protocols that tell us where the priorities are.

2 Likes

This would be the metric to define those 20 protocols

3 Likes

Thanks I missed that.

2 Likes

The cap is on total OP delegated. If a protocol already has 2M OP in delegation, they will not be delegated additional OP through this program.

The program will run for a maximum for 2 Seasons, after which point protocols that are interested in maintaining their voting power will need to do so via their owns means.

2 Likes

Based on community feedback, the following updates have been made:

  • Adjusted the program amount from 8M OP to 5M OP to reflect active votable supply, defined as the average participating voting power in Voting Cycle #8

  • For additional clarification, added: “The cap is on total OP delegated. If a protocol already has 2M OP in delegation, they will not be delegated additional OP through this program.”

This is not a final version. The Reflection Period officially starts on 11/17/22, so there is plenty of time for additional feedback.

5 Likes

Overall I think this is a good idea, but I still have some concern that this could enable run-

Pros:

  • Protocols have a consistent voice
  • Objective metric (gas fees) is not game-able
  • Influence is significant, but with a cap

Cons:

There is one major con that worries me. Many of these protocols already have their communities delegating large amounts of $OP directly to them or to affiliated delegates (not a bad thing). This proposal is basically gifting voting power in addition to the power they have already gathered from the communities.

My concern is that non-protocol affiliated delegates currently have no good way to increase their voting power based on merit. Voting power was distributed during the first optimism airdrop and has experienced very little changes since then. Some of the most active and thoughtful delegates have seen their voting power slowly decline due to dilution.

I really don’t know what a solution would be, but if the Collective values non-affiliated delegates it would be great to have a similar merit-based program for the governance community to counteract the dilution this will introduce as well as create a growth path for actively participating delegates.

1 Like

I’m wondering how this aligns with the plan for the citizen house.
The token house represents token holders. Now we’re introducing the representation of important ecosystem stakeholders (like protocols).

Is this an immediate measure to give protocols representation in the governance process while the citizens house is missing, or is there also a long-term desire for important ecosystem stakeholders to be represented in the token house?

Once protocols are added, one could think of adding DAO’s, NFT Projects, Applications and other important stakeholders.

As someone who has been against self-delegation, I see this proposal as overcoming and with clear rules.

It would be good if the delegates of the protocols would come forward and present their interests in front of the governance as was done in the beginning with the Delegate Commitments.

As I expressed during the Governance Call following the release of the Course Correction proposal, I believe that having total gas fees generated as the core criteria by which OP is (pro-rata) delegated to protocols on Optimism, would result in the under representation of many projects and flawed results.

Looking at this dashboard: Optimism - Popular Apps and Project Usage Trends 🧮 🔴✨, you can see that Synthetix is low on the list despite having one of the most active communities on Optimism and being deeply integrated with the rollup. Aside from under representation of some protocols, another thing that stands out to me is that both Uniswap and Galxe would end up with a large amount of delegated OP from this program, despite having hardly any activity and interest in Optimism governance.

Uniswap has displayed little interest in Optimism even though they were awarded a large OP allocation from the Phase 0 Governance Fund. More than 6months have passed and there still hasn’t been an attempt to make use of the OP incentives Uniswap was given (1 Million $OP). I could go even further by outlining that no one from Uniswap Labs or the Grants Program submitted a proposal for the use of OP from that allocation until there was public pressure on Twitter for them to do so. They seemed quite disinterested in Optimism governance back then, and based on the lack of a plan for the OP they hold, it seems they still lack interest. Therefore I believe delegating a large portion of OP to Uniswap Protocol, based on a single metric of gas fees generated last season, would be a pretty big waste.

Galxe is a project which has lead to a great amount of growth and usage on Optimism, but does not have significant resources and infrastructure deployed to Optimism like many DeFi protocols do. So despite successfully onboarding many users to Optimism through the Quests campaign, it would be unjust for Galxe to have a major portion of OP delegated to them, from this program, without sharing the same exposure that other protocols have to Optimism.

In general I think that the Protocol Delegation Program would end in suboptimal and flawed results under the current criteria. Gas fees generated, on its own, don’t properly represent the depth of alignment that protocols have with Optimism and would certainly need to be used in combination with other metrics for it to be effective in achieving the goals of this program.

I think if used in combination, the following metrics would lead to fairer results:

  • Total Value Locked in the protocol
  • Is the project Optimism native (deployed on OP and ETH mainnet only)?
  • Does the Protocol conduct its Governance on Optimism?
  • Gas Fees Generated by the protocol

I think the above criteria could be weighted and combined to produce much better results for Optimism Governance and fulfill the purpose of the Protocol Delegation Program.

Eager to hear feedback from the OP foundation and other delegates on the above idea!

5 Likes

Well put Millie, maybe we can come up with a multiplier like in the OP airdrop? so each of these conditions will boost your total delegation if they got to a certain threshold.

1 Like

Hey Millie,

I work with the Uniswap Foundation, and they have actually been expending a lot of resources on their OP liquidity mining program and making attempts to improve it.

Case in point: They are giving a grant to those who are analyzing how LPs have migrated to Opitmism for rewards and how much volume was obtained

I would say they are more inclined to be over-deliberate when embarking on new programs. They are extremely thorough, so I don’t think that’s showing a lack of interest, but quite the opposite.

They have also passed governance votes on Uniswap on how the LM program on Optimism is to be conducted. https://twitter.com/UniswapFND/status/1584681671882047488?s=20&t=wBUMDIteiCl6-96LjzPpqw

I’ve spoken with Ken and Devin from the Uniswap Foundation, and they have put a lot of thought and resources into their OP LM program, which is currently ongoing.

Thank you, and I hope that clears things up!

3 Likes

Thank you for the info, but from the looks of it the newly formed Uniswap Foundation has essentially outsourced the program to projects which already have their own OP allocations.

I have no issue with that but I’m not convinced that they care about Optimism any more as a result of it since they decided not to host the LM program through their own interface, which would have obviously been far more beneficial to Optimism and reached a much wider audience.

3 Likes

To clarify, three programs are competing in Uniswap’s in-house OP LM program. Of those three, Arrakis Finance did not receive an allocation from OP governance. Their solo application was rejected. xToken and Gamma did receive a grant from OP governance.

I don’t think you are characterizing the Uniswap OP LM program fairly. The Uniswap Foundation didn’t blindly “outsource” this. They created a competitive, staged program that passed their governance process with community feedback. UF’s program includes an analytics period (just awarded) where the LM programs are scrutinized before moving forward to the next stage.

This is exactly the kind of due diligence many who participate in the OP governance process have been asking for. Especially in regard to incentivizing liquidity. That due diligence was prioritized over expediency.

Uniswap running their LM program would require them to manage the LP positions. That management could lead to wildly different results based on strategy. That is why they created a competitive program to manage the distribution of OP rewards. Uniswap heavily promoted the program on Twitter.. Likewise, all three managers had robust participation in the grant for the number of rewards allocated.

You can read about some of the results here

I do feel it’s important to point out that Uniswap allocated 0 OP of a 1m OP grant towards participating in OP governance. In contrast, Synthetix self-delegated 2m OP they received from the OP partner fund. That is your right to do so under the terms of Layer 0 rules and your internal SIP, but attempting to punish Uniswap for not “having any activity or interest in Optimism governance” when they had zero votes is not fair.

The whole point of the Protocol Delegation Program is to allocate funds for governance to the projects actually building on the platform. Uniswap should absolutely have a voice in Optimism governance based on its credentials, usage, and relevance with DeFi.