[DRAFT PROPOSAL]: Protocol Delegation Program

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.

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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.

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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.

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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!

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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.

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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!

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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.

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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.

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That is not true, there is a UniV3 staker contract designed specifically for permissionless liquidity mining which leaves the active management up to the individual LPs. There is also a modification of that contract which has been public since last spring Add minimum tick width by dmihal · Pull Request #1 · dmihal/v3-staker · GitHub.

I also never said that they shouldn’t have a voice, I simply pointed out that they are not nearly as committed to Optimism as other protocols are.

I should add that I’m honestly disappointed there was no attempt to make use of the UniV3 staker by UniFDN… There has literally been a handful of attempts at making use of UniV3 liquidity mining and those were very isolated small scale experiments on ETH mainnet. Due to the gas costs of opening UniV3 positions it becomes difficult for small LPs to be active in those programs, but on Optimism that is not the case.

I also like all three of the projects which had the Uniswap Liquidity Mining program outsourced to them but there is no doubt that Uniswap offering the LM program on their interface, would have a much greater impact on participation.

Any way I will voice these opinions in Uniswap’s Governance Forum but I think it essentially boils down to Uniswap not wanting to allocate dev resources to this initiative. Happy to be proven wrong on that.

On a side note, for anyone who has misconceptions about the UniV3 staker and whether it’s viable for permissionless Liquidity Mining, I suggest listening to my discussion with Guil Lambert on the topic. We go into great depth about it’s advantages and why there is a lot of misinformation about the effectiveness of the staking contract. SD083 - Spartan Space - UniswapV3 by Synthetix Discussions TL;DR - It’s NOT game-able for short tail pairs like ETH-USD or OP-USD!!!

The whole point is to take subjective assessments out of it and allocate OP to protocols based on verifiable usage metrics. You’re attempting to introduce something (commitment, interest) highly subjective into the allocation process.

This program was posted on OP channels publically with requests for feedback.

That was my suggestion on how to improve the the criteria for this program, you seem to be fixated on my mention of Uniswap in my original comment, so I will entertain your critiques.

Do you deny that had Uniswap ran the OP liquidity mining program through the official Uniswap interface, the impact of the program would be far greater?

Do you think that my suggestion is less optimal than relying on a sole metric of Gas Fees Generated the past season?

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I’m glad that the conversation is shifting from Uniswap not caring about their OP distribution to now a debate about the methodology of distributing the OP rewards because the former was not a fair characterization of the situation.

I would disagree with your metric of TVL to determine the effectiveness of a DEX like Uniswap. TVL does not reveal anything about the liquidity depth. Volume should be the more relevant metric here.

Whether or not they’re optimizing their OP distribution should be analyzed on a objective basis. Just look at who is bringing in the volumes right now.

It’s bringing in 4x the volume of Velodrome on much less incentives and only 50K of OP has been distributed via Uniswap. Let’s stick with objective metrics of value added to Optimism. This is just my opinion, but I do not think the main metric should be how involved were you in these Optimism governance forums, but the MAIN metric should be how much actual value is being provided to Optimism in terms of their core product.

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where in my comments did you see “governance forum activity” as a criteria for this program?

I think the volume idea is good one and I’m happy to incorporate that into one of the necessary criteria.

So let me once again quote my original suggestion just so that it is clear what I am suggesting:

I merely provided a counterpoint that “Uniswap has displayed little interest in Optimism”. Which many people would disagree with. Particularly for judging their merit on receiving an allocation in this new program.

That depends on how you define “impact”. I think running OP through liquidity managers resulted in highly optimized liquidity for Optimism on preferred pairs. Regarding smaller LP access, I think other programs like Revert and Uni V3 staker (which both got rewards) are able to cater to their needs.

I don’t think Optimism native protocols should get any advantages with this program. Just because a protocol is deployed on other chains/layers, doesn’t mean they don’t care about the success of Optimism or that they should have any less of a voice here. Never will be a fan of “nativism”.

Nor do I think protocols that conduct governance on OP should get any advantage. The governance activity could be superfluous and inconsequential. Many protocols don’t have the resources to wholesale move their governance to Optimism. Many would have a conflict of interest in doing so.

As @BP_Gamma stated, I think volume is a better metric (or even fee generation) than TVL. TVL is just parked funds, with no description about what it’s actually doing or how it’s being used.

Certainly willing to entertain more objective metrics when evaluating protocol delegation rewards. But as I have stated many times before, I would avoid subjective assessments of a protocol’s “loyalty” or “commitment”, These kinds of things are poisonous for governance.

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Well then we clearly disagree on many points. Once again you have inserted your own words which I have not expressed. I never used the word “loyalty” but I did use the word “exposure”. I think a protocol’s exposure to Optimism is directly correlated to whether the majority of the protocol’s infrastructure is deployed to Optimism, including where they conduct their governance.

I will let others have the floor at this point and avoid crowding the forum discussion.

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Just one last point on TVL vs Volume criteria. For a DEX, you need to analyze volumes because with concentrated liquidity, TVL becomes less of a metric and liquidity depth becomes more important.

Because DEX aggregators will route volumes to pools via liquidity depth/lower price impact, volume is more indicative of performance of a DEX than TVL.

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Looking at the top lines and saying Uniswap is bringing “4x the volume of Velodrome” is pretty disingenuous. At the time of our proposal, Velodrome supported over 29 projects with over a $100,000 in in their LPs to Uniswap’s 9. Uniswap is really primarily driving the bulk of its volume through a few highly efficient pairs. But, project’s need capital efficient liquidity to survive, even if their token isn’t driving high volume. That’s what we’re doing.

When you actually compare individual pools, Velodrome is absolutely competitive on a volume / TVL basis with Uniswap.

Volume can absolutely be considered. But, unless you think we should incentivize the abandonment of low volume but critical pools I think we can’t over-index on it.

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