[FINAL] Enable aOP as A Votable Token in Optimism's Governance

  • S4 Intent: Governance Accessibility
  • Proposed Mission: Enable aOP as A Votable Token in Optimism’s Governance
  • Proposal Tier: Fledging
  • Baseline grant amount: N/A
  • Alliance Lead: Fig / Flipside Crypto
  • Contact Info:
  • L2 recipient address: N/A

[Please note this post is in-progress and pending risk changes from partner communitites.]

Please list the members of your Alliance and link to any previous work:

@Fig - a Governance Contributor and Ecosystem Lead at Flipside Crypto

Fig has served on the first iteration of the Grants committee at Optimism, DeFi Committee A, and was nominated and elected by the token house to serve as a “Badgeholder.” He and the Flipside team holds various roles across the EVM ecosystem including Aave Grants DAO and dYdX Operations Trust.

What makes your Alliance best suited to execute this Mission?

  • Fig and Flipside Crypto has invested across a myriad of projects and protocols and are committed to helping blockchain succeed
  • Fig and Flipside are leading delegates and stewards of Aave, currently focused on creating outcomes that benefit both communities and attract new users of each protocol
  • Flipside Crypto has deeply contributed to the Optimistic future, developing data science tools, contributing Governance expertise, and building a data warehouse

Please describe your proposed solution based on the above Solution Criteria (if applicable):

This proposal hopes to extend the TAM of governance power beyond native OP, an ERC20 token on Optimism, to receipt tokens in DeFi which are regarded as 1:1.

This Mission works to integrate aOP (Aave’s receipt token for depositing OP) as an acceptable proposing, delegating, and voting power – paving the way for future integrations

This proposal unlocks 227.29K OP supplied in Aave V3 optimism – supplied by 1,186 unique users – further activating the original power and utility of OP’s governance token.

This proposal addresses the current problem in DeFi where users lose the utility of Governance tokens by depositing the token (OP) into a smart contract

Benefits:

While mostly symbolic, this mission creates a wider user journey for OP token holders across DeFi. If approved, a more modern experience may look something like this:

  1. Buy OP on an exchange
  2. Deposit OP on Aave V3 Optimism
  3. Receive aOP as a receipt token
  4. Vote, delegate, or create proposals in the Optimisms Collective

This mission encourages OP token-holders to do more with their Governance Tokens, without fear of forefitting the agency and power it may hold.

Furthermore, this proposal greater aligns the Aave and Optimism community, a premier protocol that has deployed on Optimism and has more than $100mm TVL.

Please outline your step-by-step plan to execute this Mission, including expected deadlines to complete each piece of work:

Here is our step-by-step plan.

  1. Identity and query the aOP contract: 0x513c7E3a9c69cA3e22550eF58AC1C0088e918FFf
  2. Integrate and add the aOP token into the current Governance infrastructure, including Agora, Snapshot, Tally, Boardroom, and Discord
  3. Analyze the effectiveness of added voting power within Optimism’s governance
  4. Report on the change in participation and explore future integrations

Please define the critical milestone(s) that should be used to determine whether you’ve executed on this proposal:

  1. We will give a clear specification for the integration Aug 4th.
  2. We will educate and notify key stakeholders before Aug 25th AOE.
  3. We will implement aOP as Governance Asset before September 15th
  4. We will do analyses and advise teams about the benefit before September 29.

Please list any additional support your team would require to execute this mission (financial, technical, etc.):

  • Ideally, we hope to gain support from existing infrastructure providers and tooling (i.e. iSnapshot, Agora, and future builds) to integrate and reflect this change via the UI. We have relationships we hope to lean on — but this mission (and others) may be greater thanks to the cohesiveness within Optimism.
  • A second area of support is if accepted, properly relaying and sharing the importance of this opportunity to Aave and other DeFt builders.

Grants are awarded in OP, locked for one year. Please let us know if access to upfront capital is a barrier to completing your Mission and you would like to be considered for a small upfront cash grant:

  • N/A — we are not requesting OP funding.

Please check the following to make sure you understand the terms of the Optimism Foundation RFP program:

:heavy_check_mark: I understand my grant for completing this RFP will be locked for one year from the date of proposal acceptance.
:heavy_check_mark: I understand that I will be required to provide additional KYC information to the Optimism Foundation to receive this grant
:heavy_check_mark: I understand my locked grant may be clawed back for failure to execute on critical milestones, as outlined in the Operating Manual
:heavy_check_mark: I confirm that I have read and understand the grant policies
:heavy_check_mark: I understand that I will be expected to follow the public grant reporting requirements outlined

Disclaimer:

The information provided above about Aave and Optimism is from public sources and Flipside Crypto cannot guarantee that it is or will stay accurate.

We are doing this because we believe that the partnership and integration would be in the best interest of Optimism and the Aave protocol.

12 Likes

Much needed to improve Token House voter participation. I hope to see similar integrations across more DeFi protocols. Assuming 0 OP mission proposals are OK (otherwise, you can always go with a symbolic 1 OP or so),

I am an Optimism delegate with sufficient voting power, and I believe this proposal is ready to move to a vote.

5 Likes

Thanks @fig

This will be a great improvement to the tokenomics of OP

1 Like

While this is an interesting proposal, is this not just inflating the votable supply of OP tokens? I am trying to wrap my head around the idea.

By counting aOP, you are double-counting tokens deposited into Aave because other users can borrow the OP.

There is also a glaring case where this could cause some disruption in governance. If a user wanted an outsized governance impact, they could loop deposits and borrows. By depositing OP and using that as collateral to borrow their own OP, they could repeat this loop until they have an order of magnitude more voting power.

7 Likes

Hey Michael –

Thanks for your comment. You may have caught something here.

The proposal was initially inspired when collateral was not enabled for OP.

It is now listed in isolation mode – meaning users can only borrow stablecoins against it (not OP) and therefore limiting the inflation of voting power.

In such an environment, when a user deposits OP into Aave - it is held in the Optimism market and stays in the smart contract – what the receive is a reflection of their stake (or if desired, stables)

It seems like isolation mode for OP has been enabled by risk managers and I must have missed this change; my apologies here. In theory, one could deposit OP, borrow stables, swap to OP, and repay.

But there is a strict limit in how much debt is allowed; currently borrows is low, around $60k.

As most changes are up to Governance in Aave, there is opportunity to disable isolation mode and borrowing altogether though not sure how it would be received.

Let me think more about this – please standby.


Ok sharing more of my thoughts for the sake of collective learning and transparency.

This is what a transaction looks like in isolation mode:

Supplied 1 OP, borrowed 10% and received .10 DAI.

With a debt limit of 2mm — the maximum inflation of the voting power would be about 1MM OP.

This makes sense for Aave as it encourages more deposits, borrows, and use cases but may not be in the best interest of the OP Collective; it is up to the community decide if worth pursuing.

It does however, IMO encourage more Governance accessibility, allowing more users and even borrowing in some cases; this is present in other DAOs and communities.

I’ll let this stay up for a bit, but if not additional interest it may not be the right time.

2 Likes

Personally, I feel the ability to borrow $OP for governance voting is an accessibility feature, not a bug, and there are other governance tokens on Aave used as such - $CRV, $MKR, $LDO etc. The key control will be the debt ceiling so there’s no outsized impact. There can also be mechanisms to discount overly looped OP beyond a certain threshold - governance could vote on it.

1 Like

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote.

This would be net positive as long as the debt limitation’s are in place, completely support. i am a Optimism delegate with voting power above the required threshold I believe this proposal is ready for vote. Delegate Commitments - #71 by MoneyManDoug

Hi @fig! Wanted to make sure you were aware of the Optimism Season 4 Pitching Sessions to help find the 4 delegate approvals you’ll need by this Wednesday at 19:00 GMT for your proposal to move to a vote.

These sessions are happening in Discord on Monday, 26.06 2pm ET / 6pm GMT / 8pm CET and Tuesday, 27.06 11am ET / 3pm GMT / 5pm CET.

You can sign-up here!

This is definitely an interesting idea, as others mentioned we don’t want is to encourage ‘leveraged voting’ , so a low borrow limit will be a must.

The only question I wanted to discuss before approving a move to a vote is the potential implications of only whitelisting one lending protocol as a governance-enabled token. I am a very big fan of Aave, and it’s the only Lending protocol I’m familiar with in Optimism, but I also worry that if we make aOP the only lending token there will be a strong opportunity cost for users to use other protocols, and builders of lending protocols would have a significant disadvantage, because they know that anyone that wants to geet involved in governance while lending their tokens would need to use Aave. As much as I am a fan of Aave’s amazing Ghosts and proven track record, protocol variety is a great measure of decentralisation.

Because of this I wanted to ask, have you explored into the possibility of including other lending protocols into the proposal? Together, they currently have approximately 75% of AAVE’s TVL. Would it be a possibility to extend this proposal to also include a viability study of at least the next couple lending protocols, and if proven doable include them onto the proposal?

1 Like

I am one of the Synthetix Ambassadors, and a Optimism Badgeholder. I am an Optimism delegate [Delegate Commitments - #65 by mastermojo ] with sufficient voting power, and I believe this proposal is ready to move to a vote

This is a funny way to do a policy change…

Is there not a more appropriate process for this? It seems like another symbolic ask and a highjacking of the intents process… because the attention is here, when this should really be a policy vote, and not really part of this process…

That said…

THIS IS GREAT! I agree with @Oxytocin that other lending protocols should be explored, but i’m not the degen who knows the deets of how all those other protocols work, or if they would make sense like AAVE does. I wouldn’t make being inclusive with smaller lending protocols a blocker… but it is a nice to have!

The only thing I would make sure to watch out for is what @Michael called out… there needs to be a plan to be able to remove aOP from all these applications if it moves from isolation mode and into being borrowable, or if there is an exploit.

In isolation mode, if someone is borrowing stables to buy OP, they are more exposed to OP and should have more of a vote, so it seems fine to me! Let the OP bulls run wild! I don’t see anything wrong here as long as Aave can’t vote with the OP that is locked in their system

If it becomes borrowable collateral, it breaks some governance assumptions (specifically 1 OP = 1 Vote as @Michael pointed out since aOP debt note and the OP that someone borrows can both vote, meaning 2 votes came from 1 OP), and the risk of breaking that sort of assumption in a complex governance system isn’t worth it.

Also, if there is an exploit to AAVE or some other weird upgrade that allows people to keep their aOP token and their OP leaves AAVE… in ANY way, we need to have a plan for a quick governance upgrade!

All of that said!

I am an Optimism delegate with sufficient voting power , and I believe this proposal is ready to move to a vote.

2 Likes

We are an Optimism Delegate (PGov Delegate) and we believe this proposal should be pushed forward to a vote. Having kept up with the Aave ecosystem for a while now, we believe @fig and the team at Flipside are best suited for this endeavor and we look forward to having more votable tokens in OP governance in the future!

I represent KyberSwap, an Optimism Protocol Delegate for Season 4 with sufficient voting power, and we believe this proposal is ready to move to a vote.

Hey all,

I’m Smit, I lead DeFi at OP Labs. Overall, I agree with the sentiments of everyone here. At this time, the risk to gov is minimal due to the market being in isolation made and having caps. I think we’re all on the same page about making sure the vectors for a gov attack are thought out and we should monitor them as it progresses. Our goal should also be to constantly increase the cost of attack by continually growing votable supply! I’m on board with moving the proposal to a vote

3 Likes

what about adding a vote power delay? Users need to hold aOP for at least three days(or other time period) to enable the vote power of tokens, I think it can reduce the risk of government attack(if someone hacks and got massive aOP). especially other lending platforms,sonne/exactly/granary, and also need some method to allow new farm/lend tokens to take part in it.

1 Like

If the OP market on Aave is in isolation mode and the OP isn’t being actively borrowed by end users, then build out the ability for the contract custodying the OP tokens to delegate it on behalf of the users that put it there, at the smart contract level! Don’t compromise the base of governance to double count tokens for an arbitrary dapp because they don’t want to build delegation into their contracts. This is a line that absolutely should not be crossed imo. If this proposal goes through, there’s no reasonable argument to disallow OP tokens held in Velodrome and Uniswap LP positions (there is much more $OP in these contracts than there is in Aave, so it’s arguably more justifiable) from also being used as votable tokens in governance.

6 Likes

Hello all,

While I think improving governance accessibility across composable elements is important, this proposal cherrypicks one protocol, and one composability lego, with considerably less use, TVL and presence in the ecosystem than its competitors.

If we want to include tokens in use across the ecosystem, this proposal should include a coherent generalised framework that enables ALL protocols holding pure OP (for example, Sonne, Exactly), or other legos (tokens in Uniswap, Velodrome LPs) to meet a defined standard and apply for inclusion in governance.

The narrow scope of this proposal, is, frankly, disappointing.

7 Likes

My opinion on this, and echoing the previous comments, is that I would be cautious with this type of initiative. It’s not about legos or leveraging behavior that could derive, but rather the signal that governance gives towards the protocols.

I’m more frankly in favor of protocols enabling internal mechanisms (add functions) so that users can delegate their voting power with their locked tokens in a DeFi contract; I think that even more interesting ideas can come out about it; and that the governance contract remains simple and without third party risk.

Otherwise,

I strongly agree that a discussion on how to approach this type of initiative in particular should be carried out first, in favor of building this framework.

1 Like

I believe this proposal should be something like:

Build a code module that can be integrated with any DeFi project to enable OP tokens to be used to vote while locked in borrow/lend/etc protocols. Reach out to major projects and look for integration.

Also against “test in prod”, scope 1 project only, play with the votable supply and see what happens. Gov. is funding many types of research, we should start there.