New RPGF3 Distribution Disparity Data

95% of RPGF is going to individuals and projects that are creating little to no direct demand for Optimism blockspace. Why given that would we spend our time finding ways to further discount the contributions of projects actually creating revenue?

How about we put it this way… what % of RPGF funds do you think should’ve ideally gone towards the application layer projects directly driving usage on chain? How would you choose to distribute that percentage amongst them?

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I think using sequencer revenue as one signal is a good idea, but we need to discount from that the OP value, coming from previous grants, distributed to each protocol’s users.

Additionally, there is a lot of value in some projects, like open-source libraries we all use, that won’t directly generate sequencer revenue at all. And I don’t think those should be excluded from future RPGF rounds.

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I don’t think anyone is suggesting 100% of RPGF should flow to sequencer revenue generators. That is why I am trying to understand what you are advocating for here tangibly:

  • What % in your mind should’ve gone towards application layer builders?
  • How would you then distribute the rewards amongst them?

Treat grant money however you see fit, but give me a sense for what you are proposing would actually look like in practice?

@ccerv1’s post might be helpful here: https://twitter.com/carl_cervone/status/1750149380831621245

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Leaving aside for a bit the disagreement over the cost of incentivizing the transactions,

this is a good question, and perhaps comes to one of the big differences of opinion here. It makes sense to me if that % is proportional to the ratio of the sequencer fee contribution compared to the total size of the RPGF pot for allocation.

If the round was for 30,000,000 OP, but only (for example) 300,000 of that came from the total generated sequencer fees, then I’d argue that shouldn’t shouldn’t be a major factor in allocation. At some point in the future I’m sure the contributions will no longer be negligible, and when a reasonable % of the pot comes from sequencer fees generated by the dApps applying for RPGF then of course the importance of how much they generate will be higher.

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I’m arguing that if we are going to use sequencer revenue as a signal for distribution we need to discount the OP value, coming from previous grants, distributed to each protocol’s users.

If a protocol generated 1 ETH of sequencer revenue for a certain period, but it paid out 5 ETH to its users via grants from the Collective, then the effective profit from that protocol was 1 ETH - 5 ETH = -4 ETH.

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I understand, but please at least try show me how it works in practice.

You’ve got 30M OP to distribute. What % goes to the application layer? How do you distribute it amongst them? Use your discount framework. Show me a hypothetical result. Demonstrate why it is a better model than what we’ve discussed so far.

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So what are the major factors in allocation here? We’re funding everything but applications that are actually driving on chain usage?

Are you arguing that even at 5% of RPGF distro the application layer was overfunded?

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Are you arguing that even at 5% of RPGF distro the application layer was overfunded?

I still think we’re at cross purposes here. I don’t think sequencer fees should be particularly significant while they are so irrelevant to the total pot to be distributed, but that is talking about one metric, not the whole category of applications.

Just keeping with Velodrome as that’s been the example all through, their contributions have not just been sequencer fees. As an example, how many other projects have been onboarded by them, both in terms of liquidity on chain and general team to team assistance? Lots.

And as such, at the moment the sequencer fees they generate is probably not a significant fraction of their total ‘impact’. Just using quick estimates, their transactions contributed about 1/1000th of the fund total. Additionally as both @mariorz and myself have said in different ways, that part of the impact that comes from fees generated probably should be ‘discounted’ by some proportion relative to the amount of OP the collective has paid to incentivize them, but we’re still leaving that aside as a separate issue.

So they generated about 1/1000th but then they received about 3/1000th of the fund, that alone shows that they are valued 3x as much as just the sequencer fees alone. In the future, when Velo is generating millions of OP, a significant fraction of the total fund, then it will make sense to put a higher value on that part of their impact.

If they generated 1/10th of the fund, without the use of OP incentives provided by the collective, then I wouldn’t want them to receive less than 1/10th of the fund as a bare minimum, on top of which their other impacts would be stacked to get the total allocated.

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I guess though I am just at loss at what folks are actually suggesting we do differently or better here. What would your take be on these questions?

  • What % in your mind should’ve gone towards application layer builders?
  • How would you then distribute the rewards amongst them?
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Just to include the additional data I’ve mentioned, the fraction of OP that the application sequencer fees make up of the RetroPGF pot, and the amount (if any) of OP that we have used to incentivize the transactions. Those two bits of context seem like they would add a lot to understanding the data.

I was/am a badgeholder, so I’ve already had input into what percentages went where. Obviously the final spread didn’t match mine (or anyone else’s presumably) allocations, but I don’t want to get into second guessing other people’s judgements or to be put on the spot to defend my own. In general though, as I’ve said already, I expect that the fraction of the pot that goes to projects generating sequencer fees will increase over time, as the size of those contributions eventually becomes significant compared to what is being given out.

As for how the total amount for application layer projects is divided up between them, I would hope that it is never as simple as a direct correlation between sequencer revenue generated and payout. If two projects each generated 1,000 ETH in fees, but one of them was a key ‘money Lego’ that a dozen other DeFi projects built upon, and the other was an island, not tied to anything else, then presumably the former should get a higher reward.

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I agree that better incentivization of the application layer is crucial.

And while It’s important to consider sequencer revenue as a signaling metric, we must adjust for OP incentives given to each protocol’s users. Overlooking this would unfairly favor established protocols, already benefiting from OP incentives, and deter new entrants.

Additionally, many valuable applications like vfat, debank, or zapper, which primarily read smart contract data, play a vital role despite generating very little or non-direct sequencer revenue.

I actually believe that Gitcoin-style quadratic funding rounds would be a better way to incentivize the application layer. This approach harnesses the collective insight of users, who are often very aware of which apps are providing substantial public goods without direct charges.

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I don’t think there is any disagreement that sequencer revenue should not be the only deciding factor in RPGF distributions or that existing grants can be considered in allocations. I think what I am failing to understand is what kind of outcome, in specific terms, you and @mariorz are suggesting we try to create which is why I keep trying to get you guys to engage on the questions of what % of the allocation should’ve ideally gone to application layer builders and how ideally that % should’ve been distributed amongst them.

The issue that I @jackanorak, @ccerv1, @bobby, and others are trying to flag here is that the data from RPGF suggests building hugely impactful applications on the OPStack was seen as one of the least reward worthy activities. Impact equalled profit for almost every vector other than the single most important one: those actually driving onchain activity. This is replacing what is supposed to be a positive feedback loop for growth with a negative one – and we’re already seeing the impact in projects prioritizing chains who are willing to reward onchain impact.

I believe simply if at least 33% of the total RPGF pool had flowed to the top onchain impact creators on any combination onchain metrics (transactions, users, TVL, sequencer revenue, etc) it would’ve been a better outcome that 95% of rewards flowing to projects and individuals with little to no direct onchain impact. Once we get closer to something that we can nitpick how these allocations work, but until then it just seems unproductive and sends the absolute wrong message to builders to focus on anything else.

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I believe simply if at least 33% of the total RPGF pool had flowed to the top onchain impact creators

I think perhaps you are not wanting to realize that this “top onchain impact” is a direct result of OP grants that some of these protocols have received and distributed to their users. The fact that they are the largest creators of sequencer revenue is already a great and positive result, in itself, for the developers of such protocols.

I’ll say it again, If you subtract the OP grants these protocols have awarded to users to incentivize growth, we would get a much more accurate picture of which are generating onchain profit, and which are so far an investment the Collective has made that has not yet given positive returns.

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Why won’t you just engage with my questions and demonstrate effectively what you are proposing to make it clear how you’d like to see things play out?

Let’s make this super simple.

You are personally now in charge of RPGF3 and have 30M OP to distribute. Your applicants range from educators, marketers, goverance forum posters, bloggers, private event holders, infrastructure builders, to application builders. Your potential impact metrics range from soft things like “attendees”, “views”, “meetings held” to things like contracts deployed, users, transactions, tvl, and sequencer revenue. You are free to apply any sort of penalty you see fit if a given protocol has already received $100s of millions in VC funding or a few million via Governance Grants to achieve the objectives defined by the Collective.

In your ideal scenario:

  • How much of the total allocation goes to application layer builders?
  • How do you weight the allocations amongst those builders?
  • Who are likely the top 5 recipients of RPGF funds?

What are we now more effectively incenvizing then what we saw in the actual RPGF allocations? What are the subsequent behaviors we would now expect to see in the ecosystem?

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I think what you are asking would derail from this thread’s core discussion on ‘Distribution Disparity’ in sequencer revenue data. I am trying to stay on point and explain that using only sequencer revenue is an incomplete picture and we must take into account how much the Collective invested to incentivize the growth of the protocols in the data shown above.

Furthermore, I’m confused as to why you keep bringing up VC investment, which is completely irrelevant to this topic as explained in the Impact=Profit framework from the Collective.

While I’ve proposed above a method I believe would more fairly reward the application layer, I suggest moving that discussion to a dedicated thread for more focused engagement.

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The Collective did not invest in growing any protocols. The Collective defines intents to achieve top priorities for the ecosystem – protocols and individuals then submit missions to achieve those intents. For example, last season they were:

  • Intent 1: Progress towards technical decentralization
  • Intent 2: Grow the Superchain
  • Intent 3: Improve the Consumer Experience
  • Intent 4: Improve governance accessibility

Increased sequencer revenue generation would be a second or third layer effect from a protocols participation in these programs, not their purpose. And again, I’m fine with exploring what it would look like to penalize protocols in RPGF allocations who are taking the initiative to achieve ecosystem objectives through Governance Grant Programs. That is why I keep asking if you’d be willing to play it out so we could explore its implications tangibly, because I have a hard time seeing how it wouldn’t create an even worse distribution disparity for application layer builders driving onchain impact than what we saw in RPGF3.

But, if you don’t want to go there fair enough.

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I’m aware of missions and intents, but regardless if you want to call that “investment” or not, distributing OP to protocol users will have a direct effect on sequencer revenue data.

A clear example would be an AMM protocol that distributes OP to their LPs. The liquidity increase from such incentives would automatically result in increased arbitrage transactions and sequencer revenue. That’s just a mathematical fact.

So again, the sequencer revenue data above is only part of the story and could be very misleading if we don’t subtract the OP value the collective has paid as incentives to users of each of those protocols.

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@revmiller made an extremely well put outline for actual followups in Rev's RPGF3 Retro, but unfortunately hasn’t made any progress or any concrete next steps, just many likes- which is disturbing given the amount of effort that was put in.

In any event, I, too, believe that Badgeholders should currently be scrutinized for their level of commitment directly to Optimism on-chain vs. off-chain activities, levels of friendships, and/or forum postings.

This (skin in the game) foundational centerpiece of commitment helps ensures that the collective can honestly answer the long-term question of :

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I have some ideas on how to structure the next RPGF round, sorry if these have been mentioned already. I’m also split balling here as well, so I’m open to feedback.

Rename Application Categories or Redefine Them

Right now I see Developer Ecosystem, End-User Experience and Adoption, & Collective Governance. The main reason for this re-categorization is to have a dedicated category for decentralized applications (dapps) themselves and they can be judged solely based on their sequencer revenue.

Developer Ecosystem can remain the same
This category can be for applicants developing software supporting our chains run, visualizing onchain data, and interacting with our chains. Basically this will be a category for infrastructure development that allows earlier, more secure use of OP chains.

End-User Experience and Adoption → Decentralized Applications
This category will solely be for dapps that have deployments on any OP chain and need to provide a dune dashboard or script of sequencer revenues their application generates. With an accurate look into their sequencer revenues, voting should default to a proportional weighting of OP rewards.

Voters can change their voting weights as they see fit as well, but voting weights should be publicized and voters should be comfortable with any community feedback for their voting decisions.

Collective Governance → Collective Governance and Adoption
This category will be for governance tooling, organizations/individuals onboarding developers and users, thoughtful governance participants, and educators.

Allow Voters to Set Voting Weights to Categories

The idea with this suggestion is to allow voters to decide how to value every category’s contribution to Optimism’s growth. For instance, a voter can decide with 40/40/20 weighting to Developer Ecosystem, Decentralized Applications, & Collective Governance and Adoption respectively; this initial weighting will allow the Dapps category to auto-populate based on the category weighting and other category applicants can be evaluated based on the merits of their applications.

As voters set weights to specific applications, the OP amount and USD price should appear to make them aware if their weighting makes fiscal sense.

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