OP grants through Season 2: where has the OP gone?

[jackanorak]

RPGF special edition of this series.

Kromatika came in for RPGF and i started digging into their grant, seemed like a good idea to do a whole writeup. I am, as always, doing this in my own personal capacity and not as a delegate or member of the grant council.

I’m not going to make this especially structured, but there’s a lot here.

Kromatika - Cycle 1

Proposal: [Ready] [GF: Phase 1 Proposal Cycle 6] Kromatika

300k OP total

• 30% - 90k OP to be paired against 300k KROM in a Uni v3 pool
• 20% - 60k OP gas refund to support ‘gasless swaps’
• 10% - 30k OP liquidity mining campaign on 0xPlasma and Gamma (by amendment)
• 20% - 60k OP airdrop for creation of limit orders; get a limit order filled, get an airdrop
• 10% - 30k OP for affiliate referrals
• 10% - 30k OP various marketing initiatives

DIstribution

11/6/22 Foundation wallet sends 300k OP to 0x05d235d8ba95bfc457f9a11f64cf869f0f3f60f9

then a bunch of time elapses. Although Kromatika say:

@Kromatika

30% of the $OP grant can be distributed almost immediately after community approvals by creating the $OP-$KROM liquidity pool on UnsiwapV3.

this isn’t deployed until 6 months later, May 3, 2023. I am not aware of any stated reason for this delay.

Protocol-deposited liquidity - 90K OP

90K OP transfer to EOA 0x878e2ed05589f57d53127e3d02ecf3a271ae7440, which creates two deposits:

• first is 6K OP paired with the 300K KROM in an equal-valued, full-range (ie, V2-like) LP position, which is then burned
• the second is more interesting: the other 84k OP, which is 93% of the POL allocation and 28% of the entire grant, is functionally a pure limit order to buy KROM with OP. That’s what single-sided uni v3 positions are.

What is it there to do? Provide $150k worth of plunge protection on the KROM token.
Is this plunge protection needed for any core protocol functions?
No.
Does it help incentivize or subsidize certain user activities or business development initiatives?
No.
It just keeps the token price from going lower.

The thing is, Kromatika didn’t go off scope in doing this—they provided the exact amounts of OP and KROM they said they were going to provide. Their application simply lacked a compelling reason behind this piece of the proposal, and the planned buy pressure was never openly discussed and in fact denied by the team.

@Aris

@jackanorak

provide depth for Chainlink Keepers to dump their $KROM into

This is also a dump assumption without any support. The keepers pay the gas fees for filling limit orders and get KROM as compensation in the same $ value. Since gas fees are low on Optimism, we dont see a sell pressure from keepers.
If a fee for filling limit order costs 0.1$ order limit order, it would take 10.000 filled limit order to even get to 1000$ fees. that confirm the no sell pressure coming from the Keepers.

If there’s no already-existing sell pressure, what is the buy pressure for?

That said, although I have been unable to find evidence of any positive user impact from this liquidity provision, I’m open to seeing substantive data showing its value. I’ve asked the Kromatika team in the OP Discord for a response, and the answer they gave is “to prevent arbitrage” with no further clarification.

Gasless swaps

60k OP

Kromatika’s pitch is that traders can do swaps without paying gas fees. Instead of being paid with user ETH, gas fees would be deducted from the tokens a user would be acquiring. This grant would subsidize this use.

@Kromatika

This is to be implemented using a Kromatika Gas tank smart contract where the $OP grant will be deposited in combination with meta transactions and Kromatika relayers. Everytime a user performs a gasless swap on Kromatika dapp (using the gasless feature), a matching $OP amount will be deducted from the Gas tank as relayer fee and sent to the Kromatika relayer that has paid the gas on user’s behalf.

So, in effect, a user makes a gasless swap, a relayer pays the eth on the user’s behalf, and kromatika sends OP to the relayer as compensation (as opposed to crediting the output to the user). But several months after making this proposal, the team acknowledged they hadn’t really thought the system through.

@Kromatika

Here is a suggestion:
Usage of Kromatika’s limit orders aka FELO(fees earning limit orders). These limit orders are actually concentrated liquidity positions on Uniswap V3 pool at the desired tick range.
Using FELO for OP/ETH, we add liquidity to the pool in exchange for ETH. This ETH can then directly fund the biconomy gas tanks which the validators can then use to cover the users tx costs on swap.

We feel this will be an efficient means of delivering the gas refunds. There is no direct selling, since using FELO (Kromatika’s flagship limit orders) means $OP liquidity is being added to the Uniswap v3 pool at a specific tick range. This can be carried out on a periodic basis based on the delegates recommendation.

Their proposed solution, which was effectively to sell the OP for ETH to then send to relayers, would have violated the no-selling rule and was quickly dropped.

As of right now, over a year after this proposal was made, there is no clear plan for executing this piece—one of the largest chunks of this grant.

Liquidity mining campaign on 0xPlasma and Gamma

For the moment, I’m setting aside the value of the liquidity mining as such, or how the v3 vaults are managed in relation to the protocol-deployed liquidity. In this analysis I’m simply looking at how much capital and how many wallets are attracted by this initiative, which is intended to bring in new users.

Note that this program took place in the last month or two. There is substantial evidence of wallets with interaction with known team wallets capturing a major portion of this grant; if these wallets are indeed team-owned wallets, this may violate the self-dealing clause of the Code of Conduct due to the sheer proportion of the OP claimed by these wallets. I invite the team to explain this piece.

30k OP

0xPlasma
9/5/23, 10k OP goes to EOA connnected to Plasma Address 0xb5f9100e94c8f5b71101395dab91cbeffba4cc08 | OP Mainnet
9/6/23, that 10k is passed on to proxy contract 0x12e70f6fe298ce8cfceed3c9d54172761dbccf90 (implementation 0x1Aad56a82624b111f67Da9C6763d1af211823250)

Coins are distributed to LPs from this contract.

40 wallets participate in this liquidity mining program, or 250 OP per wallet.

to	coins	share	cumshare
0x87d59ab177cbec244bf4fb97dfbd4e254164d048	1407	14%	14%
0x330d575dab6dac642ddf13e9531ecdf5faf22f7b	766	8%	22%
0x9b3493adb33004fd7a63fb1fe332d9cd8143995d	765	8%	29%
0xb748ca34e894f1ff9fbe575537aa90af5e909424	650	7%	36%
0x1335919a2ebbb7a2042563bca3591b111c7e0b13	640	6%	42%
0xf61fb6d4034fb74b172355b65c2ceb161cb5fbdd	587	6%	48%
0x03354f0a4c5df3849c39942199bca614baffcf4a	581	6%	54%
0x799ba157d02efab073f77e5aa0d33ef5db18c6a0	484	5%	59%
0x3ab0ce025ed37151ce3b60e569665a36fbc1b07e	368	4%	63%
0xddb6a43628d7772101893eed4c7f191309e04d90	358	4%	66%

10 wallets get 2/3 of the OP here.

On 11/11/23, WithdrawEmergency is called on this contract. I might chase the meaning of this down later.

GAMMA
10/10/23 - 10k to gamma distro contract 0x95DD2ECba4D0472D0440D764e9a540C6a99e79eE
distributions functionally end a month later, 11/13

A total of 37 wallets participated, or 270 OP per wallet

to	coins	share	cumshare
0x9b3493adb33004fd7a63fb1fe332d9cd8143995d	1758	18%	18%
0x47df83408184aaa52dc6adce63f6dec6a8d65c2d	1094	11%	29%
0xf61fb6d4034fb74b172355b65c2ceb161cb5fbdd	1012	10%	40%
0x3de057878288f40d2448d0cd5cb3ce23b3402062	931	10%	49%
0x87d59ab177cbec244bf4fb97dfbd4e254164d048	782	8%	57%
0xdfaede01e3d60f1ffe05c81df3ff99a3b11b0ed0	694	7%	64%
0x007213182b28189437a4154b8658f0966d9873e5	497	5%	70%
0x3ab0ce025ed37151ce3b60e569665a36fbc1b07e	481	5%	75%
0xddb6a43628d7772101893eed4c7f191309e04d90	291	3%	78%
0x799ba157d02efab073f77e5aa0d33ef5db18c6a0	283	3%	80%

Even more extreme: four wallets get half of the OP here.

And even more alarming: there’s substantial overlap between Gamma LPs and 0xPlasma LPs. Six wallets are in the top 10 of both pools. And all of these wallets have interesting, enduring connections with team Kromatika wallets.

• The top wallet:
  0x9b3493adb33004fd7a63fb1fe332d9cd8143995d - first transactions two years ago were with Kromatika and Plenny, which both saw testnet interaction with the same wallet 0x9e77c5B95222908D9b0B42e79F6E476c4e7CBf2D - ethereum address history, charts and balances explorer - Ethplorer - aside from that, also gets biweekly KROM from team multisig
• #2 wallet 0x87d59ab177cbec244bf4fb97dfbd4e254164d048,
  funded directly by a wallet repeatedly funded by two kromatika multisigs
• #3 wallet 0xf61fb6d4034fb74b172355b65c2ceb161cb5fbdd KROM transactions dating back a year, first non-eth token transacted, also funded by wallet at one time getting bweekly payments from kromatika multisig
• #4 wallet 0xddb6a43628d7772101893eed4c7f191309e04d90, also funded by wallet getting biweekly payments from kromatika multisig
• #5 wallet 0x799ba157d02efab073f77e5aa0d33ef5db18c6a0, biweekly payments from kromatika multisig
• 0x3ab0ce025ed37151ce3b60e569665a36fbc1b07e, connected to a prodigious sibyl ring farming the limit order part of the grant. This one’s my personal favorite because you can see them farming limit order AND the liquidity mining portion of the grant then getting exit liquidity out of the LP portion of the grant by selling their KROM into the KROM/OP pool. It’s received at least 3k OP to one of its associated binance addresses from sibyl activity, and I’ve just scratched the surface. As yet I have found no connection to the team but I will keep digging.

The combined distribution between the two:

to	coins	share	cumshare
0x9b3493adb33004fd7a63fb1fe332d9cd8143995d	2524	13%	13%
0x87d59ab177cbec244bf4fb97dfbd4e254164d048	2190	11%	24%
0xf61fb6d4034fb74b172355b65c2ceb161cb5fbdd	1599	8%	32%
0x47df83408184aaa52dc6adce63f6dec6a8d65c2d	1278	6%	38%
0x3de057878288f40d2448d0cd5cb3ce23b3402062	1181	6%	44%
0x3ab0ce025ed37151ce3b60e569665a36fbc1b07e	850	4%	49%
0x03354f0a4c5df3849c39942199bca614baffcf4a	832	4%	53%
0x1335919a2ebbb7a2042563bca3591b111c7e0b13	779	4%	57%
0x799ba157d02efab073f77e5aa0d33ef5db18c6a0	768	4%	61%
0x330d575dab6dac642ddf13e9531ecdf5faf22f7b	766	4%	65%

with the overlapping wallets capturing 40% of all OP here.

Honorable mention was the #5 overall wallet, which also provided liq on plasma but not that much. Like others above, it was also funded by a wallet funded by the same kromatika multisig

To summarize, there does not appear to be strong evidence of new wallet attraction as a result of this program; there were a max total (not counting duplication) of 77 wallets, and a substantial portion of these wallets could be said to have had some existing relationship with Kromatika.

Limit order bonuses - 60k OP

As highlighted above, there’s already ample evidence of some sibyl activity on this. I’m going to investigate further but will stop here for now.

However, on a high level, here is the chart of limit orders made:

You can see a massive spike in limit orders, from 0-2 limit orders per day to a peak of 90 in a day. This coincides almost 1:1 with the incentive program associated with these limit orders. Once the incentives are over, so are the limit orders. There is little evidence of any organic takeup as a result of this program.

Marketing - 30k OP

This portion of the grant was to my knowledge never completely scoped, and as far as I can tell there hasn’t been any formal disbursement to this end, although there was a deposit to a fresh Coinbase wallet early on in the program, so if this was a marketing piece I’d expect to have seen some output from it by now. Waiting on clarification here.

Affiliate Referrals - 30k OP

One year in, still hasn’t been laid out.

Summary

-A year in, 175k of the 300k OP has been spent.
There is no meaningful enduring use of limit orders.
Two major portions of the grant haven’t begun.
One hasn’t been fully specified, to my knowledge.
One is used to provide liquidity in support of the KROM token price without adequate explanation (again, this is not deviation from the application)
One (which completed) was a potentially sybilled giveaway to traders with apparently little enduring effect, although this observation is admittedly preliminary.
And one, in the last few months, appears to have a large number of rewards going to few wallets that have unusually deep relationships with team-owned wallets.

And today we see a handful of orders made daily on the app at current run rates. Kromatika have now returned to ask for RPGF. I think there are several unanswered questions that need to be resolved before badgeholders resolve on the merit of their claim. Among the questions I leave to readers is whether this grant was an efficient use of OP funds.

Discussion

Why did I write this? The point isn’t to say that this group did anything bad per se. Instead, this is the kind of scrutiny that has to be applied to projects that are seeking to demonstrate their impact to the collective. Kromatika got 300k OP a year ago to bring in users. I leave it to readers to decide the amount of impact they’ve had.

Another reason I wanted to write this up is to highlight what I see as some corrosive elements of governance that I’m grateful we have largely collectively moved past. I stopped regularly updating this thread because I was joining the Grant Council and saw more value out of my time in getting great grants out the door than looking backward – but also because I felt like the inception of the Grant Council has helped us turn a page toward more professionalization and less chaos.

The RPGF discourse lately has been difficult for me to process because it has seemed at times like a return to these earlier days, with more politicking and fluff and less rigor in determining 1) what we want as a Collective and 2) who’s been delivering it and ought to be rewarded.

The past few weeks I have once again, as before, been seeing evaluators come in giving underscoped, questionable applications a free pass for no good reason. This grant is a reminder of the times we had before the Grant Council, and I think we may be due for a similar type of evolution on the RPGF side, especially as it becomes more prominent.

But in sounding this out, I’m met with a problem. In the past, when I would air my concerns, I would immediately be hit not with meaningful responses but accusations of motivated reasoning and emotional bias(!). I’ve had code of conduct complaints filed against me. I’ve been filibustered at and called toxic and antithetical to what we’re trying to do at Optimism. Examples just from this team when the grant application was first made:

@Aris

As one of the Kromatika proposal author,I believe this advice is too much biased and is not an objective advise, probably due to conflict of interest with other protocols and especially a “fight” between the official DeFi A committee within Tarrot proposal on the committee recommendations for Tarrot, resulting into Tarrot proposal supporters going against the committee decisions as a rage option.

@Aris

We would love to answer and reply to some of your review, when they are more objective ones.
Quote below point out that the Kromatika review was done not objectively and it was targeted directly at Kromatika rather than the proposal. It is a biased and would even say a rage review to proof something to the DeFi A committee. We would not go into explaining reviews that were designed to be biased and negative from start.

We think there is certainly space (and probably desire) for a Uniswap v3 limit order protocol of this type, but there isn’t enough evidence here that Kromatika is the one to achieve PMF, nor is there evidence laid out that this proposal makes this protocol more likely to be the one to do so.

Thanks anyway for the effort. No hard feeling though. Cheers

And yes, it is happening again:

People need to do the work on evaluating previous contributions, and I don’t really know how to approach this, because it’s going to be very difficult to do anything productive if actual investigation is met with so much friction. Already I’ve kept my mouth shut a few times this year to avoid causing any disturbance.

I’ve asked a ton of colleagues in governance now whether starting to ask questions again is a net positive, and the balance seems to be yes, but that I should expect to have it not be so great for me. I think that’s a shame, that people would be penalized for trying to make the most out of our collective resources—but I acknowledge that there is politically a very fine line to walk.

Anyway, I hope this helps so far. I’m not done, will dig more into the sibyl wallets, but it’s been a long day, and maybe this start helps shed some light in the meantime.