I have finished my votes for Gov Fund Phase 1 Season 1.
My general impression thus far is that most proposals are a mixed bag, with very few high-quality projects I’d be excited to support without reservations. Since Optimism is a new collective & ecosystem, I have been very lenient as I’ve thought it’s OK to give mediocre or unproven protocols the benefit of doubt. Of course, over the 4 cycles I have become gradually more strict about my votes. For Season 2, I’ll only be voting for proposals by a) protocols that have proven themselves over a reasonable period of time (e.g. >1 year); b) have a very clear case for incentivizing usage directly on Optimism, and c) a co-incentives program with an amount you can safely match (I don’t want to see a $5M market cap project asking for 500,000 OP). Of course, there can be exceptional proposals which contribute to the Optimism ecosystem another way. I realize this is going to be unpopular, and I’m going to receive some hate mail, but that’s OK. I believe granting of $OP tokens through Gov Fund must be earned, rather than being a bet. There are other funds like the Seed Fund or RPGF that may be more appropriate for a lot of proposals.
I also continue to be very uncomfortable granting OP tokens and building an ecosystem while Optimism is a de-facto centralized sidechain, just with 7 days of social disputes available. I’d like to see Optimism urgently have a) permissionless fraud proofs, b) decentralized contract upgradability, including emergency.
I’m not going to do anything drastic like protest by voting everything Against, however I’ll be much more careful with my votes until Optimism itself is in an acceptable place. I’d like to see the OP Labs and Optimism Foundation teams provide a detailed roadmap update on where they are with the above-mentioned decentralization goals.
I generally agree with the learnings and steps being taken for Season 2 and look forward to participating in the discussions during the Reflection Period ™. I also hope to see some accountability and results data for previously approved proposals around this time.
I’ll definitely update this as we go through the reflection period, but my initial guidelines for supporting Gov Fund projects from Season 2 onwards are such:
Been live for over 1 year on other networks and has demonstrated adequate product-market fit, no dodgy history and such
Live on Optimism and seen some initial traction
Directly incentivizes lasting usage of the Optimism network, and onboarding new users
Temporary incentives attracting mercenary farmers and the like are discouraged
Co-incentives are a huge bonus, but the amount asked must be at most ~1% of the project’s token’s market cap. So, projects should request an amount of OP commensurate with their market cap.
Not all projects fit these criteria, so subjective judgment will be used - but the project must directly benefit the Optimism ecosystem in some way or other
If Optimism grows too big without proofs and decentralized contract upgradability, I might consider proposing a longer pause. Something like, say, $XB in TVL is unreasonable for today’s Optimism’s de-facto centralized setup.
As the voting is now live, I’ll be following the guidelines I mentioned above; however I’ll be more lenient as the TVL growth has cooled down. This is in part due to a less valuable $OP, but also many blockbuster incentives like Uniswap, Synthetix or Rocket Pool taking longer than I had anticipated to roll out. I’ve also seen positive reaction from the Optimism teams about prioritizing decentralization. I’ll be focusing more on the type of applications that generate sticky user activity without affecting TVL much, and take the TVL intensive proposals on a case-by-case basis. Needless to say, I’ll defer to committees’ opinion on most projects.
I have followed all committee recommendations for this cycle. I didn’t find any egregious proposals or risk of excessive TVL growth; neither any exceptional proposals for the ones vetoed by committees. I understand this was the first cycle with committees - I’m sure the recommendations will come on a more timely manner from the next cycle with better coordination. Overall, I’m happy with the committees’ work - their recommendations are clear, concise, and well considered.
I have completed voting on Cycle 7. Things were quite smooth this cycle, and hopefully it’ll be perfect next one with timely recommendations from the Tooling committee. I voted with committee recommendations, except for Overtime. I also abstained from Dope Wars and Safe.
We’re going through a quiet time in the industry right now, and the incentives aren’t having much of an effect in incentivizing user growth. On the bright side, this has also calmed my fears of too much growth with centralization concerns - for now. Nevertheless, even without growth, it’s still a useful mechanism for distributing OP to enthusiast users and decentralizing the token house.
Now that we are 7 cycles and over a quarter in, I’d request commitees to start considering the results of previous incentives in greater depth. E.g. we don’t want to be approving the same type of incentives and/or same type of protocols if they are proving to be ineffective.
For projects that have already received a grant before (whether through Gov or Partners Fund) - the repeat proposal has to be exceptional IMO. I don’t think the second proposal basically repeating the first one makes much sense. Here are my thoughts on the exceptions where a second grant may work:
The first grant was wildly successful and the protocol continues to grow with no slowdown: in this case, a substantially smaller grant (let’s say, <50% of the first) to continue incentives might be justified
Some amount of time has passed since the first grant, and there’s a strong reason to restart incentives (something like - the protocol managed to retain most of the growth the incentives brought, but there are new opportunities on the horizon worth capitalizing on for more growth)
A new approach with new methods & goals. E.g. the first grant was about liquidity incentives. With that bootstrapped, the second grant can be about achieving something different, e.g. improving the user experience, direct marketing to onboard users to Optimism, etc.
Likewise, as I mentioned previously, committees should also consider the effectiveness of similar types of proposals. E.g. if DEX A & DEX B ran some type of liquidity mining, and it was of limited benefit, then it doesn’t make sense granting DEX C with the same type of grant. At Cycle 8, 9, and going forward, we have to start being more selective about the grants, and targeting the types of programs that lead to sustained adoption and activity across a diversity of usecases. Also, being mindful of what the bottlenecks are. E.g. there’s plenty of liquidity on Optimism now given it’s early state, but not enough users & other usecases to leverage this.
Now, firstly, this doesn’t mean all that much at this early stage - the goal is to subsidize onboarding users and protocols. That said, there are plenty other metrics to look at, and it’s pretty clear the subsidies granted have been largely ineffective relative to the scope of said subsidies. Particularly the recurring subsidies that I argued strongly against in Season 3 (actually - see the last comment in this thread), and which passed anyway. As such, we should be very wary of second grants, and especially, third grants - no doubt the ones who had second grants successfully pass will come back for thirds quickly after the second runs out. Particularly for TVL-centric incentives, all it really does is subsidize users to keep their money on Optimism, and they’ll go elsewhere once the subsidies inevitably run out.
To be clear, I think it’s worthwhile to use large grants to distribute tokens anyway, even if it’s actually economically illogical to do so. But it should be clear that this is only because $OP’s tokenomics are atrocious to begin with.
My understanding of what you’re saying here is as follows:
OP spends a lot on incentives relative to fee generation.
That’s fine if we’ve shown growth.
But we haven’t shown enough growth in these grants.
In several cases where protocols have claimed growth from their grants [which frequently targeted TVL], that growth is illegitimate and unsustainable – so this is an inefficient use of OP.
The Grants Council is going to be weighing in on what sorts of growth outcomes we’d like to see, which makes this an opportune moment to think through them. I respect you greatly and think it would make your statement above more actionable to add what you believe does constitute legitimate, sustainable, timely, or otherwise useful growth.
I haven’t yet seen a convincing argument for why repeated grants are per se a bad thing. My position is that we should be encouraging repeat grants because this sort of structure allows for rapid testing and course correction and directs applicants to regard them more as for discrete projects rather than as handouts to their team. Certainly the same subsidy can continue to unlock new growth opportunities as market or ecosystem conditions warrant.
I’d love to have this discussion if you’re willing. We can start a new thread for the sake of keeping this one neat.
Happy to discuss this further. I don’t think repeat grants are a bad thing - but if you see my comment here it’s only a good thing if the grant’s mechanisms have been deemed to be working in incrementing growth. My beef is more with the repeat grants which are a carbon copy of the first grant, but all it really does is maintain status quo. So, I think we mostly agree.
Hi Polynya, it’s great to see higher-levels discussions about $OP in these communication threads as well as just reporting back on votes.
Like you already mentioned, it’s normal to have this kind of incentivisation early on in a project to encourage onboarding and growth, which I agree with. However, right now sequencer revenue does not directly relate to $OP (correct me if I am wrong, am basing this on the usecases shared in the help centre article). So, while it’s true that sequencer revenue is the only real way Optimism might accrue value directly, it’s still an indirect proxy for correlation, since currently $OP is not affected by network activity like Ether is, nor does the revenue somehow re-enter the collective treasury like in some DeFi tokens.
Currently, grants and other foundation-related activities (like quests and airdrop speculation) have mainly targeted increasing and chain activity and TVL, where the figures look a lot less dire than revenue vs spending. Personally, I think that as long as future allocations focus on stickier incentives, I don’t mind this strategy being kept, but I would also like to see other methods of revenue sustainaibility
Got nothing to add here, agreed with you and @jackanorak that multiple iterative grants are better than either one monolithic grant, or a grant simply asking for more of the same.
What’s most interesting is that Optimism Quests drove more users and transactions than the rest of Optimism - with all of its OP incentives - combined. It would seem like the potential of unknown future rewards orchestrated in a fun manner is a much bigger driver of activity than same old $OP incentives. Of course, there’s some stuff like liquidity that doesn’t apply here.
As such, I’d like to see some Grants applications experiment with similar gamification and future rewards.
I fully agree from my experience over the past few months. We have run a few very small OP token distribution programs to test the waters. Ultimately it was a big waste of time and energy having to manually approve each person for their proof of work entry to prove they were authentic. A lot of multiple accounts were created in an effort to farm the OP rewards which we distributed from our personal accounts with zero grant assistance.
On the other hand our free NFT claim system using Galxe or Quest3 has proven to be an incredible tool for attracting users to layer 2 networks. We have had around 100,000 free claims on L2 in the past 4 months since starting the experience. Some these claims requires the participation of being a holder or making a purchase from one of our designated collections just like the OP quests required which helps retain the users within our ecosystem.
On the other hand we also offer multiple claims for simple off chain & on chain tasks that are completed as an effective way to educate the user about the project during the claim process. We have also utilized this as a cross promotion for Optimism, Lattice, and Quix with amazing results to help grow the ecosystem. Which requires users to follow their social pages or even join the projects official discord server as a task to claim the free NFT.
I feel this methodology can continue to be iterated on by many creators or protocols at once creating a buzz on Optimism network due to heavy migration and activity attracting other creators or developers to the network. Without the activity on chain Optimism’s growth may become stagnant as users continue to rely on the chain solely as a financial resource with a potential airdrop now that the quests have ended. Currently we are faced with inflation in OP token price prior to the event as more speculation occurs and the only thing left for all these users from the quests to do is buy more tokens in preparation to sell off after the airdrop leveraging their position with current tokens being accumulated. It seems the quests provide a way for users to feel they have accomplished on chain activity for a potential airdrop without any sense of desperation occurring.
Token distribution to grow the network is also great but it certainly does need to be improved upon and have more retention built into the framework of these grants to ensure that users do not simply claim the OP, dump it, and leave the network.
Every protocol that does OP token rewards should also put out some sort of NFT claim system related to the OP token distribution if that is what the main factor is for user activity to continue growing. I myself want to see more focus on the retention of decentralized financial institution users at the protocol level using NFTs. The NFT & Gaming sector has a very long road ahead before gaining any sort of notoriety from the rest of the blockchain world. What better way to help fuel that movement of growth than asking the protocols that receive grants to implement a similar program.
I have voted for the Bedrock upgrade proposal. I have commented on it here. While it’s acceptable for these types of proposals in an early beta stage, I would like to see upgrade proposals actually be upgrade proposals, rather than just a vote of confidence to Optimism Foundation to execute the upgrade. I’d also like to see more external audits, and a long duration on testnets, exceeding strict go-live criteria, before the upgrade is proposed. It should be the last thing that happens once the upgrade is 100% ready, and a successful proposal will in fact execute the upgrade rather than being just a vote. I know all of this will happen eventually, but as governance we need to keep the pressure on.
Separately, looking at the latest data on Dune, I continue to believe grants in their current form are largely ineffective, with few exceptions. Indeed, since the grants began, Arbitrum have actually extended their advantage significantly without any incentives. It’s still a reasonable way to distribute $OP to users, but really, I’d much rather see a drastic overhaul of $OP’s tokenomics in that case. Of course, there are targeted incentives are effective, but imo a vast majority simply do not for reasons discussed previously in this thread and elsewhere - particularly repeat grants.
I have made multiple posts about decentralization and potential solutions towards them. I have also complained a lot about $OP’s tokenomics, but haven’t written a post about it. The truth is a retroactive change to token allocations etc is extremely unlikely to happen. But here, in the comfort of my communication thread, I thought I could at least run a thought experiment.
As I see it, there are three significant problems with $OP:
At least 37% allocated to insiders (investors, team) is excessive, enough to dominate governance votes, or future consensus protocols if implemented
Arbitrary yearly cliffs for both team and investors. Normally not a big issue, but given the huge allocation, it’ll weigh heavily.
RPGF is extremely dilutionary
Ecosystem fund is relatively ineffective (for reasons mentioned above)
In an ideal world, here are some approaches:
While it’s too late now, ideally <33% to insiders (incl. partners) would work
Teams should have releases per performance. For example, instead of arbitrarily releasing a lot of OP to team next month, it should be after fraud proofs are live etc. Governance can vote on this. The four year thing is common practice for traditional startups, but the investors don’t really make sense. It’s much better for the market to find a fair price early than a 4 year shadow hanging over the token.
This one has a simple solution - RPGF should be earned. I.e. instead of significantly diluting excisting tokenholders, simply have it as a % of sequencer/MEV revenues. This will be fully sustainable.
Likewise with Ecosystem Fund, instead of an arbitrarily huge 25% - allocate smaller amounts upon analysis where it actually makes sense.
For both 3) and 4), and airdrops, it’s acceptable in the early days to distribute tokens, but it’s now nearly a year, and we still have >100% hyperinflation to look forward to over the next 4 years, which will just kill confidence in $OP over the long term. Maybe after 5 years $OP will emerge as a relatively well distributed, sustainable token, but that’s an eternity in crypto, and I fear it may be too late.
Anyway, these are just my thoughts, it’s probably too late to make drastic decisions like burning 40% of intended supply which I allude to above, but maybe future projects can have more sustainable distributions.
“Very sorry to disturb you here, I am a newcomer. After I delegated the OP ticket to you, I made a mistake and transferred 1235 USDC to your address. Here is the txid: 0x8fcf7e25b8f9fad55e26a41b685a36c2a71ea14aecb6c1dad3c9b47e39d6dfa1. If you could return the USDC, you can keep 100 USDC as a token of my appreciation. Thank you very much!”