[READY] [GF: Phase 1 Proposal] dHEDGE

[Cyrus]

Project Name: dHEDGE DAO

Author Name: Jake Richards

Number of OP tokens requested: 500,000 OP over 6 months

L2 Recipient Address: 0x352Fb838A3ae9b0ef2f0EBF24191AcAf4aB9EcEc

Relevant Usage Metrics:

• Optimism TVL: $1.84m (All TVL: Mainnet, Polygon, Optimism: $10.38m)
• Total transactions: 5,491 since November 29, 2021
• Total transactions (last 40 days): 3,255 (averaging almost 100 tx/day)
• Unique addresses: 609

Optimism alignment

dHEDGE was one of the early projects that worked with the Optimism team to improve the dev experience, prior to the Regenesis.

Since launching on Optimism over 6 months ago, dHEDGE has been rapidly increasing integrations with other Optimism protocols Aave, 1inch, Kwenta and Uniswap, in addition to launching our own incubated protocol Toros Finance on Optimism in April.

Toros Finance runs automated strategies on Optimism including the Synthetix Debt Hedging service, which quickly accrued over $1m in TVL weeks after launching.

Our protocol vision is to build a future where everyone has simple and reliable access to financial freedom so that society’s quality of life is improved. This is tightly aligned with the Optimistic Vision of reliably providing for basic human needs at scale.

Proposal for token distribution:

• How will the OP tokens be distributed?

The intention is for any granted OP to be distributed as additional staking rewards received by DHT Optimism stakers, increasing the attractiveness of the DHT staking program on Optimism.

The OP tokens will be distributed over a period of 6 months (along with DHT) via a new staking mechanism which rewards only value-generating TVL on both dHEDGE and other Optimism protocols which are integrated with dHEDGE (eg. Synthetix, Uniswap, Aave etc).

The new staking model is designed to increase protocol engagement via more tightly aligning DHT incentive emissions with real value created on the protocol. In the new model, users will be required to pair their staked DHT with staked dHEDGE Pool Tokens to receive incentives.

dHEDGE governance has a proposal in-place which, if passed, will bring DHT Staking to Optimism for the first time.

New Staking Mechanism summary

The proposed new staking mechanism requires users to stake $DHT paired with an allocation of specific dHEDGE Pool tokens (DHPT). This is designed to ensure staking rewards are going to users who are involved in the value creation on the protocol, versus solely locking protocol token liquidity. Not all dHEDGE pools will be able to be staked initially, dHEDGE will operate a whitelisting process to ensure the stakeable pools are of sufficient performance and TVL.

dHEDGE has yet to confirm which DHT:DHPT pairs will be stakeable, but will include the Toros automated strategies e.g. Stablecoin Yield, and a new market neutral strategy launching the week of 25th July.

As an example, a user could stake 200 DHT with $1000 of the Stablecoin YIeld pool. As the time staked increases, combined with performance increases in Stablecoin Yield, the users potential staking rewards will increase. Variables influencing the total rewards eligible include i) time staked, ii) performance of staked pool token, and iii) the dollar ratio of staked $DHT to $DHPT. Please see the attached Proposal (below) for more detailed information.

Rewards are paid out at the time of unstaking, which is where dHEDGE intends to allocate an equivalent amount of OP to the $DHT being emitted.

DFP-33: New DHT Staking Model 2.0

• How will this distribution incentivize usage and liquidity on Optimism?

Given the OP distribution is intended to increase DHT Staking incentives, this mechanism is primarily aimed at increasing value-generating TVL on dHEDGE and Optimism.

The entire design of the new staking mechanism is targeted to create closer alignment between protocol revenue and staking rewards, closely aligning the incentives of dHEDGE DAO and stakers. These incentives are also aligned with increased Optimism engagement.

Currently there’s $1m DHT staked on Mainnet, and the new staking proposal will sunset mainnet staking. Additional OP rewards would help encourage that $1m in liquidity to migrate directly to Optimism.

The staking mechanism skews emissions towards pool performance, such that if there’s no performance generated by the staked strategies, there’s no associated OP or DHT emissions.

• Why will the incentivized users and liquidity remain after incentives dry up?

The incentivised users and liquidity will remain on protocol after the OP incentives have been exhausted due to the design of the new staking proposal.

Stakers earn incentive rewards when their underlying pool tokens perform well. This means that users that receive incentives also get real value from the protocol and are less reliant on additional incentives.

The staking system also increases rewards to stakers who max out their ‘duration bonus’ (a linearly increasing multiplier that maxes out after 6 months staked). The design of the mechanism is aimed at making the decision to remain staked more lucrative as time increases.

The additional OP will create the added benefit of increasing the attractiveness of our staking program, bringing more users and TVL to the protocol and contributing to their decision to remain staked for longer.

• Over what period of time will the tokens be distributed?

Given the duration bonus maxes out after 6 months, we’d look to make accrued OP rewards available to users over a distributed 6 month horizon.

Users receive their staking rewards at the point of unstaking, they do not accrue as per a typical staking emissions scheme. So stakers are offered a choice to unstake and receive rewards versus remaining staked and enjoying an increasing duration bonus.

• Has your project previously received an OP token grant? If yes, what’s the status of these tokens?

dHEDGE has not received any grant funding from Optimism.

• How much will your project match in co-incentives?

dHEDGE will match the granted OP 1:1 in dollar terms with DHT incentives to stakers.

[mastermojo]

I am in favor of this, but I think you should consider requesting your 500k OP tokens over 6 months instead of a year. Most other Phase 1 protocols are requesting their tokens over 6 months and this would align with them.

[Cyrus]

Great feedback, thank you.

[OPUser]

from defilama

2M on OP Chain.

Number of token requested with distribution plan for 1 year is good, I would allocate few percentage for addresses willing to bridge their asset from different chain to OP chain and lock it for long term.

You are matching dollar value of OP token requested which is also a great move.

[Cyrus]

Appreciate this feedback. Given there’s $1m TVL of DHT currently staked on Mainnet, and the new staking proposal is going to sunset staking on Mainnet - the OP incentives are intended to be a substantial extra incentive for that liquidity to bridge and stake on Optimism.

[leifu]

It’s a very solid proposal.
Agree with @mastermojo that you may think about requesting 500k op tokens over 6 months.

[Cyrus]

Thank you @leifu - we’re in agreement and will incorporate this into the [ready] proposal

[MoneyManDoug]

Dhedge is a great product and it’s good to see incentives will be matched 1/1. I support this proposal.

[edson]

I support this. Will be voting for.

[Ruby]

Thanks for the proposal!
I have been using dHedge for a while. it’s a great product. Can you articulate the following:
“users will be required to pair their staked DHT with staked dHEDGE Pool Tokens to receive incentives.” - what does this mean? what pairs are eligible? can you gives an example?

[Cyrus]

Thanks @Ruby - based on your feedback will add the below to the Proposal:

"The proposed new staking mechanism requires users to stake $DHT paired with an allocation of specific dHEDGE Pool tokens (DHPT). This is designed to ensure staking rewards are going to users who are involved in the value creation on the protocol, versus solely locking protocol token liquidity. Not all dHEDGE pools will be able to be staked initially, dHEDGE will operate a whitelisting process to ensure the stakeable pools are of sufficient performance and TVL.

dHEDGE has yet to confirm which DHT:DHPT pairs will be stakeable, but will include the Toros automated strategies e.g. Stablecoin Yield, and a new market neutral strategy launching the week of 25th July.

As an example, a user could stake 200 DHT with $1000 of the Stablecoin YIeld pool. As the time staked increases, combined with performance increases in Stablecoin Yield, the users potential staking rewards will increase. Variables influencing the total rewards eligible include i) time staked, ii) performance of staked pool token, and iii) the dollar ratio of staked $DHT to $DHPT. Please see the attached Proposal (above) for more detailed information.

Rewards are paid out at the time of unstaking, which is where dHEDGE intends to allocate an equivalent amount of OP to the $DHT being emitted."

[OPUser]

Voted: Yes

Reason:-

1. Project has good overall TVL on other chain, with this incentives they might be able to motives users to move their asset to OP chain.
2. Co-incentives are matched 1:1 in $ value
3. Distribution plan is good.

Cons:-
500K in 6 months seems like they might burn the incentives too fast.

[Ruby]

thank you so much for the detail!
this looks great!
I voted yes for dHedge, LFG!

[Ruby]

good analysis
agreed

[katie]

Voted yes - I like the 1:1 matching and overall Optimism alignment. Thank you for a well thought out proposal!

[Michael]

I have a number of concerns with this proposal.

1.) The # of tokens requested for the TVL/Usage seems huge, why not use request a smaller amount to start? For context, that’s almost $1,000 per unique address that has interacted on optimism. Protocols of a similar size have been requesting in the 100k-250k OP token rage, which I think is more appropriate.

*** the biggest concern ***
2.) In order to be eligible for token distribution, users are required to buy the dHEDGE token. While working on a new staking system might be something that makes sense internally, this feels a lot like have optimism subsidize the price of the token. I don’t see how helping dHEDGE “create closer alignment between protocol revenue and staking rewards” is helping drive usage or liquidity to optimism.

3.) There is an undefined whitelist for the pools where these token distributions will go. What’s stopping dHEDGE from allocating all of the tokens to their own pools?

To me this proposal doesn’t seem to have aligned incentives with OP at all, and I will be voting no.

I recommend others do this same and I’m happy to clarify my logic on why this seems like a direct subsidy of the dHEDGE token price.

[polynya]

While I appreciate dHedge’s contributions to Optimism, this proposal is more designed to incentivize passive (correction: not passive, but staking nevertheless) staking of DHT tokens rather than active usage on Optimism, that too for a very substantial amount that’s >12% of DHT’s market cap. I’ll be voting Against, but I hope to see a future proposal which incentivizes managers and investors instead.

[edson]

@polynya While I appreciate dHedge’s contributions to Optimism, this proposal is more designed to incentivize passive staking of DHT tokens rather than active usage on Optimism

This statement is actually untrue, as staking isn’t passive. New staking is directly tied to using the dHEDGE protocol. To participate in staking, you must have added to TVL in proportion to what you are staking. The extent to what you receive in rewards is determined by the performance of the TVL you added. You can read more about the model here: DFP-33: New DHT Staking Model 2.0 - dHEDGE Feature Proposals (DFPs) - dHEDGE DAO.

This proposal directly contributes to growing TVL and user-base on Optimism.

I hope to see a future proposal which incentivizes managers and investors instead.

TLDR; to stake you are now required to be an investor and stake a proportional amount of investment in a managed pool, more investments from investors benefit managers.

[Cyrus]

Looking to address a couple of misinterpretations of our proposal. Points addressed in order below from @Michael’s post

Grant request

The amount of OP requested is based on our current staking and DHT performance mining emissions rate.

dHEDGE currently distributes 35,000 DHT per week in staking rewards, and 25,000 DHT per week in performance mining (a reward for being invested in well performing pools).

At current prices this equates to around $250,000 over six months. During the analysis and drafting of our proposal, $OP was around $0.50 and we sized the OP request accordingly.

The total ask is also conservative based on the rate of granted OP per Optimism TVL from other similar passed proposal requests:

New Staking Mechanism

The new staking mechanism is fundamentally designed to increase protocol utilisation and engagement as well as support governance of the protocol. Staking rewards are not set-and-forget: they are only redeemable on unstaking which requires an investor to monitor pool performance to assess an optimal time to claim rewards. (Once claimed, an investor then needs to restake with reset staking reward parameters and the process restarts).

dHEDGE is about to drive a migration of staked liquidity onto L2. Fundamental to the new staking mechanism is sunsetting staking on mainnet and enabling staking on L2 for the first time. Given dHEDGE is on Optimism and Polygon, current DHT stakers have a choice on which L2 to continue staking on.

There’s currently $1m DHT staked on mainnet, and migrating dHEDGE governance to Optimism is part of the motivation for this grant application.

Pool Whitelisting

The requirement for a pool to be whitelisted for staking rewards is to ensure rewards can’t be gamed through subversive pool management. The whitelist of pools is to offer quality investment vehicles that maximise a stakers opportunity to receive rewards.

The composition of the initial whitelist will be decided by governance vote.

Whitelisting requirements may include: minimum TVL, minimum manager ownership %, minimum Sortino ratio, and/ or minimum recent performance.

[polynya]

Thanks for the clarification. If the protocol allows investors to use it without being required to stake your token, and for OP to be distributed for said activity, I’d be happy to support it. However, I’m not going to vote for a proposal where >12% of the market cap is distributed in $OP for staking said tokens.