[READY][GF: Phase 1 Proposal] Velodrome Finance

[alexcutlerdoteth]

Good Morning

Voting is coming up so we wanted to create a summary/guide of the discussion so far for those unable to parts through the record breaking 133 comments on the proposal.

Overview

Velodrome spent several weeks creating what is likely the detailed and evidenced proposal to be submitted to governance yet. If you have the time, please consider reading its in it’s entirety.

Since it’s posting 12 days ago it has received 133 comments from 31 commentators:

• Positive Commentators: 17 (58%)
• Mixed Commentators: 5 (17%)
• Negative Commentators: 7 (24%)

As you can see, there are more positive commentators than negative and mixed commentators combined. Though it may be hard to tell from differentials in the volume of post:

• 2.4x more commentators were positive than negative
• 100% of comments from builders were positive
• 43% of negative commentators were from new accounts
• Only 13% of positive comments were from new accounts

Notable Positive Comments

Since there are have been far more positive comments than negative ones on the proposal, we’ll start by highlighting a few positive ones that we think emphasize our impact well. You can also check out the testimonials we’ve collected from 10+ partners (and counting) on our Twitter.

@Aes

this is Aes from MakerDAO’s Strategic Finance Core Unit. Wanted to post in support of this proposal and the Velo team - they’ve been extremely patient, a pleasure to work with, and have been critical in analyzing how MakerDAO could best leverage the velo veNFT airdrop to maximize DAI’s liquidity on Optimism.

@bebis

There’s a lot of technical analysis going on here which I think distracts a bit from the value being added by the Velodrome team.

1. They’re on-boarding a ton of people the hard way - with actual customer/client services.
2. They’re getting teams and users invested long-term in the ecosystem’s success.
3. They’re the main Optimism point of contact if you’re a builder/developer.
4. Their bribing system makes operations much lighter for small teams and startups.

They’re doing the hard, high-effort stuff that most aren’t willing to. I’d consider any proposal they put forth extremely seriously.

@SethVdL

@alexcutlerdoteth

It would behoove us not to think of it in terms of this will cost $3.8m. But rather, it will return at least $7.6m to $11.4m in value based on the demonstrated performance of the original grant.

I am not one for long winded governance debates and even knowingly sat out on the Overtime discussion even though I sit on the Thales Council … That being said, I feel compelled to point out this statement from Alex because I feel the Velodrome ROI is in a class of it’s own and I want voters to understand what’s at stake … the system is working and it’s currently providing multiple protocols the opportunity to have deep liquidity for a fraction of the cost elsewhere. An approved grant to velodrome is like granting the entire ecosystem imo… which is what we are set out to do.

@TokenBrice

We are currently leading various campaigns to sustain liquidity, whether on Curve, through Warden Bribes, or on Velodrome. In terms of the amount of liquidity sustained / $-invested, Velodrome is one to two orders of magnitude above the competition.

…it is delivering beyond what was expected : the OP veVELO locking bonus is a key part of the equation - increasing the efficiency of the flywheel even further. Besides, it drives projects to lock VELO, which means they enter a long-term commitment with Velodrome and Optimism.

@states_of_nature1651

It seems like the main source of the criticisms is that the benefit for Optimism looks like this:

Optimism should be looking to cultivate the presence of legacy mainnet protocols rather than supporting OP native upstarts with flashy marketing and distortive incentives. Supporting deep liquidity on known legacy protocols will be better for OP in the long run. Putting our thumb on the scale for Velodrome will prevent this needed development.

I think this is a flawed argument based on the data provided and I don’t see how any other current ecosystem player will step in to fill the niche Velodrome is filling in the near term.
This isn’t a knock on the legacy protocols. Onboarding a bunch of new protocols to Optimism makes no sense for them as a growth strategy. This shows up If you look at their grant proposals. They are looking to extend their current competitive advantage on mainnet to Optimism - not get into the business Velodrome is in.

@jornx

I’ve been a long time user of Optimism and I use it frequently since I do a lot of arbitrage and other trading strategies on here…Optimism was never that interesting because liquidity was very limited on the main DEX at that time (uniswap). When Velodrome was added and especially when the OP grant was liquidity boomed and there were a lot more projects with deep liquidity on Optimism.When I look at all the grants that have been given by OP in my opinion Velodrome must have been one of the most succesful, onboarding new users and creating more possibilities for the user on the network.

Key Discussion Points

While negative and mixed commenters have represented a minority of the total engagement on the proposal, questions and concerns they’ve raised have allowed us to discuss and clarify key points on our proposal. We provide a quick overview of some of the key questions raised and provide short summaries of our responses:

Is Velodrome Asking for Too Large a Grant?

TLDR: No. It is 90%+ smaller than the average grant by every KPI, offers a proven 2x-3x ROI, and comes with Velodrome offering $6.5mm in co-incentives (31x those of other DEXs combined). Likewise, Velodrome represents 10% of TVL, 12% of transaction volume, 16% of transactions, and 13% of users, while requesting 1.72% of grant funds. No alternative frameworks for grant size evaluation have been suggested or offered.

Is The Lock Bonus An Appropriate Use of Funds?

TLDR: Yes. The incentive flows to veTOKEN lockers consistent with other proposals such as Curve/Balancer and while drive similar second order effects that grow the ecosystem by multiples and reduce costs for the ecosystem. No data has been provided suggesting it has any meaningful impact on price.

Would Builder Grants be Better?

TLDR: No. Velodrome grants have brought 30+ new builders to the ecosystem by reducing their incentive costs by 20% - 70% while less accountable direct builder grants offered by other protocols have yet to demonstrate their efficacy.

Is Velodrome Really Competitive with Curve and Uniswap?

TLDR: Yes. Velodrome is more efficient in TVL/Volume / $ spent in incentives (lowering costs ecosystem wide). It also attracts similar levels of volume per dollar in TVL while simultaneously hosting 3.2x more ecosystem projects tokens than Uniswap and Curve combined.

Should Velodrome Be Forced to Operate Without OP Incentives?

TLDR: Velodrome has demonstrated the highest ROI in terms of ecosystem growth of any governance or partner fund grant to date. The primary impact of pulling back on incentives would be to slow or reverse that ecosystem growth while simultaneously continuing the flow of incentives to less effective programs on other DEXs making comparative evaluations of different programs more challenging. Incentives already represent a declining proportion of our total activity and we expect that to continue to shrink over the course of this grant.

Does Granting Velodrome Harm Other DEXs?

TLDR: Ecosystem native DEXs and multi-chain DEXs have different goals and incentives when it comes to growing Optimism and cannot be easily compared. Overall though, all should be evaluated / granted equally in terms of the growth multiple they can return and growing ecosystem activity will benefit all.

Summary

We hope you’ve found this summary helpful and will continue to add it if/when new topics are raised to make the overall thread a bit easier to navigate as we move into the voting page.

Thank you for reading!