Thank you for this extensive proposal.
Below, we’ll dive into different aspects of the proposal but first we’d love to know
- what’s the Optimism Foundation‘s evaluation of the 1st grant? @lavande @bobby
- why do you ask the Op gov house for the 2nd grant? @jackanorak @tao @alexcutlerdoteth
1. Grant Goals
These goals are reasonable for Velo. For the overall DEX ecosystem on Optimism they should be
- Lowering barriers to entry
- Boosting ecosystem efficiency
- Building deep liquidity on key ecosystem pairs
( → $ in the right place to achieve xyz; openness & support for projects to join & contribute to Op)
Velodrome had an especially positive impact on the following 3 OP ecosystem goals:
- Velodrome has been a key player in onboarding new protocols through personal contact.
- Velodrome helped bootstrapping pools for projects with locking & strong co-bribing incentives.
- Establish liquidity for Op & some stablecoins (1inch examples → trades routed through Velo & Uni)
→ Why is it that larger trades are routed more through Uni v3?
Despite that, Velodrome achieved other project-specific goals:
- Large TVL growth
- veVelo locking from partners (+individuals)
- User attention & activity
Things that we criticially look at: Deep liquidity on key ecosystem pairs & ecosystem efficiency
- Uniswap has been more important for key ecosystem pairs so far without incentives. (Check routing from 1inch for USDC/ETH/WBTC, Op pair somewhat split between Velo & Uni v3)
- High amount of incentives & TVL compared to trade volume (market share)
2. The Ask
As mentioned by @GFXlabs @katie, the Ask is very large - especially given in a lump sum.
Locking Incentives: 1.5M Op (40K Op per week)
- This incentive can help with onboarding projects to Optimism (+)
- Requiring projects to invest into Velo instead of Op is not optimal in our opinion. We would look at this more postive if projects were to lock Op or an 80/20 position that helps with effective liquidity (±)
- You mention competiting incentives: Do you mean within or outside of Optimism?
- What kind of impact do you expect from full deployments of Curve and the upcoming start of incentives on Uniswap, Curve, Sushi + Velodrome on Velo bribing, efficiency, market share?
Boosting ecosystem efficiency with Bribe Matching: 1.5M Op (40K Op per week)
- This could further help with onboarding additional projects & bootstrapping liquidity on Optimism
- You state that liquidity cost from bribing is cheaper than direct incentives. Do you compare the same incentives on uni v2 or uni v3 as uni v3 might make up for the “extra cost of direct incentives”?
Building deep liquidity on key ecosystem pairs: 1M Op (30K Op per week)
- Higher liquidity in top pairs is important for Optimism (IF liquidity is utilized/effective)
- Would it not be a better idea to incentivize top pairs on Uni v3 and for example new projects on Velo considering ecosystem efficiency?
- Do you believe it makes sense to incentivize the same pairs on different DEXs?
- Despite “slow” market share growth of DEX aggregators on l2s, we strongly believe in abstraction over time & that users move towards wallets with built-in meta-aggregators in low-cost environments. Hence, we’d recommend a focus on protocol efficiency metrics (Slippage, trades (volume) routed, effective liquidity) over adoption KPIs (TVL, direct users, transactions).
3. General Ask Justification
Probably this doesn’t need to be stated. 4 Mio Op (110K OP per week!) is definitely a huge Ask. We appreciate the depth of the proposal and data provided, some of the “comparable metrics” are flawed though (apples & oranges) and should at most be used as small indicator in a comprehensive review. Obviously, we should not justify new Asks with previous grant amounts or Op granted/TVL but with value-added from the new proposal. Maybe, this helps anyways to stimulate a discussion which KPIs we should look at to evaluate all the different grants until today.
Potentially good KPIs (for long-term sustainable growth initiatives)
- Op granted per unique user onboarded
- Op granted per top project/team onboarded
- Op granted per new liquidity on Optimism
(+ retention, + effectivity, + network effects, + user activity, - user clusters, etc.)
It’s great to see a native DEX on Optimism with a team that contributes significantly to project onboarding.
As many delegates such as @polynya @jackanorak have previously mentioned, it is really important that we finally have some serious evaluation of the first rounds of grants before doubling down on top initiatives. Despite that, we can only restate, that it would be very important for Optimism to have an ecosystem-wide liquidity, DeFi, NFT plan to incentivize the right partners or at least run short-term experiments that help Optimism come up with a competitive ecosystem strategy.
As mentioned above, we should very deeply look at incentivizing what’s best for the ecosystem (lowering entry barriers, improving efficiency & liquidity), and not waste incentives on conflicting incentive programs or pick pre-maturely favorites & lock-ins.
In that regard, thank you for the data provided. That helps already significantly in reviewing your new grant request. We believe a 2nd grant to Velo could be well-reasoned to further grow the Optimism ecosystem - esp. in regards to project onboarding & kickstarting liquidity for new projects on Optimism.
Looking forward especially to your takes re: key ecosystem pairs & competiting incentive campaigns!
And, we’d love to hear the evaluation from the Foundation too as mentioned in the beginning.