[READY] [GF: Phase 1] xToken Terminal, Gamma Strategies, and Uniswap V3 Staker

Note: xToken has amended its original proposal to integrate community feedback, such as allocating rewards fully to Optimism, allocating rewards fully to WETH<>OP 0.3% pool, and extending the program from 10 weeks to 6 months (24 weeks). Along with the increase in duration, we increased the amount of incentivizes requested to ensure deep liquidity.

Project Name:

xToken Terminal, Gamma Strategies, and Uniswap V3 Staker

Author Name:

xToken Terminal and Gamma Strategies

Number of OP tokens requested:

900,000

L2 Recipient Address:

0x38138586AedB29B436eAB16105b09c317F5a79dd

Relevant Usage Metrics: (TVL, transactions, volume, unique addresses, etc.)

  • xToken: $3.5M USD in TVL (Defi Llama)
  • Gamma: $4.2M USD in TVL (Defi Llama)

Optimism alignment (up to 200-word explanation):

The following is a joint proposal by xToken Terminal & Gamma Strategies to outline a path forward for OP liquidity incentives on Uniswap V3. This is an updated version of our June 2nd pre-proposal, which received strong community support. From that version, we’ve reduced the amount of tokens requested – we recommend Optimism start with an initial 10-week program and then reassess continuation of the program.

Terminal’s out-of-the-box solution allows projects to deploy a highly configurable Uni V3 liquidity mining (LM) program in a matter of minutes, no dev work or technical expertise required. Terminal is live on Ethereum mainnet, Optimism, Arbitrum and Polygon.

Gamma has been actively managing liquidity on Uniswap V3 since March 2021 and prides itself on optimal LP strategies using its machine learning algorithms and automated strategies. Gamma is currently live on Ethereum mainnet, Optimism, and Polygon.

The OP token is finally live, ushering in a new era for L2 Ethereum. For now, Optimism is the only leading ETH scaling solution with a liquid token. The OP token – which serves a focal role in the governance of the network – has already generated significant investor interest. As such, bootstrapping a strong, stable foundation of liquidity for the token is essential.

While the token is trading on multiple CEXes, most DEX liquidity looks to be bootstrapped by independent actors and perhaps professional market makers. This is an undesirable state of affairs for a token, project and community with a commitment to transparency, decentralization and permissionlessness. We believe an OP liquidity mining program should be considered.

Proposal for token distribution:

We propose a total allocation of 900,000 OP tokens for liquidity incentives, distributed evenly across three providers: xToken Terminal, Gamma Strategies, and UniswapV3Staker.

After discussion with the Optimism community, we believe that 100% of incentives should be paid out on Optimism via the WETH<>OP 0.3% fee tier pool. Liquidity in this pair is most critical to the success of the Optimism token so we feel a full allocation is the best way to ensure adequate and sustained depth.

For a detailed explanation of our analysis and initial design of the LM program, refer to our pre-proposal discussion.

How will the OP tokens be distributed?

900,000 OP tokens distributed to LPs over a period of 24 weeks:

  • ~33% allocated to each service provider’s program
  • 100% paid out on Optimism
  • 100% to WETH<>OP 0.3% pool

How will this distribution incentivize usage and liquidity on Optimism?

With three different service providers, each will be able to approach liquidity incentives and provision in a way that complements the other two, providing a robust incentives offering for all types of LPs.

  • xToken will provide a user-friendly interface for full range OP liquidity incentives, offering a passive option with lower IL and execution risk for community members who want a simpler LM experience.
  • Gamma will actively manage OP liquidity, concentrating assets right around the spot price and structuring rewards through their platform.
  • UniswapV3Staker will offer a more expressive, dynamic option for more sophisticated LPs looking to rebalance frequently and independently of other LPs.

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

With a 24 week campaign, we’ll be able to attract long-term users and capital from ETH mainnet and other chains. We believe that the user experience and emerging opportunities on the Optimism network will be enough to retain the majority of users after the incentives program ends. As we mentioned above, Optimism is uniquely positioned to obtain LP capital with its native token being first to market of the major L2s.

Over what period of time will the tokens be distributed?

Linearly over a period of 24 weeks.

How much will your project match in co-incentives?

Due to their current emission allocations, it’s unlikely xToken and Gamma Strategies would be able to match incentives for this program.

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Apologies, only allowed two links per post.

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A point of clarification for readers, because there was some confusion in response to the pre-proposal:

These are independent market markers who are requesting OP to help incentivize the funding of their strategies on Uniswap v3. They are not affiliated with Uniswap.

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To be clear, these funds are not going to xToken, Gamma or the UniStaker team. These rewards are going to LPs who deposit OP-WETH or OP-USDC liquidity

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I like the proposal, the only thing I don’t agree with is 25% of the allocation being directed to mainnet.

IMO directing any rewards to mainnet is a waste since there is no reasonable arbitrage vector given that all CEXs which support OP only support OP deposit/withdrawals on L2. More over, LPs would need to buy OP on L2, wait 7 days to bridge back to L1, and then add liquidity at a ratio which would likely have changed in that 7day period. Lastly, the ETH mainnet market is a much bigger and more whale oriented market, so 25% of 500K OP in rewards, simply will not do much to move the needle in terms of creating “access” to OP since small buyers would prefer to buy OP on L2 (gas costs) and whales are not interested in buying OP from shallow mainnet pools (when the bulk of liquidity is sitting on L2 and CExs).

I would support this proposal if 100% of incentives were targeted at L2.

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Gamma
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xToken
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Although less liquidity on OP chain, project does have liquidity on main chain and if could encourage the liquidity migration with OP incentive, that would be great.

But spending 500K in just 3 months is quite fast for my taste and no co-incentives.

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I think there are many benefits to be had by fragmenting liquidity between Velo and uniswap, the competition is great for innovation and user acquisition.

We’re open to 1) focusing all incentives on Optimism and 2) including Velo in our proposal, though it would be great to hear more feedback and opinions on this before updating our proposal

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(hey i’m velodrome team)

we can discuss how deploying or incentivizing liquidity through our platform could be advantageous for you or the ecosystem, but we’d need to learn more about your model first. I can’t say for sure whether it would, but possibly!

Even if we together found there was potentially something of value, I’d need to disclose pretty heavy conflicts in reporting this (or avoid commenting altogether). But happy to discuss if you’d like to jump in our server. Velodrome

If ppl prefer for the sake of transparency we could have that conversation here as well – just don’t want to crowd out other opinions and voices.

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I’m not totally sure what you mean. I was just saying that we could spread OP liquidity incentives across multiple platforms including non-Uni protocols like Velo

As I understand it, you primarily run strategies through v3, so it’s not clear to me how you stand to benefit from working with other AMM structures such as ours. Presumably you’d be spreading liq incentives for that purpose.

In response to being mentioned by name as a possibility, I was volunteering as part of the Velo team to help you consider what your options might be on our platform to determine how/whether it would help.

Got it.

Yeah, we wouldn’t stand to benefit directly from spreading incentives to other platforms. However, we’re trying to build an LM program that best serves the OP community and therefore we’re soliciting feedback on distribution, including w/r/t Velo.

This all said, we still believe Uni V3 best serves the community as it’s the most capital efficient, highest volume and most programmable DEX - not to mention the Schelling point for trading and liquidity provision in the Ethereum ecosystem.

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I agree 100% with Millie that all the rewards should go to Optimism. I don’t see any point in having a shallow Mainnet pool. Might as well concentrate everything towards one pool to have the greatest effect.

I also think we should allocate everything to the WETH / OP 0.3% pool. We get the greatest return on the OP incentives if everything is concentrated in one pool. The WETH / USDC 0.05% pool is already pretty well funded, so if people wanted to trade from USDC to OP and vice versa, it wouldn’t be too big of a deal to route through the WETH / USDC 0.05% pool which has good amount of liquidity anyways.

I think the capital efficiency gains from having a really big WETH / OP pool will make up for the extra 0.05% fee by hopping through the WETH / USDC pool.

This reasoning is also why I’m against splitting these rewards also with Velodrome because it’s again making it less capital efficient. We get the most bang for the buck if all the rewards are directed to one pool. That pool would be the WETH / OP 0.3% pool on Optimism. But at the same time, I see that having a central point of failure is bad, so splitting among xToken, Gamma Strategies, and the Uni v3 Staker works for me given that all of the incentives given to these parties would contribute to the capital efficiency of one pool.

Also 10 weeks is a bit extreme. It should be more like 4-6 months.

Yeah if there isn’t an overall benefit here I don’t see much sense in devoting any resources to Velodrome through this proposal, though I appreciate the sentiment of wanting to benefit Optimism-native projects.

Can you explain how xToken works and what sorts of returns / IL LPers can expect? I think ppl might want to see that there’s an enduring benefit here over and above OP-juiced returns.

@cryptokitty that’s a pretty risky proposal, as you could well see routers going through other means with fees that high on such large pools.

Can you clarify what you mean when you say “you could well see routers going through other means with fees that high on such large pools”?

The route that I was suggesting is you go from USDC → WETH → OP. The USDC-WETH pool is a low fee tier pool at 0.05%. So allocating OP rewards to USDC-OP doesn’t make much sense to me when you can just allocate everything to the WETH-OP pool so as to increase liquidity/decrease price impact on the WETH-OP leg of the trade, which may very well be cheaper than having two smaller OP pools.

Like you’d rather have one 2-carat diamond as opposed to two 1-carat diamonds because of the capital efficiency gains of having the liquidity all in WETH-OP versus half in WETH-OP and half in USDC-OP

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ah mb didn’t read closely enough, thought you were talking about going to a higher fee tier on the usdc-weth pool. yeah on this piece specifically that’s def reasonable

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I agree with the suggestions from @millie @OPUser and @cryptokitty

100% Optimism, no Mainnet pool
Agree. Regarding mainnet, I think a mainnet pool program should be a separate proposal maybe sometime down the line. It is its own thing, and the Optimism community may feel differently about it in a few months.

Longer reward period 26 weeks instead of 10 weeks
Agree. After reviewing many, many programs, I think longer-term ones tend to work better and have fewer shock effects with LPs joining or leaving the pools abruptly

Allocate everything to the WETH / OP 0.3% pool
Also agree with this. Better to have solid liquidity on a critical pair.

Great feedback!

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Terminal pools use a Uniswap V3 wrapper, so impermanent loss will function the same as any V3 pool. In addition to the rewards incentives, Terminal LPs will earn swap fees within the Uniswap pool. Although the OP rewards are temporary, LM is a catalyst for users to bridge funds and interact with the network. Some users will move their liquidity once the incentives end, but others will remain in the pool and/or continue to provide OP liquidity elsewhere.

For more information on the mechanics of Terminal Mining, please refer to our docs: ((Liquidity) Mining - xToken Docs)

I think that we should stick to Optimism only. A mainnet pool should be a separated proposal. I don’t feel anything for a mainnet pool personally.

Imo the length of the rewards should be longer than 10 weeks. 10 weeks is absolutely too short. 5 to 6 months would be a much better timeframe.

We should allocate everything to one pool, better to have one pool with thick liquidity than have different pools with less liquidity. The right choice like cryptokitty said would be weth/op 0.3%.