[REJECTED] Mission Request: Stablecoin Diversity

Delegate Mission Request Summary:

We all depend on centralized stables—whether we like it or not. When they fail, shit hits the fan across the ecosystem. Yet 95% of the centralized stablecoin market is USDC+USDT! Ethereum has a bus factor of 2 companies, posing a real systemic risk.

This Mission Request calls for mission teams to work on increasing the adoption of niche fiat-backed stablecoins within the Optimism ecosystem. Grant funds could, for example, be leveraged to incentivize the DeFi protocols to integrate more stablecoins, fund the creation of more token pairs on DEXes, and increase TVL for stablecoins within DeFi in general.

S5 Intent Please list the Intent your Request aligns with here:

Intent 1 - progress towards technical decentralization

Proposing Delegate:

griff.eth

Proposal Tier:

Ember

Baseline grant amount:

200k OP (10-50k per stablecoin diversification initiative)

Should this Foundation Mission be fulfilled by one or multiple applicants:

Multiple

Submit by:

To be set by Grants Council

Selection by:

To be set by Grants Council

Start date:

Upon being chosen for the grant

Completion date:

12 months after being chosen for the grant.

Specification

How will this Delegate Mission Request help accomplish the above Intent?

Intent 1, progress towards technical decentralization, is traditionally focused on protocol specific challenges and on client implementation diversity to reduce the critical risks associated with too much centralization.

There is, however, stablecoins are alse an important vector of centralization that poses a systemic risk. Today, 95% of the circulation stablecoins are managed by just two organizations: USDC and USDT. As a consequence, Ethereum has a bus factor of 2: if these two stablecoins are disrupted shit hits the fan, creating a major systemic risk. USDC’s depeg offered a small glimpse of that risk. When this one token didn’t do its job FRAX, DAI, LUSD all depegged, liquidity for many pairs on both Uniswap and Curve evaporated and the Aave DAO had to pass an emergency proposal.

So we need more stablecoin diversity. Vitalik agrees. The ideal ecosystem has multiple centralized stablecoins with widespread adoption, all of which are integrated in DeFi protocols, have strong liquidity on DEXes and are easy to on/off-ramp with minimal costs. Overcoming the powerlaw effect is not easy to achieve, hence we are calling for this mission request to be included in Season 5.

By increasing stablecoin diversity via Mission Request, decentralization goes up, while the risk of a USDC/USDT disruption resulting in an existential extinction event for the Ethereum / Superchain / Optimism ecosystems goes down.

What is required to execute this Delegate Mission Request?

  • The teams participating in this mission should have the ability to influence the supply of one or multiple stablecoins in the ecosystem
  • Team members should have experience interfacing with stablecoins on DeFi protocols
  • Teams are required to submit a proposal, which should at minimum include:
    • Stablecoin(s) supply to grow
    • Methods by which the stablecoin(s) supply will increase
    • Budget per method
    • The main team members and their relevant past experience
  • By June 2024, teams are required to submit a report detailing their work and the resulting outcomes

How should the Token House measure progress towards this Mission?

  • Monitor participating stablecoins’ total supply
  • Monitor overall stablecoin diversity on https://stablecoindiversity.org/
  • Monitor stablecoin diversity on Optimism (dashboard coming soon)
  • Assess the quality of the report presented by each team

How should badgeholders measure impact upon completion of this Mission?

  • Measure the absolute and relative growth of participations stablecoins
  • Study the stablecoin diversity as measured on https://stablecoindiversity.org/
  • Study stablecoin diversity on Optimism specifically (dashboard coming soon)
  • Assess mentions of stablecoin diversity as a topic on the internet and at conferences

Have you engaged a Grant-as-a-service provider for this Mission Request?

No

Has anyone other than the Proposing Delegate contributed to this Mission Request?

Yes, Garm from Glo Dollar wrote this Mission Request, I made only small edits.
It was also reviewed by Cotabe, who suggested some minor edits.

6 Likes

Though I would love to have more stablecoin diversity, I don’t see how this fits an Optimism mission request and there is multiple things off here.

  1. It’s progress towards decentralization of stablecoins in general as intent (a noble one), though nothing to do with decentralization of Optimism.
  2. Most probably the lion’s share of any stablecoin’s supply would not be in an L2 and as such doing anything in Optimism alone would be a drop in the ocean.
  3. The mission’s impact measuring seems broken. So any participating stablecoin that manages to increase its supply (even if that’s a drop in the ocean in the big picture of stablecoins) would be eligible? The fact this was proposed by a stablecoin which I also guess will want to take part makes me thing it’s less of an RFP and more like a grant request.
2 Likes

Acknowledge the systemic risk of stablecoins as a grey rhino. The Silicon Valley Bank collapse early last year, which led to USDC/USD exchange rate dropping to 0.9, incited panic across the entire DeFi market.

  1. Deaft’s Request is overly broad, lacking clear definitional standards. The term ‘stablecoin’ is ambiguous—are we referring to USD-pegged stablecoins? The stablecoins listed on stablecoindiversity.org are all USD-anchored fiat stablecoins.
  2. I concur that this draft appears less like an RFP and more like a request for a grant.
1 Like

There could be a case made that if these are deployed as OP native then itd help Optimism since pretty much every dapp uses some stable this is could be an ecosystem hedge
Built this 3y back for arb synth creation so could be used to bootstrap say euro/jpy/cny without dev needed

The proposal though seems to atm not really do this so agree but think the ideas good

1 Like

Fair criticism @lefterisjp! Some thoughts:

On 1 & 2 I think a movement towards stablecoin diversity needs to start somewhere. Optimism has the unique combination of being particularly strongly mission / values aligned with (noble) initiatives like this, and Optimism contains popular DeFi Protocols to grow TVL of stablecoins. This is not at all a given in other L2s!

On 3 perhaps tweaking the eligibility and impact measurements could alleviate this concern. Stablecoin projects themselves could be excluded for instance, and only independent teams that share the stablecoin dviersity concern could apply? Might run the risk of no teams applying though. Alternately teams could be required to contribute towards the growth of multiple stablecoins?
I do think that drops in the ocean are what we need in the current situation to get the ball rolling, but perhaps a minimum effectivity metric can be introduced? I.e. needs to outperform lazily funneling funds through Velodrome, or needs to result in more OP dApps that integrate the stablecoin through e.g. a Gitcoin grants round?

@commons agree that this risk is a grey rhino! stablecoindiversity.org currently focuses on USD stablecoins because their size dwarfs all other currency pegs, but perhaps others should indeed be integrated. Definitely open to adding that!

For what it’s worth this was definitely created as a general RFP to benefit the entire ecosystem and draw attention to all alternate stablecoins, not as some convoluted grant request for Glo Dollar :sweat_smile:

Yeah I think this is a fine one. it’s a bit of a stretch to say that this satisfies intent 1 as originally drawn, but I see the intention here. Definitely noted on @Pr0 's point that a native stable would fit well within this framework.

I think stablecoin teams are in scope for something like this - we want to incentivize them to compete here. I also agree that some broader measures would have to be incorporated to ensure this isn’t just about stablecoin supply. In fact I think there should be grant-level and global performance metrics here, as the idea is to get better breadth among stablecoins - not just in name but also in collateral types, price stability mechanisms, value distribution, etc. More use (and different types of uses), more transaction growth, active building here by the teams (and not just bridging a token), etc. – all this could be beneficial.

Get some metrics in there and i’ll endorse for a vote.

How about for each of the metrics below, we measure their absolute & relative growth, as well as their diversity across all EVM chains and on Optimism specifically:

  1. Market cap
  2. Collateral type
  3. Backing type
  4. Peg type
  5. Centralized vs decentralized
  6. Transaction volume
  7. Unique smart contract interactions
  8. Internet mentions

Others that should be added?

Hello Griff and thank you for the proposal!

Disclaimer: I work at Membrane Finance, the issuer of the fully backed MiCAR-compatible euro stablecoin EUROe.

I completely agree on your points regarding the centralisation risks stemming from duopoly-like structures in the existing stablecoin market.

In addition to aiming to grow USD supply, I would also like to see an increase in other local currencies. Local currency stablecoins can provide more efficient and smoother crypto connectivity to the local banking system now and in the future. It would also reduce the reliance on a single currency and help with that aspect of decentralisation.

As one method for diversifying stablecoin issuance, I suggest partnering with DeFi protocols to pay incentives to LPs for providing liquidity in certain niche stablecoins. This way the proposal would also be more capital efficient as it would be in the protocols’ interests to match, at least to some extent, the contributions from Optimism.

1 Like

Tagging @jackanorak and @lefterisjp for awareness on these proposed metrics as I failed to do that the first time around :sweat_smile: Also curious if you have suggestions for other metrics that should be included!

1 Like

Hey @garm – just wanted to flag this as a proposal that still needs delegate approvals in order to move to a vote. If you are no longer interested in pursuing this proposal – please disregard this message. In order to see the delegates assigned to your proposal those can be found here. The deadline to provide feedback and approvals for Mission Requests is February 7th at 19:00

Cheers!

GFX Labs is a delegate with the required voting power to support moving this proposal to a vote.

2 Likes

I’m a delegate with required voting power and i think this is ready for a vote

2 Likes

Thanks @op_julian ! I messaged @olimpio yesterday, but looks like they haven’t visited the forums in a while. Going to be doing my best to find other top delegates who may be excited to approve, but unsure I’ll make it before the deadline :sweat_smile:

1 Like

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote
.

2 Likes

Thanks @olimpio :heart:

@op_julian just noticed the first ones in the delegate assignment sheet have 1 less delegate assigned to them than the others - is that intentional? Still hustling to get one more approval but don’t want to spam too much on an unsolicited basis :grimacing:

I am an Optimism Delegate with sufficient voting power and I believe this proposal is ready to move to a vote

Like this idea.

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote.

Intent #1 only need to receive three delegate approvals since the fourth will come from the DAB!

1 Like

This one is interesting and I would like to see increased adoption of decentralized stablecoins.

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote.

The Developer Advisory Board has reviewed this Delegate Mission Request, and voted on its acceptance or rejection. The vote results are as follows:

ACCEPT: 0 votes
REJECT: 6 votes
ABSTAIN: 0 votes

therefore, the Developer Advisory Board rejects this delegate mission request.

While the board agrees stablecoin diversity is a good pursuit for the space as a whole, it does not meaningfully improve the technical decentralization of the Optimism ecosystem as prescribed by Intent #1. It is also not an Optimism specific challenge and the board feels it is not a good use of OP in this context (intent #1). The board thanks you for your time putting this together and there may be other avenues that are more appropriate for achieving this goal outside of Intent #1.

2 Likes