[REVIEW] [GF: Phase 1 Proposal] dHEDGE (v2 revised)

Project name: dHEDGE DAO

Author name and contact info: Jake Richards (https://twitter.com/jakerichards)

I understand that I will be required to provide additional KYC information to the Optimism Foundation to receive this grant: Yes

L2 recipient address: 0x352Fb838A3ae9b0ef2f0EBF24191AcAf4aB9EcEc

Grant category: Governance Fund Phase 1

Is this proposal applicable to a specific committee?:
This proposal falls within DeFi committees.

Project description:

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. We’ve also passed governance proposals for new integrations with Beethoven X, Velodrome and Lyra.

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.

Project links:

Relevant usage metrics

Dune analytics: Link
TVL: $4.3m
Volume: 16,048 Transactions
Unique Addresses: 3,956 Addresses

Competitors, peers, or similar projects:

dHEDGE is the only decentralised asset management platform currently on Optimism.

A similar project on other chains in Enzyme Finance - this also enables non custodial asset management but has a focus on indices. Enzyme is on mainnet and Polygon.

Is/will this project be open sourced?: The smart contracts and automation infrastructure are fully open sourced dHEDGE DAO · GitHub.

Optimism native?: No

Date of deployment on Optimism: November 29, 2021

Ecosystem Value Proposition:

dHEDGE brings decentralised asset management to Optimism, and is integrated with many current OP projects e.g. Aave, 1inch, Synthetix/Kwenta, Uniswap and soon Lyra, Beethoven and Velodrome.

Using these integrations, dHEDGE has incubated a new protocol Toros Finance, which runs automated strategies on Optimism including the Synthetix Debt Hedging service, which has quickly accrued over $3.5m in TVL weeks after launching.

It’s a valuable service seeing rapid adoption from the SNX staking community.

A decentralised asset management platform, combined with our native SDK, is a valuable asset for the Optimism ecosystem as it enables asset managers access to easy automation potential combined with a safe non-custodial management solution. This value can be demonstrated by the $4.3m TVL already locked in the protocol.

Additionally, $OP incentives will help migrate more funds across from dHEDGE on mainnet as we migrate governance from mainnet to L2.

Has your project previously applied for an OP grant?

dHEDGE previously applied for a grant in Phase 1, Cycle 4 and was asked to resubmit with an altered $OP distribution model. Specifically, the previous submission involved a distribution model targeted towards holders of DHT, the dHEDGE governance token.

  1. We’ve modified the $OP distribution such that users don’t need to stake DHT to be eligible,
  2. We’ve revised the $OP ask down from 500,000 to 350,000, and
  3. Split the distribution between pool incentives (70%) and liquidity mining (30%)

These revisions bring our proposal into line with the feedback we received on previous submission.

Number of OP tokens requested: 350,000 OP

How much will your project match in co-incentives?

We’re proposing to split the distribution of granted $OP across DHPT Pool Incentives (70%) and Liquidity Mining (30%).

The Liquidity Mining will be matched 1:1 with DHT, but not the DHPT Pool incentives.

Proposal for token distribution:

We’re proposing a multi-channel distribution model as follows:

  1. Pool incentives (70%)

We propose distributing $OP tokens to holders of whitelisted dHEDGE Pool Tokens (DHPT) on Optimism.

This method of distribution aims to incentivise liquidity into dHEDGE pools.

DHPT holders would receive a portion of $OP tokens relative to their DHPT position calculated over a monthly allocation.

E.g. 70% of the proposed 350,000 = approx 240,000 OP, split into 6x 40,000 monthly $OP allocations.

The whitelisting process will be an ongoing governance vote. This is to ensure pools of sufficient quality qualify for $OP incentives. Criteria likely to include a minimum TVL and/or over a certain age (weeks).

Given 40,000 OP as monthly incentives, if priced at $1.50 per $OP equates to an additional $60,000 of incentives per month. Annualised, this would attract the below TVL at incremental APY targets:

5% APY - additional $14.2m
10% APY - additional $7.1m
15% APY - additional $4.7m

Given the current dHEDGE TVL on Optimism is $4m, forecasting an appetite for 10% APY from $OP incentives would attract $7.2m - almost twice the current TVL to dHEDGE.

This liquidity is likely to remain on Optimism given the unique staking model dHEDGE is about to launch. DHT rewards are paid to users staking both DHT and Pool Tokens, and the emissions model favours longer term staking durations.

Additionally, we may seek to use 10% of this allocation as specific rewards for a trading competition.

  1. Liquidity Mining (30%)

dHEDGE is currently migrating governance onto L2, and requires a deep source of liquidity for fluid management of staking rewards and acquisition of governance power.

As such, we propose to incentivize a DHT:OP pool on Optimism, and allocate 30% of the proposed grant to encourage this liquidity.

This program will also run for 6 months, and will be matched 1:1 with DHT tokens.

Liquidity will be hosted on Velodrome/Uniswap, and managed via a dHEDGE pool.

Dividing this portion of the grant distribution over 6 months would provide 17,500 $OP per month in liquidity incentives. Matched with DHT, (and pricing $OP at $1.50), would allocate approx $50k per month in total OP and DHT rewards.

For a volatile pair pool, this would attract $1.2m in TVL at an APY of 50%.

2 Likes

To summarise the resubmission in context to our initial proposal:

  1. We’ve modified the $OP distribution such that users don’t need to stake DHT to be eligible,
  2. We’ve revised the $OP ask down from 500,000 to 350,000, and
  3. Split the distribution between pool incentives (70%) and liquidity mining (30%)

These revisions bring our proposal into line with the feedback we received on previous submission.

Thanks for the proposal! Under the ‘Grant category:’ field, please specify which committee should review your proposal (NFTs and Gaming, Tooling, or DeFi).

1 Like

Thank you @lavande, updated.

Proposal moved to [REVIEW] given this proposal has incorporated feedback and comments received from our Cycle 4 proposal and also from delegate comments above.

Summary of updates from Cycle 4:

  1. We’ve modified the $OP distribution such that users don’t need to stake DHT to be eligible,
  2. We’ve revised the $OP ask down from 500,000 to 350,000, and
  3. Split the distribution between pool incentives (70%) and liquidity mining (30%)
2 Likes

Cyrus: I think the updated proposal looks good, and I am OK with it!

2 Likes

I supported this proposal prior and I still support it in its current form.

3 Likes

Salome from Prime Rating here, we were kindly asked by OP community members to support and be active in the evaluation of grant applications. We’re happy to share some of our insights!

dHedge has previously been reviewed on PrimeRating and by DeFi Safety. They received a good technical score of 76% and a decent fundamental score of 63%, resulting in a B+ overall rating (last updated June 16, 2022).

dHEDGE has around $12 million in TVL. $4.29 million in Polygon, $4.2 million in Ethereum and $3.47 million in Optimism. The number of investors giving money to fund managers has experienced a positive trend in dHEDGE, especially since the compatibility with Polygon & Optimism was enabled.

Although the total addressable market is not very big yet, dHEDGE demand also matches the proportion of the whole hedge fund industry on the total asset value of the world, and the demand has also shown signs of growth despite market conditions. In this sense, it appears to have achieved some sort of market fit in an industry with similar growth potential as the whole crypto market. As mentioned in the proposal dHEDGE’s most direct competitor, with the most similar characteristics, is Enzyme Finance which has almost 4 times of dHedges TVL but is not compatible with Optimism yet.

Nevertheless, it has the potential and capabilities to grow in the long term, as they are creating a very compelling alternative to Enzyme. With the right incentives, the chances of more users getting attracted to use dHedge on Optimism are probably high.

Generally in favour of this proposal!

4 Likes

I think this proposal is a big improvement from the last submission, and kudos to the dHEDGE team for taking community feedback. I will be voting yes on this proposal.

3 Likes

I am an Optimism delegate [Delegate Commitments - #65 by mastermojo] with sufficient voting power, and I believe this proposal is ready to move to a vote.

2 Likes

As an Optimism delegate with voting power above the required threshold I believe this proposal is ready. Delegate Commitments - #71 by MoneyManDoug

3 Likes

Thank you @MoneyManDoug and @mastermojo. Will update the roundup post

2 Likes

Appreciate your alignment & deep integrations with the Optimism ecosystem as well as the incorporated feedback - especially the lower ask & less focus on DHT - while retaining the qualities of the first proposal, incl. potentially sticky liquidity incentives & good user onboarding efforts.

PS: Just saw that you planned to add 100% co-incentives in your previous proposal but this time only 30% matching Op liquidity mining incentives. In our opinion, that is still a significant contribution and we prefer to see smaller projects do well & contribute to Op growth, rather than overspend on (co-)incentives.

2 Likes

Hey, I have a few questions regarding your proposal:

Excited about the commitment to migrate governance to Optimism

Could you tell me what the $dhpt token represents? Sorry, I haven’t found any information about it.

Regarding the whitelist metrics (eligibility for $Op rewards):
You state: “Criteria likely to include a minimum TVL and/or over a certain age (weeks).”
Could we clarify/define these parameters?
How much exactly is “a certain age”?
What would be the “minimum tvl” to be eligible?
You indicate: “probably”: it would be interesting if you could define exactly what those criteria will be since it affects 70% of the grant

How do you think fostering the op/dht pool would improve the optimism ecosystem?

2 Likes

Hi @Jadmat.Eth-DefiLatam - thanks for the questions.

Going through in order,

  • the $DHPT token is a token representing a share in any specific dHEDGE Pool. For example $DHPT could describe a share in Stablecoin Yield on Optimisim (this pool however has a specific ticker $USDy)

  • Regarding the criteria for a pool to be whitelisted for staking rewards, a dHEDGE Feature Proposal will be posted in governance to clarify the exact criteria. The first proposal is likely to be a minimum TVL of $20k and pool age of at least 30 days, and this will be subject to a governance vote to pass.

  • Regarding incentivizing the OP:DHT liquidity pair, there is currently no deep source of liquidity on Optimism for the DHT token, and this will be required for efficiently operating dHEDGE governance (accruing governance power, utilisation of staking rewards). A fluid dHEDGE governance program on Optimism is important for the health of the protocol.

1 Like

In favor. Reasons:

  • Unique product category for Optimism
  • Protocol that can be used to build other protocols, such as dynamic vaults, ie. toros.finance
  • Integrations included in dHEDGE for managers help increase volume and TVL of other protocols, meaning as dHEDGE grows, the ecosystem around it grows with it, (ie. Velodrome, Kwenta, Lyra, Uniswap, etc)

So the whitelist refers to the found, not the token holder? In your example, who should be whitelisted would be Stablecoin Yield, is that correct?

It would be interesting if you could add this to the proposal, do you agree?

I agree to the importance of governance; this is linked to the Stake, encourage an lp seems at first sight the opposite; help me understand the idea

Recommendation from Defi Committee C is Yes

1 Like

Recommendation from the DeFi shadow committeewhich is not an official committee – is a conditional yes.

We support this proposal due to signs of specific PMF and the possibility of extending services in a targeted way but have some feedback that would have made it stronger. As it stands, the ask is too vague and discretionary with likely little to show for it in the end.