[REVIEW] [GF: Phase 1 Proposal] Overnight.fi V2

ARCHIVED & OLD Missions Governance Fund: Phase 1
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This is the GF Phase 1 Proposal from the Overnight.fi Protocol. The goal is to help push the adoption of Overnight.fi innovative product line (yield generating stablecoin USD+ and delta-neutral ETS strategies) on the Optimism network.

We took into account the community’s feedback from the previous voting cycle:

  • Grant funding not meant for development - development request excluded
  • Clarity about co-incentives - 300K USD+ of co-incentives will be provided (10K USD+ per week over approximately 25 weeks on Velodrome, and additional 3.1K USD+ per week over 16 weeks of Balancer grant for Beets boosted pool)
  • Clarity about ETS product promotion - Commitment to promote only uncapped ETS, starting with ETS ETH/USDC, will be incentivized by means of establishing and incentivizing a liquidity pool on Velodrome, thus making opportunity available to the entire community
  • Grant amount request has been reduced from ˜370 USD to about 300K, the amount commensurate with co-incentives amount provided; The amount in OP - 400K OP total has been kept constant;
  • Clarity about verification of contracts - all contracts are verified and by consequence open-source; 1 math-library, not relating to security of user funds, kept confidential in line with industry-practice not to disclose algorithms related to balancing delta-neutral strategies (e.g. Gamma.xyz)

Project name: Overnight.fi

Author name and contact info: Maxim Ermilov @wmermus, can be contacted through Telegram

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

L2 recipient address: 0xe497285e466227F4E8648209E34B465dAA1F90a0

Grant category: Governance Fund Phase 1

Is this proposal applicable to a specific committee? [y/n, link to committee] Yes, DeFi Committee

Project description (please explain how your project works):

Overnight.fi is the company behind stablecoin USD+. USD+ is USDC that pays you yield via daily rebase. It is 100% collaterized with high-quality stables (USDC, BUSD, USDT, DAI etc.) that are invested onchain into lowest risk no IL stable-to-stable strategies. The yield from farming is passed over to USD+ holders via rebase. The superpower of USD+ is its ability to pay yield in liquidity pools, thus maximizing capital efficiency of LP provision.

Core usecases:

  • Treasury management
  • Liquidity provision on Dexes (e.g. currently USDC/USD+ on Velodrome)
  • Maximizing yield on projects’ own liquidity on DEXes (e.g. Sphere, OtterClam, Tetu, Parrotly, MDB etc paired against USD+ to receive yield from liquidity they maintain at DEXes)

In addition to USD+, Overnight is offering ETS (“exchange traded strategies” product line). ETS is a quasi-stable (some call it ‘delta-neutral’ strategy packaged inside a rebase token) that accepts USD+/USDC, uses it as collateral to borrow (hedge) a crypto asset on AAVE (or Granary), then farms crypto-to-stable pools. Currently, on OP there is already ETS ETH/USDC via Velodrome/AAVE and ETS OP/USDC via Velodrome/Granary in process of release.

Overnight intends to make Optimism its ‘innovation hub’, i.e. the chain where all new products/approaches are developed, tried and launched ahead of other chains. Innovative products already implemented include:

  • ‘Self-bribing’ LP on Velodrome: USD+ yield from Velodrome LP pools automatically directed towards bribes on Velo
  • Insurance (closed beta): Users are able to exchange risky asset, e.g. ETS ETH/USDC, for a combination of insured and uninsured tokens (tranches), with insured - redeemable for USD+ and uninsured - for OVN, Overnight’s governance token yet to be released
    -Additional ‘+’ products: DAI+

There is more in the pipeline.

Project links:

Additional team member info (please link): Telegram: @wmermus LinkedIn: https://www.linkedin.com/in/maxim-ermilov/

Please link to any previous projects the team has meaningfully contributed to: N/A

Relevant usage metrics (TVL, transactions, volume, unique addresses, etc. Optimism metrics preferred; please link to public sources such as Dune Analytics, etc.):

Overnight went into open beta around May 1st, 2022 and, despite the timing coinciding with the UST crash, has been having great momentum, largely helped by increased risk aversion:

  1. TVL has exceeded 8.5 M USD, x17 growth since UST crash in May (USD+ finalized closed beta and launched open beta on May 1st)
  2. number of users has exceeded 3.6K, i.e. x9 growth since May
  3. USD+ daily trading volumes have fluctuated in the range of 0.5-1M per day depending on market volatility, on average exceeding 14.5% of TVL, putting USD+ b/w BUSD and USDC on this metric, far ahead of most CDP stablecoins

The growth has been driven by:

  • Partnerships with Dexes, in particular, Dystopia/Penrose and Cone/Unknown, Velodrome
  • Partnerships with other projects that chose to establish trading pairs with USD+: Lido (stMatic), Sphere, Tetu, OtterClam, MDB, Parrotly Finance etc.
  • Launch of highly attractive (and profitable) product - ETS, a quasi-stable high-yield strategy product on top of USDC/ETH, USD+/wMatic and USD+/wBNB pools (with hedged crypto price-risk)
  • Expansion to BSC and Optimism chains

Overnight entered Optimism about 2 months ago with the launch of USDC/USD+ and USD+/LUSD pools on Velodrome. Since then TVL has exceeded 4.6M with approximately 400 users. Total ‘bribing’ amount has been 3.5K USD+ per week, most from ‘self-bribing’ described above.

Is/will this project be open sourced? Yes, all contracts are verified and by consequence open-source; 1 math-library, not relating to security of user funds, kept confidential in line with industry-practice not to disclose algorithms related to balancing delta-neutral strategies on Uni V3 (e.g. Gamma.xyz)

Optimism native?: Overnight is Polygon native, however, most active part of Overnight community and TVL have migrated to Optimism already once we launched given better product terms on OP.

Date of deployment/expected deployment on Optimism: Technical deployment - August 2022, commercial launch - first week of September 2022

Ecosystem Value Proposition:

  • What is the problem statement this proposal hopes to solve for the Optimism ecosystem?
    Building ideal DeFi product suite for crypto-winter and beyond: trustworthy, low-risk, decentralised asset management solution for passive stablecoin investors with minimum risk appetite in a convenient ‘stablecoin’ form factor
  • How does your proposal offer a value proposition solving the above problem?
    Overnight’s vision is to build ‘Vanguard of DeFi’ with (1) USD+ as a lowest risk product (equivalent of traditional money-market funds) and (2) ETF as a medium risk product (equivalent of ETF). Insurance product will play the central role in de-risking Overnight’s ecosystem of the structural DeFi risks
  • Why will this solution be a source of growth for the Optimism ecosystem?
    Overnight is targeting risk-averse segment of DeFI (both individuals and treasuries), somewhat underserved segment, which, we believe, over time will overtake crypto-native segment of DeFI in volumes and revenue.

Has your project previously applied for an OP grant? Yes

Number of OP tokens requested: 400,000 OP

Did the project apply for or receive OP tokens through the Foundation Partner Fund?: No

If OP tokens were requested from the Foundation Partner Fund, what was the amount?: NA

How much will your project match in co-incentives? (not required but recommended, when applicable): USD+ will provide at least 300K USD+ in co-incentives by (1) channelling USD+ yield from liquidity pools with USD+ and ETS on Velodrome and Balancer to self-bribing and (2) allocating 50K USD worth of BAL received from Balancer for building boosted pool with USD+ on an L2 towards Beethoven’s USDC/DAI boosted pool.

Proposal for token distribution:

  • How will the OP tokens be distributed?
    250K for USD+ liquidity mining on Optimism (spread between Velodrome and Balancer).
    → This would grow USD+ liquidity on Optimism, but also increase liquidity for the protocols and pairs USD+ collateral is invested into (100% is invested on the same chain). Additional stablecoin yield maximizers with low risk appetite will join Optimism chain
    150K for ETS liquidity mining on Optimism (via Velodrome)
    → This would grow ETS liquidity on Optimism, but also increase liquidity trading pairs underlying our ETS products, in particular, ETH/USDC and OP/USDC (100% is invested on the same chain). Additional stablecoin yield maximizers with low risk appetite will join Optimism chain

  • Over what period of time will the tokens be distributed for each initiative?
    approximately 25 weeks

  • Please list the milestones/KPIs you expect to achieve for each initiative, considering how each relates to incentivizing sustainable usage and liquidity on Optimism.
    First KPI will be exceeding 15M in TVL and 2000 users for Overnight overall
    Second KPI - exceeding 2M in TVL and 100 users for ETS products

Stablecoins like USD+ have considerable network effects. By reaching critical mass of TVL and users, powered by low risk, USD+ and Overnight will realize network effects and make Overnight sustainable on Optimism. Importantly, Overnight generates 'natural yield from its operations, which is partially directed towards USD+ and ETS pool incentives - this combination will make Overnight operation sustainable after rewards expire

  • Why will incentivized users and liquidity on Optimism remain after incentives dry up?
    Our overall approach is that Overnight products should be attractive without rewards (with rewards used essentially for promotion/marketing only):

  • USD+ and ETS rely on natural yield on the chain to generate yield for its users

  • USD+ model we are deploying on Optimisme is ‘self-bribing’, i.e. natural yield from USD+ and ETS in Velodrome and Beets core pools will support bribes beyond incentives

Please provide any additional information that will facilitate accountability:(smart contracts addresses relevant to the proposal, relevant organizational wallet addresses, etc.)
All Overnight smart contract addresses on Optimism can be found here: Contract Addresses - Overnight Finance Docs (Beta))

We hope the Optimism community will help Overnight not just grow TVL, but push DeFI innovation forward and beyond. Optimism is ideal chain for building things that had not been tried before. Let us know if you have any feedback on the proposal!

3 Likes
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audit expense compensation

with your past experience, how many audit we are talking here?

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as requested, I was thinking 75K OP (our latest audit cost us 58K USD). But thats what I would like to discuss with you and other prior to the re-submission. this is not dev funding and easy to control, but I am not sure how that fits into the policy

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I’m a delegate w sufficient voting power Delegate Commitments - #136 by jackanorak and i think this is ready for a vote. My endorsement remains valid in the case of any sort of change (esp refinement) concerning dev costs.

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I am an Optimism delegate [Delegate Commitments - #42 by solarcurve ] with sufficient voting power and I believe this proposal is ready to move to a vote. :saluting_face:

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Proposal looks solid to me. Overnight has incorporated their prior feedback and they have already launched and been operating smoothly on Optimism. Their contracts are transparent on chain for how funds are used and have a sustainable bribing mechanism on velodrome for multiple weeks already.

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The Ask looks still quite large with 400K Op for a rather new project - ofc matched with good co-incentives. Distribution is much better w/ more specific liquidity incentives instead of funding internal development.

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i know what you mean. we sized it the request to be 1:1 grant : co-incentives - which i believe is fair. OP has pumped since very nicely. i don’t know how to request it in a way that we achieve 1:1 match given our rewards are in stables and OP is volatile. Open to suggestions

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Ultimately agree and def would be more supportive of a 1:1 grant → 300K Op Ask.

Generally been thinking about OP price & mcap in the following way (napkin math, very simplified)

  • Large sell pressure from all the incentives and potential future airdrops given out
  • Growth of ecosystem, OP usage & investor mindshare will offset some-most of the sell pressure
  • There is a bottom price that larger investors may pick up based on interesting FDV (0.5$?)
  • Tech expansion & economics advances, overall move to l2, short-term narratives can lead to (deserved?) price breakouts to 2-5$ but will be sold off by Op recipients so that price fluctuates around ≈1$ while marketcap grows towards FDV.

For proposals, we’d expect to follow more or less the following template

  • Current Price
    • 30-day TWAP should be pretty fair, updated when it moves to voting
    • 7-day TWAP at payout day would be better; but would require Ask in USD & Foundation input
  • Comparable Proposals / Project Size / Return for the Optimism ecosystem
    • -10K USD: Instant grants for small tools, bounty work, etc.
    • 10K-50K USD: Small grants for teams/startups/dev funding
    • 50-300K USD: Growth program for early-stage, smallcap project with significant value-add
    • 300K-1M USD: Onboarding top teams/projects, co-initiatives w/ significant growth expectations
    • 1M+ USD: Exceptional growth opportunities

Obv would be great to judge proposals purely by outcomes but many are early stage, public goods, nice-to-have tools and outcomes will be multi-dimensional (team, liquidity, user, building block onboarding, etc.).

Really looking forward to more data like this, this and this for learnings from past initiatives but you’d need to control again for all the projects (Galxe’s temporary OP Quest boost, Internal Settlement TXs, etc.)

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@OPUser @ScaleWeb3 We were targeting the 300K USD as amount of grant with 1:1 co-incentives. With the recent OP pump we would be willing to bring the grant amount down to 300K OP and keep the same co-incentives. % allocation b/w initiatives would stay the same.

It is a 1 minor change caused by the market. it would be great for the proposal still be considered in this cycle. From recent gov-channel discussions, I think the committee has the power to act of its own accord in such a matter.

@solarcurve @jackanorak Gentlemen, would you be willing to endorse the change? thank you

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As a delegate in the Optimism Collective, I endorse it :saluting_face:

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12

endorsement still stands.

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Hey guys I love this project I just have one concern about this.

As of today, you have 3 ETS distributing OP tokens. All 3 ETS have 33 users in total.

I’m concerned this ETS distribution will end up in a few addresses contrary to what I think it’s healthy.

Is asking for an APY % distribution where the user count is considered too much? Something like:

10 users 5% APY
20 uses 10% APY

If not (which is totally understandable) can we lower this to 2 months and come back with some metrics? It won’t look good if we finish this 6 months period and see all these OP tokens distributed to 33 addresses only.

I love the project and I want to see it thrive I’m just concerned about user/distribution ratio.

1 Like
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thank you for the question. we are just launching ETSes on OP and expect the # of users in the 100s.

The biggest constraints to growth so far, have been, actually, the performance of USD+ itself, which has outperformed ETS in yield (which is not normal and will change as OP ecosystem matures) and depth of liquidity for relevant attractive underlying pairs.

we are solving both issues by launching today the ETS based on Uni V3 (via Arrakis) - “Night over arrakis”. It is delta-neutral strategy aimed at providing liquidity to ETH/USDC 0.05% pool with rewards by Arrakis/Uni/OP. It is quasi-stable strategy with target 15-20% yield, which people are already queuing for. it is deep and long enough for the ETS to acquire 100s of happy users. We have no doubt there will be major demand (enough to ask people in our discord). There is also a ‘waiting list’ of 40+ addresses. Next week, we will launch another Arrakis-based ETS for ETH/DAI liquidity provision.

We can guarantee that everyone will have access to this product and rewards: we have established a stable pool on Velo: USD+/ETS that will (1) use the yield to self-bribe (2) will be the only channel used to distribute grant rewards. So everyone will be guaranteed access and it wont become an ínsider deal’.

Responding to your questions more specifically: linking APY and # of users can be done, but incentives via pool on Velo would, imho, be more effective and natural way to balance supply and demand;

Regarding metrics, we have put in the proposal ‘Second KPI - exceeding 2M in TVL and 100 users for ETS products’. if we dont exceed 1M TVL and 100 users within 2 months, we would be happy to stop the grant program and return the remaining part of the grant related to ETS. But i am certain that wont happen. Hope i have addressed your questions. if not, please let me know

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Can you add this condition to the proposal? you have my full support.

Nonrelated:
Have you considered ETH/OP pool as a quasi-stable strategy?

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I think the committee has the power to integrate that in the decision. It would be horrible if we had to go to another voting cycle because of this modification

Eth/OP is actually not a quasi-stable. It is a very volatile pair. Also OP’s liquidity (and consequently opportunity to hedge, cost of impermanent loss ) are not good, to put mildly. All this makes a delta-neutral product based on this pair uncompetitive.

I honestly think some of the grants should be put forward to improve OP’s liquidity: how could aave have received the grant and not accept OP as collateral… Or Uni V3 be incentivizing pools with ETH and not OP… This really escapes me.

Once the prerequisites are in place we would love to do the ETSes based on OP pairs

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This is fair. (I feel you on the horrible feeling about going to another cycle)

I assume you are considering this pair volatile against USD right?

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Against each other as well. There is certainly quite a bit of IL in that pair. It is correlated, but not closely enough.

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@OPUser For the sake of record:

  • The grant request is 300K OP
  • Co-incentives match - 300K USD
  • How will the OP tokens be distributed?
    175K for USD+ liquidity mining on Optimism (spread between Velodrome and Balancer).
    → This would grow USD+ liquidity on Optimism, but also increase liquidity for the protocols and pairs USD+ collateral is invested into (100% is invested on the same chain). Additional stablecoin yield maximizers with low risk appetite will join Optimism chain
    125K for ETS liquidity mining on Optimism (via Velodrome)
    → This would grow ETS liquidity on Optimism, but also increase liquidity trading pairs underlying our ETS products, in particular, ETH/USDC and OP/USDC (100% is invested on the same chain). Additional stablecoin yield maximizers with low risk appetite will join Optimism chain
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Given that two delegate(s) are on-board with updated token ask and distributed plan. We would like to consider this proposal in current cycle, please share your thoughts if you think otherwise.

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