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

@OPGovWatch We picked Interest protocol as they are also a relatively unproven stable at an early development stage. Overnight differs in being deployed already but similarly lacks meaningful traction & proven durability.

In our opinion, TVL is a key metric for an ecosystem to enable traders & other projects but not the north star KPI to look at and not good to single out as a couple of $M USD can quickly move in and out. Ultimately, we all want to focus more on effective liquidity, value-add, sustainable growth.

For us, the main differentiator to QiDao is the previous track record & our perceived value-add to Optimism at the time of the proposal.

We knew QiDao, their risk management & ecosystem involvement from Polygon. The proposal from QiDao had a large Ask compared to their market cap but the incentive design & distribution, and especially their strong co-incentives lead delegates incl. us to vote yes. (I’d personally expect the same proposal to get at least a 30% haircut today though.)

Thank you @_Max_plus for your detailed answer and weighing into each of the mentioned critical points.

First of, have to say the communication from the website (focus on profits) and initially rather broad proposal with lack of focus on current products was a big turnoff - almost a red flag. Your reply gives us a much more detailed and positive picture.

While still inclined to call it an “USDC wrapper” or “top stable wrapper”, and having some doubts about long-term utility of USD+ & success of the products (yields drop, increased smart contract/operational risk vs. holding underlying, etc.), there is value in stables, efficiency & real yield in the current bearish environment - this explains also the uptick in delta-neutral on-chain yield strategies & new stable models.

Hence to summarize, the stablecoin/yield generation area is an interesting space, the Overnight products are early stage and might add value but traction & contribution to spur Optimism growth is still unproven & not fully clear.

Potentially, a smaller grant than originally proposed but larger than Interest protocol 1 proposal could be “fair” to get going IF good co-incentives are also available & more detail on LM, OP distribution is added.

(Note to self: It would be good to have a better overview than this distribution doc over previous grants, their success as well as current projects and their functionalities on Optimism incl. stablecoins, possibilities to lend and borrow Op, etc. to assess new proposals)

thanks for the doc: what i see is that our request is below average in all cycles except cycle 6. the median is about 300 K in the others, except cycle 0 and 6, which is probably the appropriate amount to revise our proposal down to - by eliminating the request for grant to build insurance/tranching. Maybe i would like wider feedback from the committee, but thats certainly a possibility

On co-incentives, as I said: we are already bribing about 3,500 USD+ per week on Velo, we will increase that to 8,000 if our request is approved. within 10 days we will be allocating 50K over 16 weeks in BAL incentives towards launching a USD+/DAI+ boosted pool on Beets. That’s a total of 250K USD+ in. cash incentives in stables, not in gov tokens. At current rates, thats 295K OP. We are asking the committee to match those co-incentives for the next 25 weeks to be used as bribes at Velodrome and Beets. Importantly, the significant part of those incentives will stay after OP grant expires because of natural yield USD+ generates and uses for incentives

btw, it turns out defilama has 2 links for USD+, one of them is outdated. the right one is here - it shows USD+ at 7.7 M across all chains (ETS not included) USD+: Circulating and stats - DefiLlama

the growth on OP over the last month has been 1105%. I hope it can be classified as more than ‘limited traction’

The median across many protocols is not a good way to compare. You need to compare Overnight with similar protocolos, at the same stage and/or development.

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this logic is highly flawed - favours incumbents at the expense of innovators, regardless of the fundamentals. not to mention, that 1OP in the previous epochs was more than 1OP today.

ultimately, we commit to provide 250K USD of incentives from our side. thats the only objective benchmark that should influence the size of the grant. the rest is not as objective, can always be argued as comparing ‘apples and oranges’

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Recommendation from DeFi committee C

Details

The proposal describes broad potential value-adds to Optimism and the Op distribution lacks some specifics. It was a late submission and the latest discussion & incorporation of feedback seems to lead to some positive changes.

Value-Add
Overnight is developing the USD+ stablecoin. USD+ is USD that pays you a return through a daily rebase. It is 100% collateralized with other stablecoins (USDC, BUSD, USDT, USDT, DAI, etc.) that are invested on-chain in “low-risk strategies” such as LPing on stables, lending & more. The integration of a yield-generating stable in the Optimism ecosystem can have benefits for Optimism users. Whether Overnight can help with better liquidity & trade efficiency on top stables is still unclear at this point in time.

Traction
Overnight is an early stage project that intends to make Optimism its ‘innovation hub’. It has gathered a total TVL of more than $7+ Mio, and since its launch on Optimism in early September there is a clear trend towards Optimism (55% of TVL).

The yield strategies have decent APYs but one is capped at 100K (133 users; cap due to liquidity of underlying protocol), and others have attracted only a few 1K$ and users; and strategies will likely not offer 10%+ APYs with larger TVL amounts.

With this funding they also want to work on extending their ETS product line (currently 16 users on Op) along other “+” features.

Overnight does not have all the contracts public, it has closed open source portfolio rebalancing algorithms behind ETS until at least the public sale of the OVN governance token.

Amount
50% for Overnight products liquidity mining on Optimism. Approx 8K $OP/week for 6 months.
25% for expansion of “”+""and ETS product lines
25% for building insurance product: this would de-risk entire Overnight ecosystem: both USD+ and ETS

200K $OP for LP reward and 200K for product and feature development.

Co-incentives
Willing to match 100% of liquidity mining incentives along with llocating 50K USD worth of BAL received from Balancer for building boosted pool with USD+ on an L2 towards Beethoven’s USDC/DAI boosted pool.

Alignment
Overnight is a protocol that is in its early stages. In the future we can evaluate if they are aligned to the Optismim ecosystem.

Reccomendation
No

The protocol has not published its contracts and is in its initial stages. It is in an experimental stage, we are waiting for a bit more maturation, organic traction of the protocol where a better evaluation of product-market-fit can be made before incentivizing growth.

The co-incentives are solid, the trend towards building on Optimism and attracting TVL is also positive. Despite that, the positive impact on the Optimism ecosystem is still to be seen, for example whether incentives for Overnight and USD+ would cannibalize organic liquidity on Optimism DEXs and the success of the different yield strategies.

We recommend to possibly create two proposals: one for protocol incentives and another for development funding. A focus on the slightly more mature “+” product with a lower Ask, similarly good co-incentives & a clearly detailed LP / bribe distribution plan in a subsequent proposal could be a good starting point for spurring additional growth on Optimism for Overnight & Optimism.

Note :- This proposal was also an edge case at it was included in the cycle round up thread after the defined deadline. As there is no rule or process defined for such scenario, committee is considering this an exception.

cc @_Max_plus

Our past recommendation is available on committee recommendation thread.

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We’re truly looking forward to get the best projects, teams on Optimism and to support new projects and innovative applications that can bring new users, liquidity or open up verticals for the Op ecosystem.

A larger project that has been around for some time, has 100s of Mio in marketcap and in assets under management, is likely to have a bigger impact in the near-term and give a better return on large co-incentives invested. On the other side, we don’t think you require millions in grant funding to launch an app and get initial traction to prove yourself - before co-incentivizing additional growth.

A comprehensive look at track record, AUM, active users, marginal value-add seems to make most sense.

These co-incentives look juicy. Hope to see a slightly adjusted proposal if you don’t get a YES this round. Good luck!

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The defi shadow committee which is not an official committeesupports this proposal.

Overnight have achieved strong organic growth by any measure on Optimism ($4.5M in a single month, several thousands of wallets, trading volume way above their weight), which is likely to continue as they launch their next wave of products across multiple partner protocols.

Their proposal is among the only ones to identify a target user segment, one that does indeed happen to remain active: the risk-averse stablecoin yield maximizer. We think there is plenty of meat on the bone here and see an opportunity to siphon a lot of interest from Mainnet.

More broadly, this is a killer team that’s hit the ground running on Optimism with little help, and they’re going after a user segment that remains active in crypto while promising to make more use of a range of DeFi protocols. Their core ask is one that we know lends enduring value-add to Optimism’s DeFi eco, and supporting ETS (i.e., increasing the headroom available) seems like a likely winner as well considering the consistent uptake.

They say they want to make Optimism an “innovation hub” — we take them at their word. We’ve seen an extraordinary amount of energy and engagement from them in the past month, seemingly everyone’s been hit up for a partnership, and they have a lot of ideas.

Sometimes it’s up to Optimism to show these standout teams that we’re open for business.

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Voted yes - Although this is against the Defi Committee C recommendation, the co incentives and the token distribution look really good and would definitely drive OP growth. I don’t see a downside so I’m in support of this proposal.

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I encourage delegates to follow @katie’s lead here in voting for the proposal, despite the official recommendation of committee b.

Overnight is a project that we helped attract away from Polygon and is definitely one we want to retain. They genuinely seem to have an innovative product on their hands and are a super sharp team. The “self-bribing” aspect of USD+ pairs on Velodrome is very impressive and will reduce the need in the long term for $OP or other incentives in order to attract significant stable TVL from L1 and competitive L2s.

If you haven’t already check out the shadow committee’s review here: DeFi Shadow Committee: Season 2 Recommendations - #14 by jackanorak

cc: @quix @linda @polynya @lefterisjp

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We at ScaleWeb3 would like to share a bit more insight to our reasoning - especially as @katie mentions there is no downside. We’ll just briefly focus on Op distribution:

  • 50% for Overnight products liquidity mining on Optimism (spread between Velodrome and Balancer)

→ one can discuss the value of liquidity mining but we are largely supportive of this part for a product that is currently gaining traction.

  • 25% for expansion of "+"and ETS product lines:

→ these products are very new & we’d like to see more traction before potentially incentivising products that may loose users money.

  • 25% for building insurance product

→ this is very abstract so far, probably makes more sense to resubmit in a follow-up proposal.

We felt strongly about this proposal not being at the standard of other proposals when reviewed. Part of this distribution is for products not well-specified and 400K Op is a very large Ask for a new project.

Meanwhile we joined a Discord AMA of Overnight which gave us more confidence in the team and we are sure a resubmission for the next cycle focusing on the first product & LM campaign somewhere in the region of 200K OP and future proposals re other products will be better for Overnight and Optimism.

That said, good seeing these discussions when they focus on the contents, seeing delegates not blindly following committee decisions and seeing generally support for Overnight from other builders in the ecosystem.

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Thanks. Great that you joined the community - we would welcome more people to our Ama on - it is every Monday at 3 pm UTC. Also would be glad to conduct the Ama for OP collective in OP discord

One point why considering why voting now could be an option is, unfortunately, OP price decline. We are offering 250k USD+ in coincentives and requested 400 OP, when it was very close to 400K USD. With current OP price, 400k OP grant just slightly exceeds the amount of coincentives.

With the market ‘reducing our appetite’, maybe, you can see it as request which has already been downsized by >25%.

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Thank you for doing the gatekeeping.

I want to mention that 100K on ETS was filled in a single day with just 16 address, all the rewards dedicated for ETS will go to them. 100K OP distributed to just 16 addresses . We request that ETS need some maturity.

50% or 200K OP is going towards development, to teams pocket without any plan of accountability. This was discussed with Max and he agreed to provide more information but as of now it will be major mistake to approve 200K OP going directly towards Team and 16 addresses getting 100K OP.

I don’t mind resubmitting, but just for the record: you are referring to OP/USDC ETS, which had to be capped to 100k.because of lack of borrowing options for OP (Granary has major liquidity constraints, creating very serious interest rate risk if we alleviate the cap and/or promote that ETS). It is so high yielding, that it needs no promotion and won’t be promoted.

we have multiple ETSes, including ETH/USDC based, with no caps at all. The plan is to promote those. For ETS, as it is a rebase token, we will establish pools of USD+/ETS on Velodrome, with no limitations to participate, and will promote ETS via bribing those pools. No club deals and no limitations. All will be super transparent and in your full control

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I have now counted six times in this thread that you or members of your committee have misunderstood or misrepresented details of the protocol or proposal and have had to be corrected by the proposing team. This makes it difficult to take your objections at face value or trust in the wisdom of your recommendation, even as I too believe more details in a few areas would be beneficial.

@_Max_plus would you be willing to speak in a bit more detail to @OPUser’s suggestion that over half of the grant is going directly to the team and 16 wallets?

Nono-Opuser looked in-depth at USD+ and ETS and understands it deeply and greatly. I had not specified ETS would go to Velodrome and be incentivized via bribes. That’s the best way, but not obvious to figure unless I’m specific about it - that’s on me.

We are in direct contact with Nono

@_Max_plus I’m referring to this portion. Delegates are actively voting right now and I’m trying to understand if you believe this is accurate as it is why he is recommending a no vote.

As I understood, the biggest issue was our ask for grant for development activities. Overall, I have been encouraged to reapply for LM incentives.

Although, obviously not waiting is better than waiting

Thank you, Max. Like discussed, with words changed and few additional information we will be at better position.

Its just sad that others are trying to drag you and your proposal in mud just to bring me down. Alex expressed his view and I expressed mine. I have seen your LinkedIn profile and you are in business for some time, think of this a office politics just more worse and sadly they are using your shoulder.

Anyway best of luck with the voting, I am seeing gatekeeping by Velo team and i pointed it out but now I will stay away from commenting further. If you get approval, stay with us and participate in gov as we we are in dire need of support from community and if not, tty in 8 days.

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The proposal as written is currently being voted on in Snapshot and could still potentially pass. As we are seeing with the Overtime and Dope War proposals looking likely to pass, the delegates are the final say and not the committees.

Your proposal has earned the support of both the Shadow Committee and at least one major member of DeFi Committee A. They did not share same point-of-view as Committee B rejection. That is why I’m encouraging you to clarify if you think OPUsers statement is accurate. Voters will no doubt check this thread before casting a vote, so if they read that it may inform their decision.

You are also free to simply concede the committee’s recommendation and resubmit if that is your preference.