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

It seems as if there is popular support for moving your proposal forward amongst delegates. Your project should not be punished for a governance system that is still working out the kinks.

Thank you, much appreciated. I think the system is totally fine. The confusion is on me, as I understood too late that the process changed vs. our first request.

We just went through the proposal, website, docs, analytics as we didn’t know of Overnight before.

Based on the proposal, we assumed your OVN token is already live but we couldn’t find it on Coingecko and your docs show some preOVN token and future IDO with tokenomics under development and missing links (for example to ovnstable.io).

According to DeFiLLama & Coingecko the USD+ token has 2.5M marketcap (TVL).

According to website & proposal, Overnight offers a USDC wrapper (USD+) & exchange-traded strategies (ETS) that achieve supreme yield from

  • Stablecoin deposits into lending protocols
  • Stable-to-stable liquidity pools
  • Protocol-owned liquidity

First thoughts:

  • Appreciate your proposal, deployment to Optimism, first pools on Velo, and consideration of Optimism as your innovation hub.
  • Communication focuses on “high yield”, “passive investment”, “low risk investment” as well as big roadmap & ideas. So far, there is little traction (6 &15 users in ETS strategies) though and the product, Op deployment & community look very early stage.
  • The Vanguard approach of simple investing has some merit. Other DeFi projects such as Yaxis also went for this at some point but mainly focused on creating a meta-aggregator of yield strategies. PoL for stablecoin pairs can be a solid yield source (See Alpha Homora). Probability of loss seems small but total value at risk could be all AUM in a pool with one asset moving away from 1 aka going to 0.
  • In our opinion, the USDC wrapper offers little additional value to spur Optimism growth and incentivizing its use at this stage might be a risk to Op users. The ETS product looks interesting but the daily payment if profitable seems strange - would like to see some more traction.
  • Having another stablecoin and potentially more innovative products on Optimism is worth a shot.

Possible improvement:

  • Ask is very high for size & stage of the project. You can compare it to a recent proposal for 31K OP tokens from Interest Protocol which was approved to speed up deployment on Optimism. A second Interest Protocol proposal over 240K OP for post-deployment is also on the forum but it seems too early to fund at this point in time. We believe an approach with a similar Ask amount to Interest Protocol Proposal 1 might be more suitable at this stage. Potentially also funding from another source in Optimism (or externally) makes more sense to advance development?
  • Token distribution plan should be more detailed & focus on ready products. You can submit a second proposal later-on.

We’d appreciate some insights to learn more about the project & proposal:

  • Can you explain point 3 in relevant usage metrics? USD+ trading volume? Who is trading it? Why (is it between BUSD & USDC)?
  • What is the current strategy for USD+ to achieve 10% APR. (See overnight.fi)
  • How is risk hedged in ETS Ruby (weth-usdc pool, 14% APY, 2k TVL) or ETH Garnet (USDC-OP, 29% APY, 100K TVL) strategy?
  • How did you come up with the 400,000 OP request?
  • Can you share more about the co-incentives?

thank you for the feedback and comments.

Overnight is VC funded, we have not issued the OVN token yet as it would limit our VC funding options. We are graduating from Berkley’s Xcelerator around 2nd of Novemeber and will then take the decision about the OVN-token public sale, which is likely to take place at the end of November.

We need to work better with DeFIlama, as the numbers you mention are obviously wrong. The metrics on Optimism as of this morning are

thank you for the feedback and comments. I am amswering below in the order of your comments/questions:

Overnight is VC funded, we have not issued the OVN token yet as it would limit our VC funding options. We also very much believe that the product should make sense without rewards (which USD+ has demonstrated), then rewards can be used temporarily to promote and scale it. We are graduating from Berkley’s Xcelerator around 2nd of Novemeber and will then take the decision about the OVN-token public sale, which is likely to take place at the end of November.

USD+ is not a USDC wrapper, it is a stablecoin that’s 100% collaterized by yield-generating strategies, made of the best quality stables deposited in high-quality protocols (mostly, not lending pools). USD+ magic power is its ability to generate yield in liquidity pools, e.g. inside Velodrome, thus making liquidity mining way more capital efficient. In a traditional pool you get fees and rewards, in a pool with USD+ you get fees, rewards and yield by USD+. USD+ is a rebase token, so we indeed provide a wrapper over USD+ that some people use for tax purposes, and is used by some protocols for integration purposes (e.g. wrapper is used inside Balancer’s boosted pools) )

We need to work better with DeFIama, as the numbers you mention are obviously wrong. The metrics on Optimism alone largely exceed what you mention and as of this morning are:
(a) TVL - 4.36M for USD+, 4,47M total
(b) Total number of active users - 287 for USD+, 307 total

Overall TVL 8.1M, total active users (hard to exclude duplicates) - roughly 3200, discord community 4,06K. It is a little weird that OP is now our largest chain… what has happened is that once we launched, our power users from Polygon and BNB have moved, in some cases completely, to Optimism - due to much more attractive performance and rates (see below). we have cannibalised at least 3M of our TVL from other chains

As far as trading volumes are concerned, in crypto-pairs USD+ is able to achieve same trading volumes as USDC. For example, wMatic/USD+ on polygon generates same trading volume as wMatic/USDC (as % of TVL). This is due to the ease of arbitrage of USD+ to USDC (in case of price discrepancy, an arbitrageur can take a flash loan in USDC, mint USD+, arbitrage wMatic, pay back flashloan;). On polygon we run our own arbitrage bots and generate b/w 10-15% of the volume. The rest is market volume. we look to achieve the same on OP, once ETH/USD+ and OP/USD+ pairs are established

On OP we have been generating way more than 10%.

The current portfolio is below

The risk in ETS is hedged 2 ways:
(1) Basis risk: the crypto asset is borrowed on AAVE (ETH) or Granary (OP) using USDC as the collateral.
(2) Impermanent loss: we run bots that rebalance the portfolio once there is discrepancy b/w the amount of OP borrowed and OP invested

You can see the current positions on ETS OP/USDC below

Please note that we had to limit the maximum on ETS OP/USDC to 100K because of limited liquidity to borrow OP. The cap filled in within 24 hours. Once OP borrowing is available on AAVE, we will eliminate the cap. ETH/USDC is small as it was only announced/launched yesterday; it is designed to yield 15-20% sustainably, but kind made no sense to promote while USD+ itself was yielding 20% average; Overall, ETS is a well-established product for us on other chains, with clear demand and traction

400K OP request is made of 2 parts:
(a) Liquidity mining program - based on the incentives we look to generate from our side over the next 6 months
(b) Development time required (and honestly, a lot of it already spent) on the deployment and new product development on OP

Current level of bribing is 3.5K USD+ (mostly on Velo); this is a sustainable level of bribes, meaning, these are bribes generated by USD+ organically, based on the current size of operation on OP, and they are sufficient to sustain the business. As we expect the business to grow by at least x5 and the yields on OP to go down to more sustainable levels by at least x2, USD+ will be generating about 8K USD+ of bribes per week; we are asking OP to match the bribes we will provide (8K per week) for the next 25 weeks - a total of 200K USD worth of liquidity mining rewards.

I understand the other part of the grant, dedicated to the development and R&D work, is hard to evaluate and control. we can discuss if it is valuable to be deployed on OP, adjust the ask or move the development elsewhere. On liquidity mining we are asking to match the bribes we will provide, so hope, that part you will find to be fair.

Wouldn’t something like QiDAO be a much better reference for the appropriate level of grant than Interest Protocol? At the time of proposing, they had $3.61m in Optimism TVL and it sounds like USD+ has $4.36m.

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@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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