[REVIEW] [GF: Phase1] Homora V2 x Ironbank on Optimism

Recommendation from DeFi committee C

Details

Detailed proposal focused on liquidity mining and protocol integration. Homora (Prima) was active throughout the cycle, indulging community by answering their query and adjusting their proposal on the basis of suggestion and feedback.

Value-Add
Homora attracts significant liquidity (17MTVL according to Defillama) and can improve liquidity on key pairs for Optimism. They outline clearly in their proposal which pool/assets will be added and how liquidity will improve. The builder incentives are rather large but focused with a direct impact on Optimism.

Traction
Not native to Optimism but the integration with UniV3 is new and unique. Initial pool selection shows a good understanding of UniV3 volume drivers, already accounting for half of USDC/wETH (0.05%) total TVL on UniV3. Activity on other chains has shown a consistent pattern of integration and resilience in the face of a downturn market movement. Comparing Uniswap V3 TVL for the last months shows it has been steadily in the 49 to 55 M range. Their track record for Liquidity Mining shows a TVL expansion to accompany them.

Amount
Incorporated feedback and reduced the amount to 684K OP - which is reasonable for the size of Alpha & impact of this proposal.

a) Type 1 (56%): Liquidity Mining to incentivize borrowing (384k OP)

  • OP = 11,000 OP/week
  • ETH = 5,000 OP/week

b) Type 2 (44%): Builder grant for protocols on top of Homora (300K OP)

Intention to forward 3 large grants to 3 affiliated projects (Sharpe AI, Blue Swap Labs, x) which build yield strategies on top. They will use Op to incentivize growth which seems beneficial to Optimism & Homora.

OP Distribution
Good time-frame and reasonable weekly distribution

  • Liquidity incentives: 16K Op per week for 6 months
  • Builder grant will also be distributed over min 3 months

Co-incentives
Iron Bank will offer 45K IB Tokens ~154k USD at the moment of review. They represent around 40% of total liquidity ask which is rather low compared to others.

Alignment
Alpha seems to be very aligned with the Ethereum ecosystem as a whole and Homora implementation is a building block on top of many DEXs AND Iron Bank for additional yield strategy protocols.

General comment regarding Open Source, Homora has stated they will not open source on the short term, as a measure of security with its users.

KPIs
Clearly defined

  • Liquidity gains & TVL share
  • Support of key assets/pairs
  • Ecosystem integrations

Recommendation :- Yes
This proposal is focused on increasing liquidity along with protocol integration.

Our past recommendation is available on committee recommendation thread

1 Like

The Synthetix Ambassadors voted NO on this proposal despite the Committee recommendation, reasoning as such:

  • Closed sourced DeFi protocol, siting security risks as justification, is a red flag for us

  • It’s not clear how 56% of the incentives will be used. The proposal references incentivizing Iron Bank lending and Homora leveraged yield farms but isn’t clear how much will go to either. The current description suggests it will be used to reward the folding of ETH and OP on Iron Bank, which in our opinion doesn’t bring any sustainable value to Optimism.

  • The builders allocation doesn’t make much sense if Homora is closed source and building on Iron Bank is not a tremendous achievement since IB is a generic Compound v2 fork.

2 Likes

Is the code completely closed, or is it source available? At a brief read, I didn’t really understand what this protocol (Homora V2) does - which is why I was deferring to committee recommendation.

1 Like

Alpha is building a DeFi suite and incubating various projects.

  • Homora is their core product: Leveraged yield farming incl. integration with Uni V3 as well lending incl. integration with Iron Bank (protocol to protocol lending where IronBank provides excess liquidity for leveraging on Homora V2)
  • The 56% go to the specified lending pools (optional to adjust based on demand). Alpha has asked Iron Bank (their exclusive partner) to add co-incentivizes to the OP received.
  • Benefits incl. a top protocol moving liquidity and users to Optimism (#1 for leveraged farming in the past with their v1), Op token sink, a potentially more sustainable adoption due to protocol to protocol use case moving to Optimism, as well as Homora de facto becoming a building block and onboarding at least 3 more innovative projects to Optimism (focus on uni v3 liquidity optimization).

Closed source issue was mentioned a couple times also by @OPUser. @prima pls clarify once again.

Edit: Only some part is closed source to our knowledge. See docs for lending integration & special whitelist/integration requirements for leveraged yield farming: “v2 lending can be integrated straight away” but leveraged yield farming requires some requirements for additional safety considerations". Github

2 Likes

Homora is essentially a yield aggregator which specializes in leveraged strategies. On Optimism the leverage strategies available revolve around UniswapV3 positions. However the primary beneficiary of this proposal appears to be Iron Bank which is a generic Compound clone that has seen diminishing usage on every chain it’s deployed on.

2 Likes

what are the three innovative projects you’re referring to

are you referring to the dev grant program and what they say here

can you tell us what these projects might offer

Yes, most of our info also available in this thread.

Pls feel free to do additional due diligence & vote accordingly.

so you saw that sharpe.ai is verifiably an alpha dao portco and i’m guessing that blue swan is as well? Did you examine what they might be offering and question whether there might be a hint of self-dealing there?

or did you simply copy-paste what was in their proposal?

Again, read thread and assessment. And pls stop spamming another thread. You can dm me anytime

Voted no - I’m going against the committee recommendation here but I share the same concerns around half of the funds going to builder grants for a closed sourced protocol. I do appreciate the engagement from the Homora team, however, I do not support this proposal.

1 Like

I’ve now gone through the proposal & thread in more detail. As I understand it, the ~56% is for liquidity mining, and ~44% is for builders incentives on top of Homora - so not directly incentivizing building a closed-source protocol. I don’t have a big issue if the protocol is not open source (e.g. business source is acceptable in certain cases); however, it’s not acceptable if parts of the protocol aren’t readable outside of the developers. I’m changing my vote to Abstain, until there’s further clarity. In general, if a protocol is “closed source now but planning to open source soon” I’d recommend waiting till it’s open sourced (or, at least, source available if opting for an alternate license) before applying for a Gov Fund grant.

3 Likes

I’m going against the DeFi committee recommendation and voting no on this proposal. I don’t like that this involves a closed source DeFi protocol (at least major elements of it are closed source from what I’m understanding in this thread) and suggest requesting funding later on once it becomes open source.

I will have to go against committe recommendation here and I agree with @millie.

I am voting against. Iron bank is a project with almost no users, and supporing a closed source (fully or partially) is a big no for me.

Hi, thank you everyone for the additional comments. While we understand the community’s concerns, we would like to use this opportunity to share our perspective and answer all the concerns raised as thoroughly as possible.

  1. Why Closed-Sourced?

First of all, we understand that protocol being open-sourced is highly valued in the Optimism ecosystem, however, we would also like to mention that being closed-sourced doesn’t equate to increased security risks as well. This decision made on our end is to provide another buffer layer for security to make our protocol safer.

To provide more context, we’ve had an exploit happen before on V1 when we first launched on Ethereum. Since then, we have been trying to make extra cautions to prevent any potential hacks from happening again. As a result of this incident, we believe having our protocol closed-sourced would be the best way to ensure the highest security (for now). To further strengthen the security, we performed several audits when we relaunched V2 on Ethereum with Peckshield, Quantstamp, and Openzeppelin. As for the audits on other chains, despite those chains are EVM-compatible and not much of the code is changed, we still sent the code for audit. Our audit report for Optimism is hare: Optimism - Homora V2

Our team has been building in the DeFi space since 2020, deploying first on Ethereum and being the first to come up with the concept of leveraged liquidity providing. Our goal to innovate has never changed and we have been consistently bringing yield opportunities across different key chains to users, and Optimism is the first L-2 chains our protocol went live on. This can be evidently seen with our organic TVL peaking at 35M when we launched on Optimism within the first month and being the first leveraged liquidity providing protocol to integrate on top of Uniswap V3.

To clarify, our code is not fully closed sourced; we are willing open source to those who become key partners of Homora or necessary to have access to the full code. This has already been the case with Iron Bank. The code is given more on a necessary-basis to make sure that the code will not be exposed to other potential security risks.

By keeping it closed-sourced, we believe this can greatly reduce any malicious acts from potential hackers or external parties. We believe most of users who are interested in interaction with our code would only fall 3 main categories: 1) Key Partners 2) Integration Partners 3) Malicious Actors

For key partners, such as Iron Bank, they currently have access to our private repo, which gives them access to our full code as it is required to ensure Homora functions normally.

For integration partners, we give them necessary public resources to integrate with us.

For malicious actors, by keeping it closed-sourced it greatly reduces any opportunities for them to tamper with the code or come up with potential hack.

With all that being said, we also understand the importance of protocols being open-sourced. Thus, we make sure that we are as transparent as possible from other angles. Our team is fully doxxed with Tascha as our Project Lead and Nipun as Tech Lead. Our whole team is fully committed to bringing value to the Web3 ecosystem and you can see Tascha actively engaging with people in the Blockchain industry through various conferences and talks.

If there is a need for any additional clarification or further information, we are happy and willing to hop on a call.

  1. Clarification on how the $OP Grant will be used

A) Type1 request for LM (56%) and how it will be used

  • All 56% will go to lenders on Homora (already mentioned in the proposal but here’s a recap):

  • Type1: ~56% of granted OP tokens (~384,000 $OP) will be allocated to users as promotional liquidity mining rewards to help bootstrap liquidity at launch in addition to the organic usage. The tokens will be allocated to Supply Pools at a fixed rate of a 16,000 OP tokens per week with the distribution rate at start as follow:

    • OP = 11,000 OP per week
    • ETH = 5,000 OP per week
  • The rationale behind using 56% to incentivize only on the lending side for OP + ETH:

    • To us, lending also represents a way to stake asset and keep the supply circulating in the ecosystem. Moreover, by incentivising more supply on the lending side, it can help keep Homora V2’s utilization rate at an optimum rate as it will ensure borrowers can still open leveraged position at a reasonable interest rate. As borrow interest lowers, farming with leverage will also yield higher APY, incentivizing more borrowing to perform leveraged yield farming activities (positive loop).
    • This also benefits and make it easier for other builders to build leveraged strategies on Homora V2.
  • The rationale behind NOT incentivizing the borrowing side:

    • We received feedback and concerns when we allocated a portion on the Homora’s borrowing side. Thus, we decided to incentivize borrowing activities via Type2 – Builder’s grant instead which will encourages more vaults and strategies to be built from other integration partners. This will enable users to earn yields more easily with just one-click deposit through vaults. We believe this will be a way to use OP grant more sustainably while making DeFi more accessible to new/inexperienced users and onboard them to Optimism ecosystem as well.

B) Type2 request for Builder Grant (44%) and how it will be used

  • Purpose of the Builder Grant:

This is dedicated to bring partners who are not currently building on OP to enter the ecosystem, potentially helping to bring more liquidity inflow and activities to Optimism from users on other chains as well as more yield opportunities and DeFi use cases available. Many protocols we are currently looking at are active liquidity management protocols that can diversify user strategies and lower risk levels while offering high returns.

As mentioned in the Type1 request, the dedicated will help keep the borrowing costs at the appropriate level, making it easier for builders to build on top of Homora at the same time.

  • Process of Evaluating Builder:

Although we mentioned in the proposal that it will be on an FCFS basis, we still carefully evaluate each team with due diligence to make sure they are a team with a trustworthy background and their product will bring value to the Optimism ecosystem.

As for Sharpe.Ai, it is a project incubated under Alpha Ventureo DAO in our other arm. However, they have also undergo the same screening process and demonstrated the potential to provide value to Optimism. If they are one of the 3 protocols to finish integration first, then they will be eligible to receive the grant as well.

  • How We Ensure Builders Bring Value To Optimism

For builders to receive the grant from us, they must agree with the requirements provided by us, which will mainly be to incentivize on-chain activities, contribute to increasing TVL on Optimism.

Builders must also use the grant correctly (i.e not use the grant for audit cost or operational cost) and distribute in a span of at least 3 months to avoid $OP supply from burning too quickly.

Current Milestone/Expectation With Confirmed Builders (Which we already mentioned above but will recap again):

  • Blue Swan Labs — They are building PDN vaults on Homora’s leveraged Uniswap V3 ETH/DAI and ETH/USDC pools to start with, aiming to launch the beginning of next year.
  • Sharpe.AI — To start with, they are building strategies vaults on Homora’s Uniswap V3 stables and volatile pools. They aim to finish development and testing by the end of November.
  • Aperture Finance (tentative) — We are already in discussion and the team is currently exploring the feasibility of building with Homora V2 on Optimism and have just proved their PDN strategy at ETH SF Hackathon.

*Note: They are currently only building strategies on the available listed pools on Homora V2. As we plan to list more pools (that match our listing criteria) in the future, there is the possibility of these builders expanding strategies to other pools on Homora as well.

  • How We Can Ensure Full Transparency of Builder Grant Usage:

In the past, we’ve always opened a separate wallet for grant rewards. For Optimism, we plan to do the same when distributing the OP grant. We will agree with all builder grant recipients to use a multisig wallet and ensure that all the OP grant usage will be traceable on-chain.

  1. Integrated with only top DEXes ie. Uniswap V3

Although Homora is currently only integrated with Uniswap V3, this does not mean we are not open to adding pools from other DEXes. When we list new pools, we have several hard criteria that need to ensure the pool can be leveraged while ensuring high security. To give more context, we have already explored and reached out to other DEXes on Optimism, including Velodrome and Beethoven X:

  • For Velodrome, the pools that pass our security criteria (can refer to full doc above) are currently unable to be leveraged, thus unable to benefit users.
  • For Beethoven X, many of the assets within the pools are Beethoven X-native without oracle price feed (yet), thus we are unable to list them for security reasons.

As long as a pool matches our listing criteria and offers opportunities to be leverage, we are open to working with other DEXes from the ecosystem.

cc: @millie @polynya @ScaleWeb3 @jackanorak @linda @lefterisjp @OPUser @GFXlabs

1 Like

really appreciate the level of care and detail in this response.

Can you please describe the nature of your relationship with Aperture and Blue Swan Labs?

So I’m not sure if you’re aware but Tascha and another member of your team reached out to me about my position on this proposal, so I followed up with a call today.

I’ll summarize my comments from the call here as well for visibility:

  • I am a big fan of Alpha Homora, followed the project since launch in late 2020, we even hosted Tascha for an AMA in the Synthetix discord.

  • NOT a fan of Iron Bank, they were an uninspiring spin off from a CREAM <> Yearn collaboration back in early 2021

  • Iron Bank seems to be the main beneficiary of this proposal

  • A “folded ETH/OP” automated strategy is not really worth all those incentives as it brings little value from a liquidity stand point

  • In good faith I CANNOT endorse incentivizing deposits into contracts that are not verified on etherscan (Open source licence is not required, only public contracts)

  • The builders allocation goes to projects which should be applying for their own grant

  • If Alpha Homora had public contracts, I could support an open ended builders allocation for any project that does build on Homora (if that ends up being the projects mentioned in the proposal that’s fine)

  • I find your approach to security by “obscurity” to be quite negligent given that the exploit from 2021 was specifically from an Iron Bank <> Alpha integration that used non-public contracts!!!
    Sound familiar? CREAM and Alpha Finance Get Hacked for $37.5M - The Defiant

As I recommended to your team member, I would be happy to help Alpha Homora integrate with Optimism to expand on the leveraged UniV3 strategies, if the contracts are made public.

4 Likes

I voted NO against the current committee recommendation because the code is closed source. With so many excellent open-sourced DeFi protocols to choose to support with ecosystem funding, I do not believe at this time that this proposal should be accepted.

Snapshot vote - not passed