Thoughts on grants, current stage of market & Optimism and the Velodrome proposal
- The first grant assessments offer good insight on little initial success. Despite not agreeing with all takeaways as it’s too early to call initiatives a good or bad idea (Execution!), we can already tell that focused grants to top projects have a big short-term impact and we should run smaller, much shorter experiments, and more clearly scoped grants to derive more learnings.
- It’s no surprise that some highly flawed retroactive grants were not successful & user onboarding has generally been slow and expensive when there is very little general user interest in crypto
- Sustainability and long-term success of each of the grant proposals is yet to be seen.
- There is lots of entitlement from proposers and high Asks justified by previous grants instead of looking at marginal value added and long-term value
- Grant rounds have been rushed. There should rather be continuous grants & different tiers with varying requirements for applicants depending on the size of the grants.
Current Stage of the market & Optimism
- Crypto is not a sprint but a marathon – despite some investors claiming otherwise in bull markets.
- We know 5-15 of the top crypto teams today. It’s early days but we expect some of them to continue to outperform while completely new teams will join and overtake tier 2, 3 projects.
- Optimism is a $200M marketcap project. The grant amounts signal it’s a Multi-$B project already.
- Crypto has the lowest trade volume in a long time and top projects, for example DEXs, have not yet fully moved to Optimism. Therefore, current market shares and the long-term importance of projects should not be overstated. ( → Avoid drawing premature, wrong conclusions)
Questions: Phase 1 Evaluation & Strategy going forward
- Politics & Governance Theatre
- Lots of unnecessary debates are tiresome & turn off genuine contributors
- Real goals (great product, ecos, Op, impact) are consequently not central in the Op ecosystem
- Expensive traction
- Optimism bought some initial traction in this market; some liquidity & users will stay for a while
- There are few dedicated builders & innovative apps onboarded to Optimism so far
- Stop the waste
- There should be ongoing grants run by a dedicated vehicle with some autonomy & clear KPIs (we like public discourse but in Op it’s ineffective to say the least; OP will be siphoned away)
- Projects should not benefit from multiple grants at the same time (Don’t give a grant to a project for DEX liquidity and to a DEX for DEX liquidity incl. that token pair…)
- Long-term, continous incentive distributions are not effective (Why are there still projects ineffectively incentivizing user liquidity on an Uni v2 fork with insig. trade volume each day?)
- Run small, lean experiments (2-6 weeks marketing, incentives, etc.)
- Don’t overoptimize meme KPIs such as TVL. Liquidity is key but a moving target if not effective.
- Important decisions: Focus ( → Sustainable growth)
- Is this the right time to focus on liquidity/user incentives or dev grants?
- What is the right vehicle for diff grants and support programs?
- Which incentive designs are best? ( → new Op Foundation team, should collab with ecos
) - Do you want to give first-movers to Optimism more advantages/funds now? Do you think that will pay off more or might it potentially hurt long-term adoption?
- What are the top projects that contribute most today, in 3y to OP?
- What is the biggest value-add from different stakeholders on Optimism? How to optimize that?
- Do you want ecosystem teams to opt-in to lock-ins at this early stage of Optimism?
- What’s the best way to incentivize future growth of projects & communities in the OP ecosystem?
We think Optimism (Gov) should double down on the most important ecosystem stakeholders in the long-term but focus on clearly scoped incentives in the near-term!
- Early movers require bigger incentives than late adopters (Grant Amounts, APYs, etc.). There is no need to overoptimize this though as opportunists, yield hunters, grant hunters today will likely not add unique, sustainable value but hurt future, potentially bigger contributing projects. This means Optimism should more carefully look at marginal value added from projects & proposals from now on and put an additional focus on onboarding the best teams.
- This gov fund can & should be utilized for liquidity goals as much as for onboarding important building blocks, top teams, adding users, communities, building public goods
- Offering top teams 2-5% of the total gov fund in the next 5 years can pay off!
Velodrome Example: Why 4 MILLION OP is a way too large Ask for Velo today *
- Incentivizing partially idle sitting TVL & high farming rewards to certain parties (early partners in the Velo ecosystem) will not offer as much return for OP today as it can in a bull market.
- Velodrome played a significant role in onboarding projects. The economics offer some lock-in for partners to Velo & Optimism. This can help with kickstarting the ecosystem but we are not convinced that the protocol is competitive in the long-term with the most efficient DEXs. Op should be careful of incentivizing liquidity & lock-in at this point as it will hurt projects, Op efficiency, users.
- There are positive signs with Velo but we don’t see a full-scale liquidity flywheel taking off. Quite a few of those positive signs (for example user activity) can be attributed to the central positioning in the ecosystem, the previous grant and the resulting support for more protocols than other projects.
- Spending almost 2% on liquidity incentives (TVL growth) of 1 DEX project should lead to activity & sustainable growth with high certainty. Currently, many DEXs are starting liquidity incentives on Optimism, effectively competing for the same USD. Optimism needs to find the best use of funds - not favor one over others & potentially lose in the long-term. If Optimism doesn’t have certainty on the best use, Optimism should run smaller scale experiments until we know.
- We can compare Velodrome to Sushi’s Onsen pools (at the time: Uni v2) to onboard & bootstrap new projects to Optimism. Consequently, it would make sense to give Velodrome another, smaller grant to enable them to keep onboarding more teams & pools (don’t focus too much on lockup & liquidity incentives) while making sure to also welcome and better onboard Uni, Arrakis, Curve, Sushi & Co to Optimism and building an ecosystem-wide liquidity plan.
- Without going into more detail, the mentioned co-incentives are directly bought with Op. Lots of projects got an OP grant to run incentives on Velo. Now Velo asks 4M OP (100K+ OP/week) to match their bribes or build liquidity. This is not how you grow an ecosystem.
- In our opinion, a grant of 500K OP would go a long way in onboarding new projects.
*We don’t understand how a committee can Abstain. That said, won’t engage in further Velo discussions.