OP Grant Proposal
This proposal is looking to approve the usage of and earmark the first spending of the OP incentives granted to the protocol by Optimism. Early in June 2022, the DAO was granted 1 million OP tokens to incentivize growth and usage on Optimism. That governance proposal can be found here.
Optimism is a fast, stable, and scalable L2 blockchain built by Ethereum developers, for Ethereum developers. Built as a minimal extension to existing Ethereum software, Optimism’s EVM-equivalent architecture scales Ethereum apps without surprises at a fraction of the cost.
Synapse launched support for bridging into and out of Optimism 10 months ago and has hundreds of millions in volume to the L2 so far. Providing incentives on the chain in different forms can be a catalyst for the protocol to acquire more users, more volume, and help the protocol be a blue chip project on the growing chain.
How will tokens be distributed?
The Synapse Ecosystem has a few core constituents:
- Liquidity Providers
- Token Holders
Synapse’s proposed $OP distribution will benefit all of them.
Amount: 150,000 $OP
As an extensible cross-chain communications network, fostering an ecosystem of developers who create cross-chain enabled applications is our top priority. Since Synapse connects Optimism with 15 different unique blockchain ecosystems, more applications/projects built on top of Synapse translates into more potential user pathways into Optimism.
While Synapse contributors continue to build new open source developer tooling and release new documentation, there will also be a Grants program launched to encourage more community members to help build and grow the Synapse Protocol. As part of this grants program, Synapse contributors would propose to use a portion of the $OP to fund any community tools or applications that help users on other chains connect with Optimism and more generally help existing Optimism projects better tap into cross-chain liquidity.
Liquidity Providers & Users
Amount: 450,000 $OP
Synapse currently supports two stableswap pools for bridging into and out of Optimism:
To date, Synapse has seen nearly $500m in Optimism volume
Synapse currently incentivizes each pool with close to 12k SYN (around $16k) per week, or roughly 624,000 SYN (around $850k) per year and has over $10m of TVL across both pools. Given the stablecoin pool was launched more recently, it only represents 20% of Synapse’s Optimism TVL.
Synapse plans to use a portion of the $OP to incentivize the existing stablecoin pool on Optimism to create a much deeper pool for users to trade / bridge into.
The more liquidity supplied in each pool, the cheaper it becomes for users to bridge between chains due to a reduction in slippage. This is important as its quite clear that quite a lot of users have a preference to use stablecoins as a medium for bridging, rather than ETH. As the Optimism ecosystem continues to grow, users will need a seamless solution to enter it, and Synapse intends to be that tool.
Additionally, along with the new OP incentives, Synapse contributors intent to add a way for the bridge to tap into USDT/DAI/sUSD liquidity already existing in other Optimism protocols to offer more ways for users to seamlessly bridge funds between Optimism and other chains. Additionally, by having Synapse tap into liquidity already deployed across existing Optimism protocol, this collaborative approach will maximise the capital efficiency for Optimism as a whole.
Amount: 400,000 $OP
Historically, most SYN liquidity has lived on a number of Ethereum based pools, namely SYN/ETH, SYN/FRAX, and SYN/USD. This has priced out a lot of prospective holders given the gas fees. In an effort to make it more affordable for users to acquire and trade SYN, this proposal sets out to create a new SYN/Stablecoin pool Optimism. As the Synapse network continues to decentralize, it will be imperative for there to be affordable venues to acquire SYN and participate in the cross-chain message validation process.
A portion of the $OP will be geared towards incentivizing this pool to ensure proper liquidity. As soon as liquidity is sufficient, a strong influx of users onto Optimism is expected. SYN tokens are currently being emitted on over 10 chains and lots of liquidity providers, especially small to medium sized ones, do not necessarily want to pay ETH gas fees to trade their rewards. Bridging SYN to Optimism to trade it will become natural for those liquidity providers, therefore leading to a large influx of new wallets on Optimism. Additionally, that pool will constantly be arbed vs. other SYN pools existing on Mainnet (including SYN/ETH where the price depends of ETH) as well as SYN liquidity existing on CEX, leading to an additional pick-up in activity and transaction volume on Optimism.
There are several opportunities to expand SYN liquidity on the chain, and a proposal to delegate some of these funds can be found below.
Incentivizing SYN liquidity on Velodrome
Velodrome is a native Optimism protocol and one of the most widely used AMMs on the chain with around $55m of TVL. Velodrome is designed as an Optimism public good and ensures that bribes stay within the Optimism ecosystem by going back to $veVELO lockers. As such, it is the ideal candidate to direct OP incentives received from the grant to incentivise SYN liquidity on Optimism
This is a proposal to suggest the spend of 7k OP per week over the next ten weeks to achieve a SYN/USDC pool with a depth in the range of 1-1.5m (dollars). At the end of that period, the DAO can review the success of the pool (usage, marketing and community benefits) and decide to either continue spending incentives or to halt the program and consider deploying these incentives elsewhere on Optimism.
Currently there is next to zero SYN liquidity on the chain (55k SYN as of this post). Moving forward with this would allow an actual community around Synapse to exist on Optimism
How will the distribution incentivize usage and liquidity on Optimism?
- More tools and applications built leveraging Synapse means more avenues for users to enter the Optimism ecosystem.
- Additional liquidity incentives for our Optimism stableswap pool will increase Optimism TVL, in turn making Optimism one of the most efficient venues to trade stablecoins through. The more TVL that enters the ecosystem, the better it is for users, and the more potential users that Optimism can lock into their ecosystem.
More Optimism Users
- With the SYN/Stablecoin pool on Optimism, more users will enter the ecosystem in order to 1) more affordably trade SYN and 2) bridge their SYN and stablecoins into Optimism. Both equate to more Optimism users and TVL.
Why will the incentivized users and liquidity remain after incentives dry up?
- All of the projects that are funded by our grants program will persist long after the $OP has been used. Many of the developers that are onboarded through the grants program will be exposed to building on Optimism, and may end up dedicating more time to building future projects in the ecosystem
- Synapse TVL has been much stickier relative to other networks. Liquidity providers, users, and traders of our Optimism pools to be quite sticky.
- The SYN/Stablecoin pool being proposed will very likely be the most affordable avenue for users to trade SYN far after the incentives are done as all of the main liquidity sources still lives on Ethereum. By using the OP incentives through Velodrome, the proposal ensures those OP incentives and the trading fees associated to the pool stay within the Optimism ecosystem