[RFC 4] - Reallocating liquidity to Optimism

Summary

Outlined below is a strategy to reallocate liquidity from Ethereum and Polygon to Optimism for growth purposes. With assistance from an Optimism Grant, incentivizing liquidity will be cheaper and drive larger volume and adoption of POP and Popcorn products.

In their own words, “OP is the token for the Optimism Collective that governs the Optimism L2 blockchain. The Optimism Collective is a large-scale experiment in digital democratic governance, built to drive rapid and sustainable growth of a decentralized ecosystem, and stewarded by the newly formed Optimism Foundation. OP governs upgrades to the protocol and network parameters, and creates an ongoing system of incentives for projects and users in the Optimism ecosystem. 5.4% of the total token supply will be distributed to projects on Optimism over the next six months via governance. If you’re building something in the Ethereum ecosystem, you can consider applying for the grant.”

Motivation

Beyond focusing on open, immutable web3 solutions, Optimism and Popcorn share a vision of doing so in an equitable manner. Optimism implemented the RetroPGF initiative to “level the playing field between profit-maximizing startups and nonprofit/OSS projects.” This initiative invited community members to nominate projects and has delivered $1M+ to projects that do not have the advantage of profit-seeking projects’ external investor attractiveness. Similarly, Popcorn is focused on creating “yield that counts” by redistributing DeFi capital to social impact organizations. Popcorn does so by allocating a portion of fees to a social good grant reserve, and enabling POP holders to use DAO governance to elect and select organizations. To date, Popcorn has distributed funds to Unicef Cryptofund, Pathways to Education, Panthera, Rhino Ark Foundation, and Rock Your Life.

Furthermore, the focus on creating impact beyond financial returns has led to the growth and sustainability shared by the two projects. In 2022, while the overall DeFi TVL has decreased from ~$205B to ~$60B (-~71%), Optimism’s TVL has increased from ~$350M to ~$965M (+~275%) and has attracted 79 DeFi projects. In the same bear market conditions, Popcorn has amassed a TVL of ~$3M, expanded to 4 chains, launched on a centralized exchange, and collaborated with a major brands and protocols to support the mission of social impact and web3 fundamentals.

The fundamental importance of blockchain infrastructure and yield optimization provided by Optimism and Popcorn shields them from negative macro trends, and the proven focus on social impact and equitable capital distribution have led to and will sustain an upward trajectory.

Strategy/Approach

Reallocated liquidity from our USDC/POP Ethereum and Optimism Uniswap pools will fund two growth initiatives:

(1) Alpha Research Group (ARG)

ARG will be an organization dedicated to R&D for Popcorn products to deploy on Optimism, focusing on: Single-asset vault strategies, yield bearing stable and non-stablecoins to incorporate into products, and POP & OP rewards to incentivize liquidity. Currently, Popcorn vaults have exposure to a variety of stablecoins including sUSD, DAI, USDC, USDT, agEUR, EURT, EURS, RAX, RAI, mUSD, alUSD, and 3CRV (USDC/DAI/USDT). On Optimism, similar vault strategies can be developed using stablecoins popular on the network such as USDC, sUSD, MAI, TUSD, MIM, LUSD, DAI, USD+, aUSD, and more. Additionally, single asset vault strategies for key network participants can be developed such as OP, VELO, WETH, BIFI, AAVE, UNI. Lastly, ARG will research ways to optimize strategic impact of POP and OP distributions using precedents set by protocols with live incentives such as Synthetix and Velodrome.

(2) Build POP Optimism liquidity

There are two leading approaches to how we intend to build liquidity for POP on Optimism, and ARG will be tasked with in depth analysis to drive a decision. At a high level, the two options are:

(2a) Uniswap

The most immediate solution would be to migrate USDC/POP liquidity from Ethereum and Polygon to an equivalent pool on Optimism.

(2b) Velodrome

  • Alternatively, Popcorn can utilize Velodrome, currently a key partner of and the third largest protocol on Optimism. An outline of a possible POP strategy utilizing Velodrome’s current incentives:
  • Pair POP with USDC, sUSD, or another stablecoin - ARG will analyze tradeoffs that maximize liquidity, yield for LPs, and facilitate the intended use cases of the tokens
  • Using reallocated liquidity from Ethereum and Polygon Uniswap pools, buy and lock 2M VELO at $40,000
  • Receive 20-30% rebate in OP. ARG will determine best use case for OP such as swapping to VELO and bribe, airdropping to POP holders who have LP position in stable/POP pool at snapshot, or simply stake in ecosystem
  • Use 2M veVELO position to vote for stable/POP pool and incentivize liquidity, which triggers a Velodrome vote boost of 2M
  • Transfer remainder of protocol-owned Ethereum and Polygon Uniswap liquidity to Velodrome stable/POP pool to initiate liquidity and earn a portion of boosted VELO emissions
  • Since all capital was originally purposed for liquidity provision, the earned VELO will continue to be staked for veVELO to increase voting position and incentivize growth of stable/POP pool
  • This has a symbiotic relationship of growing the use of Velodrome and Optimism

Summary

Migrating protocol-owned liquidity to Optimism, along with applying for an Optimism OP grant, will allow Popcorn to efficiently incentivize liquidity and fund strategic R&D. These initiatives will lead to protocol growth and ultimately contribute to Popcorn’s ability to grow the social good grant program.

4 Likes

I support creating ARG for r&d on products on Optimism. Sweet Vaults on Optimism are the lowest hanging fruit in terms of research and deploying products on Optimism right away.

Popcorn and Optimism are very much mission aligned and it seems as we can amplify the level of impact we create by donating a portion of our fees and using Optimism to reward public goods at the same time.

I also think incentivized liquidity on Optimism will have a greater effect on a protocol that will help promote Popcorn’s mission.

3 Likes

Detailed and well-put strategy. We should be looking to incentivize pop stakers with OP grants. We could possibly even give out lock bonus

You should package this into the Optimism Grant application. Kind of a no brainer. Pretty sure you’d be approved.

Well laid out strategy Alec. Deploying vaults on Optimism is something the team has been looking into recently. Popcorn and Optimism’s mission align, Optimism has a robust defi ecosystem and large and active community so it’s a no brainer.

1 Like

This proposal is certainly mission aligned with Popcorn. In addition to creating a way to optimize yield while simultaneously creating positive impact, Optimism is based on blockchain first principles and is energy efficient with an awareness of its carbon impact.

1 Like

I support the proposal (good idea and well-defined description here) and would agree that it makes sense to create an OP Token Grant for this (similar to what Curve already did Curve Finance Seeks One Million OP Token Grant from Optimism)

1 Like