July 28, 2022: Cautious Optimism 🥲🥃
A proposal to expand Curve on Optimism L2 meets resistance
Who’s suffering the hottest heat this summer? Quite likely the Optimism message boards, where a draft proposal has escalated into a flame war.
It started earlier this week when Curve’s freelance rock-star @WormholeOracle penned a well-articulated proposal for an Optimism grant, describing the win-win mechanics.
Optimism can benefit from Curve: stablecoin trades, low slippage v2 pools, Synthetix atomic swaps. Meanwhile, Curve users could benefit from Optimism’s low gas fees.
The proposal requests 50K $OP per week for rewards to incentivize pools. For some context, Optimism is the 12th largest chain, an Ethereum L2.
These mechanics somewhat mirror last year’s DeFi summer, when various sidechains were competing to emit the most tokens they could to attract volume to their chain. Avalanche announced $180MM in $AVAX rewards (which quickly jumped to $450MM after the news pumped their token). Fantom splashed $350MM. Harmony another $300MM.
This was a wild era when the printers were inked, money was loose, and DeFi was pumping. Reading through accounts of this bygone era, it’s striking how hard protocols fought to get Curve onto their chain, knowing the benefits its architecture can bring to DeFi.
Indeed, the history of the positive effect of Curve on the Avalanche rush would be cited in stellar research from the brilliant Benny
But enough reminiscing about the bygone era. It’s 2022, and we’re all poor and penurious. A request for ~$1MM worth of token incentives, which would have been considered meager by 2021 standards, has turned into a battle to the death.
Key to this is the role of Velodrome, which may also be familiar to boomers as the revival of the short-lived Solidly Wars. Velodrome took Solidly’s mechanics and relaunched the project on Optimism, where they’ve been ascendant, recently passing the $100M TVL marker
This has launched them into second place on the chain by TVL. They fall right behind Synthetix, and it appears the team is taking this rivalry quite seriously.
They also notably airdropped $VELO to Curve users, just as Optimism dropped $OP, in an early effort to attract Curve users to the platform.
Curve for its part has had a small footprint on the chain since launching, notching $17MM TVL on ~$1MM daily volume. On the list of chains where Curve has launched, it’s in the bottom tier by TVL.
Curve has only launched 3pool on-chain, with the remaining pools from factories. A TriCrypto could really spruce the place up, as it has done on both Ethereum and Arbitrum.
We presume a potential $OP grant would put the Optimism opportunity more onto the radar of Curve devs. We’ll have to see what happens though.
The first salvo in the battle came from Alex Cutler.
Boomer readers of this Substack may recall Alex Cutler from @WAGMIAlexander fame. He was the most avid follower of Convex bribe wars at their peak, producing the most detailed charts and analyses of each round. It made understanding the bribe wars a blast, and we’d feature his research half a dozen times.
The diligent work quickly earned him a promotion to the Velodrome core team. We presume him already familiar with the Curve mechanics from his erstwhile role as Convex analyst, so we presume this informed line of inquiry to be leading questions. The out-of-the-blue mention of Synthetix served as another possible tell that professional rivalries would quickly boil over.
A few explanatory posts flew back and forth, at which point unveiled his thesis. In an appeal to Optimism jingoism, Alex would hammer home the argument that $OP rewards would have an off-chain component: although the $OP rewards would stay on Optimism, participation in Curve’s governance on Ethereum mainnet.
Naturally, these arguments were rebuffed by Curve advocates, pointing out among other things that it’s an awkward concern given that Optimism and Ethereum aren’t competitive.
Fast forward two days, and the tense discussion would turn ugly.
Yesterday, the rivalry migrated from the Optimism forums onto Twitter.
You can read the full thread and decide for yourself, now that it’s bubbled up from a quiet forum post into the talk of the crypto Twitter town square.
From my smol-brain vantage point, I’d handicap that the opportunity to Optimism appears greater than the opportunity to Curve, but it still appears to be a winning proposal for all. We’d need to see about a 10x in TVL for Optimism to move into the next tier of sidechains. Even at this tier, it’s still small potatoes relative to Ethereum as sidechains have been having a rough enough go of late.
Meanwhile I do expect that Curve would expand the footprint of DeFi on Optimism. In particular, I’m beyond bullish on the power of TriCrypto as a base layer of DeFi.
For more context on the opportunity the proposal could bring:
Just as I’ve repeatedly affirmed about the alleged $CRV / $UNI rivalry, my overall opinion is that a larger surface for DeFi ultimately benefits everybody. More TVL from Curve users chasing Optimism rewards would only mean more total users and liquidity available for the fast hustling Velodrome to entice onto their platform. Nor is this just my hare-brained intuition, as we give the last words to the remainder of Benny’s dispassionate research:
The Velo airdrop claim to curve users lasted ONLY 2 days, which was supper stingy