TL;DR:

• Optimism Collective Governance Fund Cycle 4 is comprised of nine proposals representing 2.4% of the Governance Fund $OP token allocation. This is ~$9.0m USD at time of drafting (July 29, 2022)
• I voted for five of the nine proposals, which represents 2.99m $OP tokens or ~$4.8m USD at time of drafting
• Proposers are not required to match incentives, however, multiple proposals express a matching budget which delegates are relying on when evaluating FOR or AGAINST. The Optimism Collective should work with approved proposal teams to put a framework around the matching mechanism BEFORE $OP tokens are funded, so that this does not become a point of contention
• I think a positive feature of public blockchains is that protocol performance and activity should not be a mystery. If delegates know how to access archive nodes or on chain analytics platforms (and time permitting for customization), back and forth commentary about protocol size and historical performance can be triaged with purpose built dashboards (shared publicly or token gated for delegates)

If you like my process, or if you hate it, let me know! Reply to the companion TWEET to this post.

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Optimism Governance Fund Overview

For more information on the Optimism Governance Fund, see my first post on the topic HERE or the Optimism Collective documentation HERE.

For the results of cycle 3, refer to the Optimism roundup HERE.

Cycle 4 / Phase 1 round 3 overview

Cycle 4 voting concludes on August 3, 2022 at noon PT. Cycle 4 is comprised of nine proposers who are requesting 5.59m $OP tokens, which represents 2.4% of the total Governance Fund token allocation or ~$9.0m (@ $1.61 OP) at time of drafting this post.

The Optimism roundup for cycle 4 can be viewed HERE.

Scorecard approach explained

As previously highlighted in my cycle 3 post, my goal with the scorecard approach is to hold myself accountable as a delegate and put forth a transparent framework as to how I evaluate proposals. Both the topical factors I evaluate and the evaluation output are clearly subjective, but I think this approach will prove less controversial than an opaque evaluation and a declaration along the lines of:

I like the protocol! Glad to see them on Optimism. I vote to approve this proposal.

Anon delegate

There is some REAL magic internet money on the line in the Governance Fund. I want to see the Optimism community be very thoughtful about how growth is fueled on the network and ideally set the stage for very large and productive rounds of Retroactive Public Goods Funding (RPGF).

The parameters evaluated may change over time depending on what the following parties view as most important for the long term growth and viability of the Optimism Collective: (i) the Citizen House (or Optimism Collective “leadership”), (ii) delegators who delegate to me, (iii) other delegates (if their views are persuasive), and / or (iv) me personally.

Again, subjective parameters and application, but some additional context on my current score card parameters and evaluation approach:

Optimism “suggested” parameters

• Project deployed on Optimism - This is highlighted as a binary requirement to get a proposal [ready] for a vote. A 5 score means the proposer is live on Optimism. The range from 5-10 is a subjective evaluation of how active a protocol is on Optimism
• Plan for how tokens will incentivize growth - I view this as a full spectrum topic (score range from 0-10) based on my subjective judgement of good vs bad plan. If a proposer can make the case, and support with historical data, why their proposal is expected to drive long term growth on Optimism, the proposer will get a high score. For example:
  • If a multi-chain protocol is able to show a case study that it’s user base follows the protocol from a previously existing chain to a newly deployed chain, but users do not simply hop back once incentives run out…that’s great evidence of strong proposer brand which may lead to Optimism user growth
  • If on chain evidence is not provided, generalized assumptions will have to be made, for example:
    • Gasless transactions which directly incent users to use protocols are probably highly rated
    • LP / whale liquidity incentives which tend to be more mercenary are probably lower rated, etc.
• Commitment to match $OP with proposer funded incentives - Not an express “condition” or requirement, but matching is identified as a favorable element at the end of the Governance Fund overview. Generally, the score will be the match ratio (i.e., 50 cents match : 1 $OP dollar = 5 score, 1:1 match = 10 score, 1.1:1 match = 11 score, ceiling of 15 score)

My subjective parameters

• Proposal size and duration / timeline - I suspect this factor will be easier to rate over time, but is quite subjective with the small sample size of grants thus far. Generally speaking, my preference is to start with smaller grants and shorter durations (especially for a proposers initial proposal). A second proposal should be an easier process on repeat proposers as (i) delegates already know the proposer from initial grant and (ii) proposer can now show results on the Optimism chain and clearly support it’s value proposition and responsible use of $OP grant tokens. At this point, much larger and much longer duration proposals should be welcomed by the delegate community to maximize growth and reduce governance friction. Full 0-10 scale is in play for this factor
• Core product or offering is new - As a general rule, I’d prefer to give some extra credit to a product or service that does not already exist on Optimism. New products and services should generally draw new users to Optimism more than a second, third, or nth version of an offering that already exists. Ranking is binary in that a “new” product starts at a 5, and ranking scales up from 5-10 if the product or offering seems unique not only on Optimism but relative to other chains as well
• Addition of product or offering fills a need - Even if a similar product or service is already on Optimism, if the product is in high demand I think it is still beneficial to support new versions of the product. It is also generally beneficial to have multiple competing offerings so costs to users are minimized. Full 0-10 scale is in play for this factor
• Token rewards / incentives distribution is verifiable - A commonly referenced benefit of blockchains is transparency and visibility. To me, the default should be to optimize use of grants / incentives in a verifiable way. If a project and proposal is designed well, $OP grants on chain (i.e., gasless transactions, yield, bribes, etc.) will drive protocol growth which will accrue value to the protocol treasury for general use. While there are cases where $OP grants can be used to fund marketing or go directly to developer wallets, my preference is to use the majority of Governance Fund grants to drive protocol activity and rely on the value accrual mechanism / business model of the protocol to take care of the rest. If a protocol does not have a good design for value accrual, perhaps looking into the Optimism Seed fund is a better fit. Full 0-10 scale is in play for this factor, generally should follow the ratio of what is perceived verifiable (e.g., 50% going to developers for untraceable time and 50% going to fund traceable gasless transactions = 5 score)
• Supports a money on chain activity - THIS. I hold a strong belief that getting consumers (e.g., Jane Doe) and non intermediary producers (e.g., Peloton) on chain is key. I skew towards producers, but like it all. My belief is that Jane doesn’t really care how money gets to Peloton and Peloton doesn’t care how they get paid. The system of intermediaries was a necessary evil and served a productive purpose prior to blockchain and crypto, but not anymore. Any protocols that further a money on chain evolution will get my vote (I’ll probably scale up the weight of this factor as well). Making fiat conversion to crypto easier / cheaper / decentralized, enabling direct settlement between Jane and Peloton, enabling direct settlement between Peloton and AWS, etc.
• Team professionalism and perceived integrity in the open - Very subjective, but generally I think of this as: does the proposer engage productively with the community and respond to criticism with data and evidence instead of hearsay and conjecture. There will be competitors or those who feel aggrieved for one reason or another who try to sabotage a proposal, I will try to look past this tactic and focus on how the proposer responds as the factor I rank. If a proposer is a verifiable and proven bad actor, the entire score card is likely thrown out and an AGAINST vote applied. Full 0-10 scale is in play for this factor
• Team professionalism and perceived integrity in private (bonus) - Similar concept to in the open, but just for visibility in the event interactions are not observable in public forums. As this is likely uncommon, purely an extra credit score. Full 0-10 scale is in play for this factor

Cycle 4 proposals

Rocketpool

Rocketpool is a permissionless staking node operator protocol which enables staking as a service via the rETH ERC-20 token. I’m an rETH holder and plan to node operate on Rocketpool post merge, so am glad to see Rocketpool support the Optimism ecosystem.

I voted FOR this proposal, scorecard output:

Highlights:

• Plan for growth of / on Optimism (-/+) - I’d like to see more incentives to create use cases (i.e., rETH as collateral, lending, etc.) for rETH in DeFi on Optimism vs basic liquidity pool incentives. However, building liquidity is important at this stage
• Money on chain (+) - rETH has a strong APY (which is expected to get higher post Ethereum merge). I like yields which are backed by network fees and not based on issuance / inflation or ponzinomics. As ETH and rETH prices stabilize in the future (fingers crossed), I can see a scenario where rETH is the primary asset held by users and high staking yields backed by actual transaction fees provide a nice shield to purchasing power with minimal effort

Boardroom.io and Discourse, for reference.

Boardroom

Boardroom is a governance aggregator helping members make faster, smarter, and more informed decisions. I am supportive of the delegate profile and multi organization view of a users governance activity, I see long-term value in that feature. I haven’t had much luck using the vote mechanism and have ultimately navigated to snapshot to execute governance votes.

I voted AGAINST this proposal, scorecard output:

Highlights:

Ultimately, the proposal seems fine and I won’t be upset if it passes, but I don’t currently see it as a key growth driver. The $OP tokens may be better used for other proposals

Boardroom.io and Discourse, for reference.

dHedge

dHedge is an automated investment strategies platform which tracks performance of proven crypto portfolio managers and enables aspiring portfolio managers. I don’t know much about this platform, but it is one that I plan to spend some more time with in the near future.

I voted FOR this proposal, scorecard output:

Highlights:

• Incentives match (+) - Great incentive matching package. Although incentives matching is not a requirement for a Governance Fund proposal, one thing I have been curious about is how the match should be verified prior to $OP token funding. Delegates are voting for or against based on an express promise to match incentives, honoring the commitment is important and on chain we prefer trustless whenever possible. It may make sense to request all or a portion of the $DHT match be funded in a multi-sig. The $OP grant could then be funded into the same multi-sig. Relative value over the term of the match is an interesting question as well (i.e., if $OP increases significantly in value and $DHT decreases in value, is a top up needed or is match value frozen at multi-sig funding date? Proposal date?)
• New product / high demand / money on chain (+) - I think this brings a new and interesting offering to Optimism, however, my personal view is this probably isn’t an offering for the masses. Use will probably be limited to pretty well capitalized / sophisticated investors. Still generally positive on these dimensions, but not critical / key from my POV

Boardroom.io and Discourse, for reference.

xToken

xToken is a user friendly UX for liquidity mining across multiple incentive strategies on Optimism and Gamma is an active liquidity management protocol which (in the context of this grant) will focus on improving liquidity of $OP on Optimism.

I voted AGAINST this proposal, scorecard output:

Highlights:

• Project on Optimism (-) - Combined projects only have about $27k of ~$9m TVL on Optimism. This may be an opportunity, but does not currently show a focus on the Optimism network
• Incentivizing growth (-) - All rewards are for LP incentives, which tends to be mercenary capital and tough to retain once incentives are reduced
• Proposal size (-) - The proposal size is quite large, especially considering limited activity on optimism and no incentive matching

Overall, I wasn’t passionate about specific for or against elements, but the scorecard output results in an Against vote.

Boardroom.io and Discourse, for reference.

Byte Masons

Byte Masons is a developer collective and the creators of granary.finance and reaper.farm (most relevant for this proposal). The proposal also distributes incentives via Reliquary, which is testing on Optimism, but not yet launched.

I voted FOR this proposal, scorecard output:

Highlights:

• On Optimism / plan for growth (-/+) - Byte Masons are building on Optimism, though current TVL is relatively small. Masons present as interested in sustainable growth (this is the goal of Reliquary, to minimize mercenary capital), which is positive
• Incentives match (+) - The 1:1 match of $OATH to $OP is great to see. Securing the match (i.e., via multi-sig or similar as previously mentioned) would be ideal
• Transparent incentives distribution (+) - 95% of the incentives should be on chain rewards and easy to verify. 5% for educaitonal content is also valuable, but challenging to verify and confirm content is Optimism related
• Professionalism (+/-) - I am uncertain about some accusations in the proposal comments, but I did think that the proposer team stayed pretty measured all things considered and did not throw stones back. In my experience, the louder voices tend to be less confident in their position and trying to simply make waves. At least one well respected Optimism community member with first hand knowledge across multiple interactions with the Masons spoke highly of the team, which is reassuring. Additionally, the fact that the team is 1:1 matching incentives de-risks a lot of the economic exposure to providing a grant.

Boardroom.io and Discourse, for reference.

GARD

GARD is a multi-faceted DeFi platform focused on (i) overcollateralized, fully decentralized stablecoin (ii) fixed yield products and (iii) stable staking opportunities.

I voted AGAINST this proposal, and I did not produce a scorecard for the proposal as the protocol is not live on Optimism (which I understand to be the only binary prerequisite for a Governance Fund proposal.

Boardroom.io and Discourse, for reference.

Beefy.fi

Beefy.fi is a DeFi yield optimization platform, which claims to emphasize security as a differentiator. the Beefy.fi UI presents yield strategies across the 16 chains it operates on side by side, which may be a great opportunity to draw users from other chains to Optimism.

I voted FOR this proposal, scorecard output:

Highlights:

• Project on Optimism (+) - Beefy.fi already has over $10m TVL on Optimism, which is a pretty high amount (I think this is probably a top five protocol / platform TVL on Optimism, it’s tough to source clean / comparable data)
• Growth on Optimism (+) - Beefy.fi has over $350m of TVL across multiple chains, claims it’s vaults are sticky and users remain post incentive periods, and presents yield strategies across multiple chains in a single place (which should induce users to move to Optimism if yields are competitive)

Boardroom.io and Discourse, for reference.

BarnBridge

BarnBridge is an interest rate, derivatives, and general risk management focused protocol.

I voted AGAINST this proposal, scorecard output:

Highlights:

• On Optimism (+/-) - The protocol is technically on Optimsim, but it sounds like the proposal is really related to v2 of the protocol which is not yet live
• Growth on Optimism (-/+) - As the protocol is unlauched, the growth prospect are uncertain
• Incentives match (-) - It seems like there are good intentions to match incentives, but I’m really not sure how to interpret the value of the match proposal

Generally, consistent with many other delegate comments in Discourse, the proposal needs a bit more refinement before going up to vote in my opinion. The protocol had a lot of traction ($500m+ of TVL) at one point, it would be great to see similar traction with the v2 protocol. I know fixed rate products are critical in TradFi and would likely be a good product addition to Optimism, I hope to see BarnBridge back in Season 2.

Boardroom.io and Discourse, for reference.

Qi DAO

Qi DAO is a stablecoin lending platform where users can lock crypto assets in a vault as collateral and receive $MAI stablecoins (Similar to the Maker / $DAI model). Maker is targeting launch of Maker vaults on Optimism in 4Q 2022, but good to see Qi DAO already on Optimism and some competition coming to keep yields high, fees low, and / or collateral levels competitive to the benefit of Optimism users.

I voted FOR this proposal, scorecard output:

Highlights:

• Incentives match (++) - Very robust incentives match program at $QI 1.7 : 1 $OP. Similar to my comments on other proposals, delegates are relying on the match promise being made by proposers when evaluating proposals, so the more defined, secure and less ambiguous the match mechanics are the better in my opinion
• Appropriately sized (-/+) - The proposal still feels a bit large to me at 750k $OP tokens ($1.2m USD @ 1.61 $OP at time of drafting on Jul 29, 2022) and considering Maker will launch in 4Q 2022, but incentives match alignment supports the case
• New to Optimism / addition fills demand (-/+) - I debated considering Qi DAO as “new” or unique to Optimism as Maker doesn’t have native vaults on Optimism yet. Ultimately, the main product (stablecoins) are not new, but certainly stablecoin volume is demanded on Optimism

Boardroom.io and Discourse, for reference.

Cycle 4 outro

Certainly some exciting protocols in the Cycle 4 cohort as well as some which I voted AGAINST which I hope to see back in the queue in Season 2.

I for FOR five of nine proposals in cycle 4, which would unlock 1.3% of the total Governance Fund worth ~$4.8m at time of drafting this post.

If you think my approach could use some refinement, be a reply guy / gal to the companion TWEET to this mirror post.

Optimism fund Season 2

Cycle 4 marks the end of Governance Fund “season 1” and sets up a reset ahead of season 2.

One thing that I have observed in my role as a delegate is that there is room for improvement in the proposal due diligence process. In an ecosystem which postures about the benefits and availability of public blockchain data, it’s not common for proposal teams to provide compelling rudimentary dashboards presenting protocol performance on Optimism or other chains.

I think objective and unbiased due diligence / performance analysis would be very beneficial for the Optimism community and the proposal evaluation process. I plan to use the time between Season 1 and Season 2 to learn how to dev on Flipside Crypto and Dune so I can apply my years of M&A due diligence experience to the Governance Fund process. I think long-term this is a service which the Optimism Collective would benefit greatly from and ideally would be willing to factor in to cycle token allocations (e.g., x% of each proposal would be set aside to fund the work of an objective due diligence team).

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For more on the Optimism Governance Fund and my thoughts from cycle 3:

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