LEAP-40: Incentivize Velodrome Liquidity on Optimism

Author
StatusApproved
Created2022-12-07

Simple Summary

Add pool 2 liquidity mining programs to Velodrome on Optimism.

Abstract

This LEAP proposes moving 125,000 of OP annualized in liquidity incentives from Arrakis to Velodrome as a pilot to measure the relative effectiveness of incentives.

Motivation

The purpose of this proposal is to improve the efficiency of LYRA Pool2 liquidity mining rewards, creating sustainable, DAO-owned liquidity on L2. At the time of writing, these incentives are attracting $1m in liquidity, offering an APR of >50%. By utilizing the Velodrome bribes and Lyra’s voting power to direct VELO emissions to the LYRA/USDC pool, the Lyra DAO can achieve greater liquidity and volume per $1 of incentives distributed to LPs.

Specification

Overview

The Lyra DAO should provide 125,000 OP incentives (as bribes) annually to support the LYRA/USDC pair on Velodrome The Lyra DAO should continue to use their veNFT voting position to vote to direct VELO emissions to LYRA/USDC The Lyra DAO will use all fees/bribes earned by their veNFT voting position to bribe the LYRA/USDC, further boosting the capital efficiency of the incentives / growing TVL Rewards in the Arrakis/Uniswap pool will be reduced by 125,000 OP annually After 6 weeks, this pilot should be evaluated comparing the TVL/Incentive and Volume/Incentive of the Arrakis and Velodrome strategies.

What is Velodrome?

Velodrome is a trading and liquidity marketplace on Optimism. It allows protocols to incentivize token liquidity by locking VELO tokens as veVELO which is used to direct votes to specific liquidity pairs and in return earn fees on the pool, not just emissions. Since launching in June 2022, over 2.5B in volume has been traded through the protocol with a TVL of $65m+. As a launch partner, Lyra received an 8M veVELO voting position (~2% of veVELO).

Website: https://app.velodrome.finance/ Twitter: https://twitter.com/VelodromeFi

Rationale

Lyra is currently distributing 500,000 OP per year to maintain $1m of liquidity on Uniswap at the time of this LEAP. This works out to paying around 50c per $1 of liquidity annually at a $0.94 OP valuation. Velodrome has demonstrated itself as the most capital-efficient liquidity partner on Optimism and supports the liquidity needs of key ecosystem protocols such as Synthetix (SNX), Aelin (AELIN), and Thales (THALES).

By collaborating with Velodrome Lyra can:

  • Reduce the cost of liquidity incentives
  • Increase TVL
  • Increase volume per amount of incentives
  • Qualify for Velodrome’s incentive programs

Velodrome has committed to matching Lyra’s bribes at a 20% rate, which will further boost the votes/emissions/TVL Lyra earns. These boosts will also apply the compounded bribes that Lyra DAO will commit to the Lyra-USDC pool, creating a virtuous cycle of rewards.

Technical Specification

Lyra will allocate 2403.84615 (125k/52) OP per week over a 6-week period to bribe the LYRA-USDC pool on Velodrome. In addition, Lyra will use its 8M veVELO position to vote on the pool.

Test Cases

Uni Vs. Velo

Configurable Values

The following values are configurable and updateable by Council with consensus in Discord.

epoch length = 6 weeks
Reward amount for Velo pool (annualized) = 125,000 OP 

Copyright and related rights waived via CC0.