# OP Growth Experiment Grant Application

https://app.charmverse.io/op-grants/proposals/new?template=b73c5d4e-11a0-4ddc-8f1b-d23a0f16a598

### Project Name: Curve Lending

### Team Lead: LlamaRisk

### Trust Tier:*

[Trust tiers link](https://gov.optimism.io/t/collective-trust-tiers/5877)

Fledgling Tier - Eligible to receive up to 250k OP

Has done work for or with the Optimism Collective at least once before or has received over 10k OP via retroPGF
Eligible to apply for simultaneous growth experiments grants (apply for program continuation before the first grant is fully disbursed)

### Contact info: *

Twitter: https://twitter.com/LlamaRisk
Email: [e-mail]

Twitter: https://twitter.com/martinkrung
Email: [e-mail]

### Twitter handle:*

https://twitter.com/CurveFinance

### Website:*

https://lend.curve.fi/

### Discord/Discourse/Community:*

https://discord.gg/9uEHakc

### Github:*

https://github.com/curvefi

### Demo:*

Curve Lending on Mainnet https://lend.curve.fi/

### Other:*

Documentation - https://resources.curve.fi/lending/understanding-lending/

### L2 recipient address:*

0x28c4A1Fa47EEE9226F8dE7D6AF0a41C62Ca98267- ==this one was finally selected for the previous OP grant, it can do the transferFrom==

### What is the size of your grant request?*

250k OP max; above 150k requires full Council vote

150 OP

### Has the proposing group or organization received a grant from Optimism previously?*

YES - LlamaRisk is RetroPGF Round 3 Recipient

### Tell us about your project, please cover:*

> Why is what you are going to build going to succeed?
>
> How is this project going to satisfy the goals of the mission request you are applying for?
>
> How many users does your project currently have? Please include how you arrived at this estimate
>
> How will receiving a grant will maximize the number of users interacting with your aplications? Please include a step-by-step flow of how you imagine this grant can lead to a more significant number of user interactions with Optimism
>
> Tell us about the users you plan to target with this grant. Include any defining characteristics that will help you identify and target them
>
> How would these users interact with Optimism? For how long?
>
> Do you have any metrics on the project currently? (TVL, transactions, volume, unique addresses, etc. Optimism metrics preferred; please link to public sources such as Dune Analytics, etc.)
>
> Who are your competitors, and are they on Optimism?
>
> Why is your application novel?

Curve is a multichain AMM exchange specializing in low-slippage stablecoin swaps and concentrated liquidity provision. It is the primary liquidity hub for some of the most exciting DeFi innovations, including stablecoins, Liquid Staking Tokens, and Real World Assets. Curve introduced its stablecoin crvUSD in 2023 and is now launching Curve Lending, a lending protocol with soft liquidation mechanics.

Curve Lending introduces a unique feature for the lending market: soft-liquidation. When a user's position falls below the loan-to-value threshold, the position enters a soft-liquidation state instead of being liquidated in its entirety. If the asset's price rebounds, the soft-liquidation is reversed, allowing users to retain their collateral. When setting up a loan, users can customize their soft-liquidation range based on their own risk tolerance. Full liquidation of collateral only happens if the price falls below this predetermined range.

Curve Lending introduces a novel, permissionless lending and borrowing ecosystem, leveraging the LLAMMA mechanism from Curve's crvUSD system for market-making between assets, ensuring efficient operations even during soft liquidations. It offers a unique approach with its ERC-4626 compliant vaults for lenders, and a dynamic interest rate model to match supply and demand. The non-rehypothecating design of lending pools ensures collateral security while facilitating their permisionless creation. The system integrates liquidity mining incentives by allowing the deployment of liquidity gauges for pools.

The goal of this proposal is to establish a deeply liquid borrowing and lending market for OP token and allow the OP community to profit from soft-liquidation.

#### Resources
https://resources.curve.fi/lending/understanding-lending/
https://cryptorisks.substack.com/p/a-primer-on-curve-lending
https://mirror.xyz/albertlin.eth/H0m3nyq65anotTWhTdWDIWEfMPOofNPy-0qyARYXNF4
https://paco0x.org/curve-stablecoin/

#### Curve Performance Metrics according to DefiLlama (March 22th, 2024)
* TVL: $2.444b
* Cumulative Revenue: 298.01m
* Cumulative Admin Fees Paid to LPs: $142.93m
* Cumulative Volume: $133b (average $228M/day)

### Please link to code audits (if any):*

The audits are not yet public. To ensure transparency we anticipate that code audits become available around the same time that Curve lending launches on the Optimism.

Curve lending is currently deployed on ethereum mainnet which shows our high confidence in the security of the code.

Curve Finance protocol has been heavily audited. The crvUSD protocol - a cornerstone of Curve lending mechanics - underwent a comprehensive audit by 3 separate audit firms before launch. Every upgrade to the Curve protocol involves audits as part of standard security practice.

A list of Curve audit reports can be found [here](https://github.com/curvefi/security-incident-reports/tree/main/audits). Also, see a crvUSD specific audit by [Mixbytes](https://github.com/mixbytes/audits_public/tree/master/Curve%20Finance/Curve%20Stablecoin%20(crvUSD)).

### Team
Tell us about your team, you should cover:*

> Who are your founders?
>
> What makes your founders well-positioned to accomplish your goals with this project (1-2 sentences on each)?
>
> Tell us about the rest of your team (if there are more teammates).
>
> What else have you built? (Share links, Github repository, or any other helpful information).
>
> Is your project funded? If so, provide an estimate of how many months of funding runway your project has.
>
> Do you have references for past work?

Michael Egorov is the founder and lead developer of Curve DAO. Michael and other conributors to Curve DAO created Curve stableswap, Curve cryptoswap, crvUSD and Curve Lending. The latest invention is the algorithm for soft-liquidation which is used in crvUSD and Curve Lending.

LlamaRisk was established in 2021 as a service to Curve DAO and its LPs, providing risk transparency analyses of assets listed on Curve, including stablecoins, RWAs (Real World Assets), LSTs (Liquid Staking Tokens), and LRTs (Liquid Restaking Tokens).

Martin Krung is a Curve core contributor and supports LlamaRisk's efforts in this grant request.

### Roadmap and Distribution Plan
### How do you justify the size of the request?*

The request's size is justified through a precision-driven strategy that prioritizes specific applications of crvUSD, leveraging the robust positions of both crvUSD and OP. Our aim is to catalyze further integration and utilization of crvUSD within the Optimism ecosystem. With the proposed weekly incentives, our objective is to foster a highly liquid OP lending market characterized by soft-liquidation mechanism.

The incentives will result in a significant influx of crvUSD to Optimism, enabling new markets for other applications to integrate. The grant will pay dividends in terms of future potential integrations and does not contribute to any direct selling pressure of the OP token.

### Describe in discrete steps your plan for accomplishing your project:*

Curve is eager to begin allocating incentives toward a new strategy that will promote Curve Lending deployment on Optimism. Curve Lending will strengthen liquidity depth and trade volumes for both stablecoins and blue-chip crypto (BTC and ETH) on Optimism.

The strategy involves the deployment of isolated Curve Lending markets with crvUSD as core stablecoin. Curve will not earn any fee on these markets, any borrow fee will be given to lenders.

Our initiative aims at cultivating a vibrant, liquid market for OP tokens, underpinned by a pioneering soft-liquidation approach that aligns with users' risk tolerance, thus mitigating the potential for liquidations. In this way users are permitted to set their liquidation thresholds closer to real-time market values, thereby enhancing the capital efficiency of their collateral.

By capitalizing on Optimism's lower transaction fees, Curve Lending enable more cost-effective soft-liquidation processes. A deep OP/crvUSD liquidity pool on Curve ensures seamless transaction flow. The reduced gas costs on Optimism, as compared to other networks, facilitate a more economical and efficient soft-liquidation process, enhancing the overall user experience.

To measure the success of this grant, we will use the following key performance indicators:

- TVL on the suply side in the two lending market
- Native yield earned on the supply side
- Numbers of avoided hard-liquiation vs soft-liqudations
- Curve crvUSD/OP/CRV pool TVL: The value of Curve crvUSD/OP/CRV pool liquidity
- Liquidity utilization: Both overall pool volume and liquidity utilization in the crvUSD/OP/CRV pool.

### How will the OP tokens be distributed?*

> please include % allocated to different initiatives such as user rewards/marketing/liquidity mining. Please also justify why each of these initiatives aligns with the problem statement this proposal is solving. Distribution should not include the sale of any tokens by the grantee or the use of tokens for compensation, protocol expenses, etc. See the no-sale rule here. Please note that the no-sale rule is an absolute requirement that is not within the scope of the Grants Council to change. Please direct any questions to the #governance in Discord

This grant will be used exclusively to incentivize deposit liquidity in Curve lending and needed Curve pools. The detailed allocation for OP tokens over the proposed incentive period involves a daily distribution rate, which is dependent on the total length of the campaign (see the metrics below).

For a 10-week run, 2,143 OP will be distributed per day. Run time will be maximaly extended to 12 weeks, if unnecessary high APY is achieved, in this case the daily distribution will decreases to 1,531 OP.

We intend to handle the distro with the following strategy:

#### Incentives allocation

In this scenario, we're allocating a predetermined quantity of OP tokens distributing:
* 1/2 of the OP tokens to enhance OP supply in the crvUSD/OP market
* 1/2 to attract TVL in the crvUSD/OP/CRV pool

#### 1/2 Used in Lending Markets

The TVL attracted and the resutling APY will be determind by market sentiment and OP price. Minimal run time will be weeks. Run time will be maximaly extended to 20 weeks, if unnecessary high APY is achieved, in this case the distribution rate will decreases.

In the current market environment, there is more demand for leverage by depositing OP as collateral and borrow crvUSD, than the opposite.

Distribution of OP will be done in a decentralized way, there are limits how flexible that set-up can be. We make sure 1/2 of this grant is used for the lending markets.

Depending on the usage of the markets, the market’s ratio may shift from epoch to epoch.


*TVL and APY are forcast, achieve TVL and APY will be determind by the market*

#### 1/2 Used in Liquidity Pools

1/2 are used to attract TVL in the crvUSD/OP/CRV pool. The TVL attracted and the resutling APY will be determind by market sentiment and OP price. Run time will be maximaly extended to 12 weeks, if unnecessary high APY is achieved, in this case the distribution rate will decreases.


*TVL and APY are forcast, achieve TVL and APY will be determind by the market*

Source: https://docs.google.com/spreadsheets/d/1c48GtCm6uxCYWuy16HPedKMGOTuDgMsMwSp66QpVG5o/edit#gid=1793096030

Pending the availability of a vote incentives market, the OP may be either deployed as vote incentives to veCRV voters that allocate CRV gauge emissions to the target pools or, in the absence of an acceptable vote market, the OP will be deployed to the pool rewards as a direct supply side or LP incentive.

### Over what period will the tokens be distributed for each initiative?*

The initiation of OP distribution follows the deployment of necessary pools and contracts, with a week-long on-chain voting period preceding the start of incentives.

As the funds will be managed in a decantralize manner by the Curve DAO, currently the funds will be used linearly over the incentive period with a rate between 2,143 and 1,531 OP per day.

#### Execution Strategy:
Our execution plan includes the following steps:

- Deployment of Curve lending markets on Optimism
- Lending Market creation: OP/crvUSD and crvUSD/OP
- crvUSD/OP/CRV Cryptoswap Pool Deployment, if needed
- Deployment and Infrastructure for decentralized reward streaming to the markets and pools: 1-2 weeks
- Incentive Campaign: Run incentives to the lending markets and Curve pool for 10-12 weeks

#### Grant Timeline:

- For initial preparation: 1-2 weeks
- Deployment of Curve lending markets on Optimism: 2-4 weeks
- Succesfully setting up dedicated crvUSD/OP curve lending markets: 1 week
- Deployment and Infrastructure for decentralized reward streaming to the markets and pools: 1-2 weeks
- Vote by curve DAO to start reward streaming: 1-2 weeks
- Incentives: Incentives will run for 10-12 weeks, adjusted bi-weekly or on demand

### If the OP tokens are for direct distribution to users, why will incentivized users and liquidity on Optimism remain after incentives dry up?*

Addressing the risk of liquidity depletion post-incentive periods, our strategy proposes a gradual tapering of incentives to maintain market engagement. The soft-liquidation feature, deemed superior to traditional liquidation methods, aims to retain users by offering additional lending rewards, thereby incentivizing both borrowers and lenders. The commitment to continue allocating CRV emissions to support the lending market, even after initial incentives diminish, is bolstered by Curve's extensive emission schedule. This ensures a long-term strategy for incentivizing and sustaining liquidity within the Optimism lending ecosystem.

### Please provide any additional information that will facilitate accountability: *

> smart contract addresses relevant to the proposal, relevant organizational wallet addresses, etc.

As we are submitting this proposal on behalf of Curve DAO, we request that the grant funds be sent to the [Curve DAO-controlled address on Optimism](https://optimistic.etherscan.io/address/0x28c4A1Fa47EEE9226F8dE7D6AF0a41C62Ca98267). The custody of funds is entirely decentralized, governed by veCRV voters and on-chain votes initiated on Ethereum mainnet.

Once funds have been received, we will work with the Curve core team to deploy the grant. This will involve creating a contract to handle the distro logic and initiating an on-chain vote to approve the distro strategy as it has been outlined above.

### Optimism Relationship
### Tell us about your relationship with optimism, you should cover:*

> Does your project solve a problem for the Optimism ecosystem?
>
> Why will this solution be a source of growth for the Optimism ecosystem?

Curve is the backbone of the burgeoning DeFi industry. It touches every piece of the stack and strengthens every integrated protocol. There is an opportunity for Optimism to leverage Curve’s foundational role to further support its vibrant ecosystem. Examples of how Curve spurs DeFi integration include:

- Soft-liqudation in Curve Lending markets is a feature many users are looking for and can be crated permissionless for any tokens.
- The stableswap algorithm, well known for enabling deep liquidity and low slippage swaps, has built a reputation for stabilizing pegs and enhancing stablecoin utility. (e.g. FRAX, 3CRV)
- Curve has a number of integrations with lending markets, yield-bearing derivatives, and real-world assets. Swap fees compound the interest generated from these activities. (e.g. Aave, stETH, STBT)
- Highly configurable V2 pools are unlocking new potential for FX markets and volatile crypto pairs. The concentrated liquidity algorithm offers advantages to LPs and traders, combining a composable AMM design with low-slippage swaps. (e.g. Tricrypto, eursusd)

### Is your project (a) deployed on Optimism exclusively; (b) deployed on Optimism and other networks; (c) not yet deployed on Optimism but deployed on other networks; or (d) not yet deployed on Optimism or elsewhere?*

Curve is native to Ethereum and has deployed on 12 other chains and L2s.

|Optimism|$6.41m|
| --- | --- |
|Ethereum|$2.29b|
|Arbitrum|$77.85m|
|Polygon|$25.66m|
|Celo|$20.67m|
|Gnosis|$10.76m|
|Avalanche|$4.19m|
|Kava|$3.02m|
|Base|$2.93m|
|Fantom|$2.14m|
|Moonbeam|$107,677|
|Aurora|$17,238|

Source: DefiLlama (March 22th, 2024)

### Have you engaged a Grant-as-a-service provider for this proposal?*

NO

### Has anyone contributed to this application that isn’t listed on the team?*

NO

I confirm that my grant will be subject to clawback and/or discontinued delivery for failure to execute on critical milestones*

Select an option

Builders grants are awarded in OP, locked for one year. Growth experiments grants are subject to the no-sale rule. I confirm that I have read and understand the grant policies:*

Collective Grant Policies link

Select an option

I understand that I will be required to provide additional KYC information to the Optimism Foundation to receive this grant:*

Collective Grant Policies link

Select an option

I understand that I will be required as a condition of receiving this grant to certify that I will distribute the tokens in a legally compliant manner, including in compliance with relevant sanctions laws, or other such conditions as required.*

Select an option

I understand that I will be expected to following the public grant reporting requirements outlined here:*

Public Reporting Requirements for Grantees link

Select an option

Milestones
Please define your milestone(s)
Critical milestones should be a measure of whether you’ve made the best efforts to execute what is outlined in this proposal or not. If you fail to achieve your pre-defined critical milestones, your grant may be clawed back and/or declined for subsequent delivery, as outlined in the Operating Manual.

### Milestones

Critical milestones are meant to show good-faith efforts to accomplish the project. Non-completion of these milestones could lead to the revocation of the grant.

Benchmark milestones should guide the Optimism community on the progress of your project throughout your work on the project.

#### Critical Milestones

- For initial preparation: 1-2 weeks
- Deployment of crvUSD/OP/CRV Cryptoswap Pool to streamline access to soft-liquidation mechanics for users on Optimism. Done last week: https://curve.fi/#/optimism/pools/factory-tricrypto-1/deposit
- Deployment of Curve lending markets on Optimism: 2-4 weeks
- Succesfully setting up dedicated OP/crvUSD and crvUSD/OP curve lending markets: 1 week
- Deployment and Infrastructure for decentralized reward streaming to the markets and pools: 1-2 weeks
- Vote by curve DAO to start reward streaming: 1-2 weeks
- Incentives: Incentives will run for 10-12 weeks, adjusted bi-weekly or on demand

#### Benchmark Milestones

The following indicators shall be used to track the project's progress during implementation:

- Monitoring Total Value Locked (TVL) in the new lending markets.
- Tracking the yield earned on the supplied side to get insights into the profitability and attractiveness of the lending markets.
- Comparison of Soft vs. Hard Liquidations.
- Assessing how effectively the liquidity is being utilized in the lending markets to gauge market activity and engagement.