Optim SPO Bonds - a new, market-driven method to bootstrap pools

[GENERAL] Name and surname of main applicant

Ethan Protas

[GENERAL] Email address of main applicant

ethan@optim.finance

Additional applicants

Maksymilian Brodowicz

@zygomeb (twitter)- tech lead

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

12

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language.

No

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

No

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.” .

No Dependencies

[GENERAL] Will your project’s output/s be fully open source?

No

[GENERAL] If NO, please describe which outputs are not going to be open source. If YES, please write “Project will be fully open source.”

There is no "project outcome" that can be open sourced

The request for funds is not contributing to smart contract development

The funds will be used to subsidize SPO Bond liquidity for a market-driven delegation program

[METADATA] Category of proposal

SPOs

[IMPACT] Please describe your proposed solution.

Problem

SPOs interested in bootstrapping a pool, proving operational competence, and ramping up marketing for organic delegation have no way to provide a competitive return on ADA as they scale.

Hundreds of millions- billions of ADA is delegated via Cardano Foundation and IOG delegation programs to help SPOs, but these delegations are short in duration and unpredictable.

An SPO has no control over participation.

Solution

SPO Bonds are the only tool SPOs have available to guarantee 1MM+ ADA delegation and a competitive return on ADA for delegators if they wish to scale and market their pool widely.

Also, SPOs who borrow delegation pay for it - they have skin in the game and are ready to leverage this delegation (a marketing cost) to attract organic delegation and participate fully in the community

This tool for SPOs is completely on-chain and trustless. Providing great benefit to both SPOs and liquidity providers who lock up their ADA and allow SPOs to delegate it to their pool.

Engagement

Our project engages both SPOs & DeFi participants

Optim's system has been live for 6 months

We've served 10 SPOs who have successfully used bonds

We've engaged hundreds of DeFi participants who have supplied liquidity

Impact

We will prove our impact by on-chain analysis of how many SPO Bonds are successfully filled by SPOs

(this means the ADA is requested by SPOs, then supplied into smart contracts by liquidity providers)

Then we will measure how much organic delegation grows to SPO Bond issuers as SPOs leverage better ROA to build their delegation.

[IMPACT] How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?

Challenge

The challenge of giving SPOs market-driven tools to bootstrap tools is difficult.

To have people lock their ADA for an entire year for an SPO requires around 6% APY

Benefits

Our SPO Bond subsidies both lower interest costs to SPOs and rise APY for lenders/LPs

This makes SPO Bonds more attractive for those looking to help small SPOs via locking ADA delegation to their pools AND makes SPO Bonds more accessible for SPOs by lowering the cost.

Cardano Ecosystem Benefits

Our SPO Bonds add to Cardano TVL, DeFi activity, engage new users in DeFi, and familiarize new participants with fixed income opportunities on the Cardano blockchain.

SPO Bonds also showcase completely new DeFi primitives that are unique to Cardano that can't be built anywhere else.

[IMPACT] How do you intend to measure the success of your project?

Our impact can be measured in a few simple ways:

Short-term SPO impact

• The number of SPO Bonds issued and filled

• The organic delegation attracted by SPOs who take out bonds

Long term community impact:

• Engagement in Bonds / the number of Bond buyers on Optim

• Drives familiarity with new Cardano DeFi concepts and educates community

[IMPACT] Please describe your plans to share the outputs and results of your project?

Project Outputs

• 10 SPO Bonds issued on-chain
• Organic delegation growth over 1 year for SPOs
• Wallet participation numbers for new DeFi primative

We will publish all results publicly

All on-chain data is easily quantifiable

The data will be published bi-monthly on Medium and Twitter

Additional Results

• DeFi smart contract risk and liquidity premium (6-12 month lockups) rate is discovered

There is no default risk on Liquidity Bonds. Thus the difference between staking and SPO Bonds is the premium for smart contract risk and illiquidity for 6-12 months

[CAPABILITY/ FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability?

Optim Finance is a Top 10 TVL DeFi protocol

We've built, audited, and shipped a novel DeFi product already

Team members have worked on other projects including Minswap, IOHK, and EVM protocols

[CAPABILITY/ FEASIBILITY] What are the main goals for the project and how will you validate if your approach is feasible?

The goals are to fund additional SPO Bonds and increase delegations to small single SPOs

Our approach has been working, we're trying to help it scale via this proposal.

The approach is feasible and has been proven through the issuance of 10 SPO Bonds already

[CAPABILITY/ FEASIBILITY] Please provide a detailed breakdown of your project’s milestones and each of the main tasks or activities to reach the milestone plus the expected timeline for the delivery.

Milestone 1

• Touch base with SPOs in Optim pipeline that want to issue bonds
• Propose interest subsidy at 2% or 20,000ADA per Bond

Milestone 2

• Have SPOs issue bonds for pool delegation

Milestone 3

• Advertise Bonds and have liquidity providers fill orders

Milestone 4

• Monitor and support SPO progress over 1 year bond duration

[CAPABILITY/ FEASIBILITY] Please describe the deliverables, outputs and intended outcomes of each milestone.

The deliverables are simple:

• 10 SPO Bonds issued with 2% interest subsidy each
• Issuing SPOs would pay 4.5% in ADA, LPs would receive 6.3% in ADA

We will measure deliverable using on-chain data

Outcomes:

• Support 10 small SPOs with 1MM ADA delegation for 1 year
• Have each SPO attract 500k+ organic delegation during that time
• DeFi wallets that participate in Bonds on Optim

[RESOURCES & VALUE FOR MONEY] Please provide a detailed budget breakdown of the proposed work and resources.

Each SPO Bond is 1,000,000 ADA delegation for 1 year

2% (20,000 ADA) interest subsidy per 1MM ADA SPO Bond

10 SPO Bonds x 20,000ADA

= 200,000 ADA Total

[RESOURCES & VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

Value is to experiment with new ways of supporting market-driven SPO delegation programs

IOG and CF spend millions of ADA each year in rotating delegation to SPOs with mixed success

All ADA funds from proposal go directly into DeFi

(3% interest fee (6,000 ADA) goes to Optim DAO)

A new, experimental approach where SPOs can have skin in the game and get delegation on demand

is worthwhile for the Cardano ecosystem.

It also drives adoption and interaction with the Cardano DeFi. Familiarizing users with new primitives and concepts such as fixed income bond structures

[IMPORTANT NOTE] The Applicant agreed to Fund10 rules and also that data in the Submission Form and other data provided by the project team during the course of the project will be publicly available.

I Accept