Optim Finance - Liquidity Bonds

[IMPACT] Please describe your proposed solution.

Problem Space

With the introduction of Plutus, Cardano experienced rapid growth and development. However, this growth has also largely affected its decentralization, with Cardano's Nakamoto Coefficient decreasing from its height of 29, to 22 in the last 3 months, and 209 Single Stake Pools retiring.

For instance, validation across the network has undergone a significant degree of centralization as ADA holders concentrate their stake with a handful of major players. Unfortunately, minor actors easily fall through the cracks. As major projects launched popular Initial Stake Pool Offerings (ISOs), small stake pool operators were by and large left in the cold [https://adapulse.io/multiple-stakepool-operators-are-harming-cardano/]. As a cruel twist of fate, the Cardano community's excitement over burgeoning projects caused a hazardous hit to decentralization. The Nakamato coefficient has decreased and Cardano’s unique position as the most decentralized POS blockchain is under threat. 

Our Solution

In a recent Medium post [https://optim-labs.medium.com/liquidity-bond-market-bebaf791277a], we introduced Optim’s Liquidity Bond Market and the namesake DeFi instrument. Liquidity bonds offer substantial use cases, benefit many in the community, and offer robust network gains to Cardano:

• SPOs – borrowers can increase their delegation via our bonds to receive greater rewards.
• New and small SPOs – operators can borrow enough ADA to consistently mint blocks and bootstrap their pools.
• Delegators - can receive a competitive or better return on ADA (ROA) delegating to small stake pools as they would delegating to large stake pools

This is achievable due to Cardano's staking architecture which allows for designating staking rewards to a separate wallet from that of the ADA holder. Simply put, borrowers can delegate and lock ADA into a selected stake pool, gaining the associated rewards, while never having full custody of the lender's funds. Users can 'borrow' ADA to bootstrap a small staking pool amongst a wide variety of other use cases. Lenders accrue interest securely due to smart contracts.

Market

New and small SPOs, users interested in enhancing their ADA rewards, and community members interested in a decentralized and resilient Cardano.

Our Proposal

As we work towards the launch of our Liquidity Bond Market, a few milestones remain for us to enjoy a successful launch:

• A professional security audit
• Liquidity Bond subsidies for our initial participants

These are the focus of this proposal. With these final pieces in order, we will be prepared to launch and bring our unique instrument to play marking a first-of-its-kind DeFi instrument available only on Cardano.

[IMPACT] Please describe how your proposed solution will address the Challenge that you have submitted it in.

Intended Fund – Fund9: dApps, Products, and Integrations

Challenge Statement: “What dApps, products and integrations can be implemented to bring impactful use cases to the Cardano ecosystem that help drive more adoption?”

Use Case

The ability to lend and borrow ADA delegation is essential to allow for a capital efficient and alternative method to directing delegation.

Staking is at the heart of Cardano as the most decentralized POS blockchain. The delegation of ADA is a crucial part of this, which the Liquidity Bond product impact.

Adoption

Expanded functionality and products in the DeFi ecosystem will drive adoption of Cardano.

Optim's Liquidity Bonds enable anyone to lock their ADA stake for competitive returns and increased decentralization of the network. With more funds locked in Cardano DeFi protocols the chain's TVL will benefit, and so will the visibility of Cardano.

Optim's Liquidity Bonds were built to be able to deploy pre-Vasil and expand the available DeFi on Cardano beyond DEXs.

Our Proposal

As we work towards the launch of our Liquidity Bond Market, a few milestones remain for us to enjoy a successful launch:

• A professional security audit
• Liquidity Bond subsidies for our initial participants

These are the focus of this proposal. With these final pieces in order, we will be prepared to launch and bring our unique instrument to play marking a first-of-its-kind DeFi instrument available only on Cardano.

Why are audit and bond subsidies necessary for launch?

Cardano's eUTXO ledger design is unique among blockchains, meaning novel architectures are both needed for and supported by the chain. While this is exciting on its own, it means dApps often employ new designs to be performant.

Careful testing and auditing are of marked importance under such circumstances. This can be easily observed with other DeFi products on Cardano that contained vulnerabilities despite the due diligence of developers. Fortunately, these teams employed best practices, and vulnerabilities were by and large discovered by auditors. Naturally, we treat the security of our users' fund very seriously and follow these same best practices before launch.

That said, another important ingredient is community participation. To incentivize and reward early participants of our Liquidity Bond Market, we will offer bond subsidies. We view these subsidies as a key ingredient in bringing Cardano members to our platform whereby their activity can help promote new projects, small SPOs, and the overall decentralization of the Cardano ecosystem. Subsidies will be used to reward SPO Bond buyers (lenders) and lower the interest cost for SPOs. 

[IMPACT] What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?

We are consulting with a top-tier Haskell/Plutus auditing firm and are in contact with vetted community members running small or new stake pools. All parties have remarkable reputations meaning the deliverables of this proposal are notably low-risk. Rather, the main concern would arise in the case the security audit uncovers numerous critical or high-severity vulnerabilities. That said, members of our engineering team are veteran Haskellers with extensive Plutus smart contract experience, so the likelihood of this is low.

[FEASIBILITY] Please provide a detailed plan, including timeline and key milestones for delivering your proposal.

As most are aware, audit times depend heavily on the auditing firm and the degree security issues are discovered. A typical range for completing an audit for a codebase of our size (approx. 2000 lines) is five weeks. However, audits lasting longer are not unheard of. Moreover, we are committed to beginning the auditing process immediately upon receiving funding.

As mentioned, our team consists of industry-leading Haskell/Plutus engineers well-experienced in formal methods and delivering safe code. As such, we do not expect significant delays and are well-equipped to resolve issues should any be discovered. After the auditing process, we will be prepared to launch with an initial group of SPOs and consider this the main milestone of this proposal.

[FEASIBILITY] Please provide a detailed budget breakdown.

Funding:

Total: $ 121,000

Breakdown:

Feature                                               Cost

Third-party Tweag Audit ($3200/day * 25 days) $80,000

Audit MLabs Flat-rate Initial Cost                      $16,000

Liquidity Bond Subsidies (50K ADA = 10x 5k subsidies) $25,000

[FEASIBILITY] Please provide details of the people who will work on the project.

Optim Finance

Optim is a yield product and aggregation platform that simplifies the often complex and burdensome process of maximizing DeFi returns. We have been building since the Alonzo hard fork and are active contributors to the ecosystem. Optim is also a leading member of the Cardano DeFi Alliance (CDA), a consortium of top-tier DeFi dApps [https://cardanodefialliance.org/].

Core Team Includes

Technical Lead

Maksymilian Brodowicz

Maksymilian does a lot of research, both technical and product-wise, financial and user-experience related. Specifying and creating innovations in protocols, his designs have been used in a variety of efforts. By education a mathematician and a computer scientist, HoTT enthusiast, and five-year Haskell practitioner.

GitHub: https://github.com/zygomeb

Product Lead

Ethan Protas

Ethan has conceptualized and worked on a number of DeFi products and protocols over the past few years on Cardano as well as Algorand and Ethereum. Experienced in business operations and execution, his Cardano journey began as the Head of Operations at Minswap in April 2021. Business and education background in finance. 

Linkedin: https://www.linkedin.com/in/ethan-protas-b0b724214

[FEASIBILITY] If you are funded, will you return to Catalyst in a later round for further funding? Please explain why / why not.

The scope of this proposal is complete unto itself. That said, it is early days for the Optim project, and we aim to be the leading yield products and aggregation platform on Cardano following the implementation of CIPs 31-33. As we develop our v2 feature set, it is possible but not guaranteed that we will apply again to future Catalyst rounds.

[FEASIBILITY] Are you or any member of your team working on any other proposals in this Fund9?

[FEASIBILITY] Are you or your team working on any other proposals from previous Funds?

[AUDITABILITY] Please describe what you will measure to track your project's progress, and how will you measure these?

We will measure:

• the outcome of our audit including the number of vulnerabilities discovered
• the number of SPOs participating in our market
• the number of bonds sold
• the initial interest in our platform
• coverage by media outlets
• the general response of the Cardano community

We expect growth/positive results in these areas and are committed to following through on the goals of this proposal.

[AUDITABILITY] What does success for this project look like?

Success for this project involves a completed audit with discovered vulnerabilities, if any, quickly resolved. We are also looking forward to a highly anticipated launch with notable participation including a significant number of bond sales.

That said, this proposal stands to benefit the Cardano community in several key ways:

1.Decentralization: Liquidity bonds will help small and new SPOs establish themselves in the community

2. Vibrant Ecosystem: As Cardano matures, a growing number of projects will offer novel innovations. Liquidity bonds will be instrumental in the success of these projects by providing the early support startup dApps require to get new ideas off the ground.

3. DeFi Experience: As a leading DeFi project on Cardano, we are heavily vested in a robust and profound DeFi experience. Optim's future yield aggregator suite will help build out Cardano DeFi, while our liquidity bonds will help the projects we interoperate with gain traction early on.

Finally, the deliverables of this proposal will be easily audited by interested community members.

We will announce the results of the audit soon after completion and our subsidy scheme prior to launch. Our launch will be open, and interested community members are welcome and encouraged to participate.

[AUDITABILITY] Please provide information on whether this proposal is a continuation of a previously funded project in Catalyst or an entirely new one.

This is a new proposal for the further development of an ongoing project.