Make Velodrome liquidity hub for NEXT on Optimism Superchain ecosystem

Abstract

Create a NEXT/USDC liquidity pool on Velodrome and deposit $5K worth of $NEXT tokens per week to begin bootstrapping liquidity on Optimism.

Motivation

To foster the long-term growth of Connext, it is essential to develop a sustainable liquidity strategy for $NEXT, one of the best interoperability solutions in the space. By initiating $NEXT liquidity on Velodrome, Connext has taken the first step in establishing its presence on Optimism, a robust ecosystem that nurtures the Superchain vision.

Rationale

After the airdrop, on-chain liquidity for $NEXT was fragmented across chains, totaling approximately $35K, 1 mostly in permissionless pools on Uniswap V3 and Quickswap. This liquidity is insufficient to support large trading orders without significant slippage. Therefore, given Connext’s vision, it is important to develop a sustainable liquidity strategy for its governance token, $NEXT.

Velodrome is the leading DEX on Optimism, with about $150M in TVL at the time of writing. It directs $VELO emissions to liquidity pools based on votes by $veVELO (vote-escrow $VELO) holders. Protocols can use $veVELO or voter incentives (bribes) to attract votes and VELO emissions for their liquidity pools. Major DeFi protocols such as Lido, Synthetix, and Stargate are leveraging Velodrome to build up liquidity on Optimism in a capital-efficient way.

The benefits include:

To Connext DAO

• Deeper liquidity
• Velodrome support for Connext marketing initiatives
• Tapping into the protocol with the most amount of users and transactions on Optimism

To $NEXT users

• Lower slippage for a wider range of swaps
• Having an established platform to LP on Layer 2 Ethereum

To Velodrome

• New token to choose from when deciding to trade, purchase, hold or vote

Specifications

Connext DAO will deploy the NEXT/USDC pool and deposit $5K worth of $NEXT per week. Connext may also be eligible for a share of 4000 OP every week whilst it remains in the Top 15 ecosystem pools by voter incentives as part of the current “Tour de OP” incentive program. This amount will be proportional to all other pools in this category and will be deposited as an extra bribe to boost votes further.

Steps to Implement

In the first week, $5K worth of $NEXT tokens will be deposited as rewards for $veVELO voters via the “bribe” feature on Velodrome. Based on the recent Velodrome performance, we can estimate that the pool could provide an approximate 75% APR and attracting around 500K TVL. With the upcoming Velodrome Slipstream - Velodrome's Concentrated Liquidity pools, $NEXT LPs could benefit from even higher APRs from trading fees by voting for the pool.

As this is an executable proposal, a multisig separate from the Connext treasury has been created to manage weekly rewards. The executable part of the proposal will require the DAO to approve the transfer of $50K worth of $NEXT tokens ($5K x 10 weeks) to the newly created multisig below:

0x1a3C9dC0c3fb2D9bC435e28479b3d9b3e3343347

This multisig has 5 signers - 2 from Velodrome (Methodic and Tao) and 3 Connext delegates (Facu, Stefan and Veil). Once funds are made available, this multisig will need to deposit the $5K bribe at the beginning of every weekly voting period (“epoch”). Once a voting epoch is completed on Wednesday at 23:59 UTC, $VELO emissions will flow to Connext’s pool accordingly.

Transactions and the tests are linked here: https://github.com/connext/dao-testbed/pull/2/files#diff-8a8d3516dbe33ab0fc66dd861b85c424d2b5392824ea214673927aab85dce19a This repository https://github.com/connext/dao-testbed has instructions on how to simulate the associated transactions. Instructions for running the simulations are in the README.

Timeline

Starting the first epoch after Connext DAO formal vote.

Overall Cost

$5K x 10 weeks ($50K total) from Connext DAO to the new multisig, to be used as weekly voter incentives on Velodrome.