Optim aims to facilitate yield generation and efficient capital allocation in the Cardano DeFi ecosystem, lowering the barrier to entry to DeFi.
It proposes to create new products, such as Liquidity Bonds and Strategy Vaults, using DeFi liquidity in productive use in the real world.
Bond issuers, (borrowers), will deposit interest into a smart contract, while bond buyers, (lenders), will deposit ADA into a smart contract. The borrowers will control the delegation, that is, they do not hand over the staking keys, and for this reason, borrowers are not required to provide substantial collateral as in normal loans.
Since the beginning of October 2022, Optim Finance is on Testnet.
Concurrency and the solutions surrounding it have been a hotly debated and contentious topic. The development team will use Transaction Chaining, a protocol to develop Liquidity Bonds to scale without the need to group and without the problems that the batcher system presents. This system adds another structure, where UTxOs, instead of having to be grouped and sorted by off-chain batchers (which can lead to tampering), are simply sorted virtually on a first-come, first-served basis. The Transaction Chaining is created and applied in a publicly visible, immutable and decentralized manner. You can find more information here.
Optim Finance Products
Optim will initially have Liquidity Bonds, designed in different products, such as SPO Bonds (Stakepool Operator), ISO Bonds (Initial Stakepool Offering) and IBO (Initial Bond Offering).
The Liquidity Bonds will allow anyone to borrow ADA delegation rights and associated staking rewards, for a fixed period of time, to drive novel use cases such as SPO lending, ISO leverage and fundraising IBOs.
A project may issue bonds to borrow a delegation, participate in any stakepool and receive all associated ADA rewards. The borrowers receive an NFT of their own, and that gives them control over the rewards key for the lent ADA, that is, without losing the keys of the lent ADAs. This NFT can be transferred or sold.
All interest earned by the lenders is paid by the borrowers on those bonds (managed by the smart contract).
All bonds will use the same primitive smart contract as the underlying infrastructure, and the different “types” of bonds indicate the different use cases and participating parties. The use case and the participants are a good indicator of the likely duration and type of interest you can expect to see.
Liquidity Bonds are partially open sourced, over those key components of the system that are useful to builders. You can see the source code on Github.
Liquidity Bonds were audited by Tweag in Q3 2022. The team committed to publishing the audit report before the mainnet launch. All products will be audited with a public repository of audit reports available.
Later, Optim will launch a series of Strategy Vaults that will allow users to have access to automated strategies for the passive accumulation of performance streams.
SPO bonds will allow SPOs to ‘rent’ delegation to increase liquidity in their stakepool. The SPO bonds will have a minimum number of months established in the contract for the interest to be paid. This gives lenders a longer-term interest position, and allows SPOs to smooth out the luck factor associated with block and reward production.
After the period covered by the initial interest expires, the borrowing SPOs must maintain the interest payment on the bond for 1 month (6 epochs) to keep the bonds active, otherwise they may be closed. As long as SPOs deposit the determined interest on the bond, they can keep the bond active for the maximum term defined in the issuance, this being the longest for which a borrower can keep ADA from a lender locked up in a bond contract. If a lender wants to get its ADAs back before this term expires, assuming an SPO keeps the bond active by paying the required interest, it can trade the bond on the secondary market.
An ISO (Initial Stakepool Offering) requires that a project have its own stakepool (or partner with an SPO), and develop an airdrop mechanism, and that users trust that the project will deliver on its promise at some point in the future. All of this interaction is detrimental to small stakepools that lose liquidity to popular ISOs, thus centralizing the network and making it difficult for parties to decentralize for sustainable success.
ISO bonds will allow users to take advantage of their positions in an ISO to offer as a borrower the rights on the delegation of ADA to a lender. Bond parameters such as interest rate, maximum duration of the bond, initial interest paid on the bond, etc. may be adjusted.
IBO (Initial Bond Offerings) will allow projects to raise funds without having to set up their own ISO or airdrop mechanism. An IBO will be a fundraising mechanism that will allow projects to issue bonuses, attach the borrowed ADA staking key, and accumulate staking rewards, being able to delegate ‘borrowed’ ADAs to other stakepools. The interest paid to lenders could be in the project’s own native Cardano token or a combination of ADA and the native token.
An IBO allows the issuer to delegate to any stakepool(s) of their choosing while retaining staking rewards, avoiding the need to overcrowd ISO filing stakepools bringing existing delegation from other stakepools.
Strategy Vaults will be innovative passive investment tools that will optimize the performance of digital assets, capturing the best performance opportunities native to DeFi. They will automate time-consuming functions, parameterizing assignments based on real-time data.
They will require a robust DeFi ecosystem to interact, among which many protocols can be leveraged to create better optimized returns. Optim will begin to implement them as opportunities present themselves.
RWA (Real World Asset) Vaults are Strategy Vaults that direct capital to be used and invested in real world assets, or other off-chain performance opportunities.
Structured Products will be a set of smart contracts that will allow users to create innovative passive investment tools that optimize the performance of digital assets. The community will be able to package and structure Cardano DeFi assets within a range of parameters, with automation of the functions based on real-time data.
The development proposal that the team presents for the following months is as follows:
- SPO Liquidity Bond Market – Audit and Launch
- IBO Liquidity Bond Market – Audit and Testnet
- Optim DAO – Initial Proposal
- IBO Liquidity Bonds – Launch
- Yield Aggregation – Infrastructure and Product Design
- Vaults – Technical Design Release
- Optim DAO and Governance – Launch
- ISO Liquidity Bonds – Launch
- Vaults – Audit + Launch
- RealFi / RWA (Real-World Assets) – Initial Design
Tokenomics and Governance
Optim does not currently have a token , but it will once the protocol is live, and governance is required to facilitate decentralization.
$OPT governance tokens will represent governance rights on the Optim Finance platform.
The Optim DAO governance structure, ODAO, will place an emphasis on extensibility and future readiness of the organization, enabling growth potential with a structure that facilitates dispute resolution.
The ODAO will be divided into three branches representing various interests:
- The Core, α, which represents the interests of the token holders
- The Council, ∆, which represents the self-interest of themselves and with power to manage the treasury
- The Court, ω, which represents the ecosystem at large and evaluates the impact of the protocols on it.
Presents a description, without mentioning individual members: “We’re a team of software engineers, finance experts, designers, crypto natives, and decentralization advocates. A top-tier team with experience building DeFi on Cardano & other chains. Alumni from: MLabs, IOHK, Celo, Algorand, MIT, Harvard, Cambridge.”
Writer’s Note: I contacted the team via email and Twitter DM requesting more information about the members, and as of the publication of this article I have not received it, but will be included if I receive it.
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