Deploy Compound v3 on Optimism
Preamble
Type: Meta Process
Title: Deploy Compound v3 on Optimism
Author: FranklinDAO Governance (prev. Penn Blockchain)
Proposal Introduction
Point of contact: @pennblockchain & @t-op (OP Labs)
Description: We propose the deployment of Compound III onto Optimism for the community.
Grant Application: Yes, approved under Multichain Track (Live on Questbook)
Abstract
FranklinDAO Governance proposes the deployment of Compound V3 on the Optimism Network. We believe that by integrating Compound V3 into the Optimism ecosystem, both platforms can derive mutual benefits from working with each other’s innovative environments. This proposal will outline the Optimism L2 blockchain, its features, and demonstrate why integration with Optimism will be beneficial to the Compound community. We welcome feedback from the community on the proposal, including suggestions on how it can be improved.
About Optimism
Optimism is a L2 blockchain on Ethereum that provides optimistic rollup services for transactions. Optimistic rollups combine multiple transactions that occur on the Optimism L2 blockchain and secures their validity through Ethereum’s L1 consensus mechanism. It is able to achieve this seamless integration between L1 and L2 through its implementation of EVM equivalence, allowing for rapid transaction finality and full compatibility with Ethereum development tools. Optimism addresses the primary issue preventing the growth of protocols built on Ethereum by improving transaction throughput while maintaining network security.
Optimism operates with a public goods funding mechanism, which allows for protocols deployed on Optimism to receive funding based on their contribution to the network. A portion of profits generated from operating centralized sequencers are allocated to projects that the Optimism DAO retroactively determines provide value to the Optimism ecosystem. This public goods system creates an economic feedback loop that funds the operations and innovation occurring within the Optimism ecosystem.
The Optimism Foundation has recently announced its OP Stack, a modular blockchain development environment that provides a framework for all protocols that operate within the Optimism network. Sets of open-source modules can be utilized to build new L2 and L3 “op-chains” that can be adjusted for any DeFi use case. Developers that use OP Stack are not restricted to a specific consensus mechanism or security technique and can instead access different modules similar to switching across APIs. OP Stack will essentially operate as a “Superchain” that is capable of supporting a wide variety of different blockchains capable of interchain interaction. The first stage of OP Stack will be launched in Optimism’s next network upgrade titled “Bedrock”.
Optimism is currently focused on launching its “Bedrock” update, which will simplify many aspects of the system to reduce both complexity and costs. Specifically, Optimism developers are focused on reducing code complexity while mtainiting EVM equivalence to keep the seamless integration between Optimism and the Ethereum mainnet. EVM equivalence is also needed to promote continued innovation in Optimism’s ecosystem since it allows development on Optimism to occur seamlessly. However, the primary focus of Bedrock is incorporating the foundations of modularity through the early stages of OP Stack. The flexibility of this OP Stack network infrastructure will be critical to the continued growth of the network.
Non-Technical Evaluation
- TVL on the Chain: $800M+: Optimism TVL - DefiLlama
- Number of protocols on chain: 100+ protocols: Optimism TVL - DefiLlama
- Average number of transactions per day: 400,000k+ transactions: Arbitrum Unique Addresses Chart | Arbiscan
- Number of unique addresses: 2.8m+ addresses: Arbitrum Unique Addresses Chart | Arbiscan
Number of unique active users: https://pro.nansen.ai/multichain/arbitrum
1 day: 80,000
7 days: 310,000
30 days: 670,000
Proposal Motivation
Deploying Compound III on Optimism would be immensely beneficial to the community, allowing Compound to become a core pillar of Optimism’s rapidly growing presence in the DeFi space. Optimism’s technical developments in transaction scalability and security would contribute significantly to the newly launched Compound III and its user base. Integrating with Optimism will also expand the Compound ecosystem to include the high volume of users and protocols that currently operate within the Optimism ecosystem. Partnering with one of the leading Ethereum rollup solutions will allow Compound to establish itself as the flagship leader among competing lending protocols. Below are some critical improvements that Compound deployment on Optimism would bring.
Proposal Rationale
- Significant Improvements to Transactions: Optimism rollups are responsible for $1B+ in gas fee savings across all transactions conducted on its chain. Protocol fees for performing transactions on Optimism range between 1% and 10% of the typical Ethereum mainnet. These fee reductions combined with near-instant transaction finality makes Optimism a market leader in rollup technology. Compound would significantly benefit from these improvements in transaction time, allowing for COMP to be traded at higher frequency and cheaper costs. Gaining this advantage in transaction speed and security would contribute significantly to the momentum of Compound III’s launch.
- Early Entrant to OP Stack System: The OP Stack is highly disruptive DeFi technology that is currently in early development stages by the Optimism development team. OP Stack is a set of open-source modules that allow for the simplified development of L2 and L3 blockchains by switching across these modules. Unlike other L2 systems that are limited by their specific technical consensus and validation models, OP Stack provides versatility to any blockchain use-case created on the OP Stack “Superchain”. The opportunity to become an early entrant in this networked collective of modular blockchains would cement Compound as a thought leader in the DeFi space.
- Participation in Public Goods Mechanism: Optimism incorporates a public goods funding mechanism that helps retroactively fund work done by Optimism community users to improve the network. This economic feedback helps fund the critical network infrastructure and innovation of protocol developers that allows for Optimism to continuously innovate. Compound deployment on Optimism would support the funding of open-source projects on Optimism, creating positive momentary feedback that funds users in both the Compound and Optimism communities.
Incentivised Adoption
This project will qualify under Optimism’s realm of incentivized project adoption. Given the scope and magnitude of such a deployment, similar projects in the past have received millions in protocol incentives. Compound will be treated similarly and will be eligible to qualify for these incentives as well to spur adoption in the ecosystem. Pending expected adoption and volume, up to, and if not more, ~$2m of incentives can be allocated in the form of OP and given directly to borrowers and lenders, distributed by OP Labs. This number is subject to change, and will be distributed over multiple years.
Security Considerations
Optimism’s optimistic rollups are one the most secure scalability solutions available today as they rely purely on proofs to inherit the security of Ethereum. There is a general L1<>L2 communication bridge which will support arbitrary message passing and secured by optimistic proofs and Ethereum consensus.
Importantly, the OP Labs team will be building out additional safety functionality and monitoring off & on-chain activity. Security is a top priority for Optimism and they have currently worked with many tier-1 auditors in the past, especially in the review process for the bridge code. Audits will be conducted before each major upgrade. Besides audits, the team offers a substantial bug bounty program.
Some risks to consider with Optimism itself:
- Optimism’s sequencer is centralized
- The next version of the fraud proof system is still under development
- Further risks an analysis can be found here: Optimism – L2BEAT
License Exemption
We are requesting an exemption that will allow Optimism to obtain a Compound Business Source License (BSL) to use the Licensed Work, update compound-community-licenses.eth, and deploy it on the Optimism Network, provided that the deployment is subject to Ethereum Layer 1 Compound Protocol governance and control.
Copyright Waiver
Copyright and related rights waived via CC0.