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Introducing the Autobribes Protocol

celeborn2bealive
Optimism Prime
Published in
13 min readJun 6, 2023

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After reaching our first target, the Reliquary Prime, we immediately began envisioning a new project that could bring us closer to rebuilding Cybertron.

This article introduces the Autobribes Protocol, which is a natural extension of the Reliquary Prime. It provides a layer on top of any ve(3,3) exchange to sustain long-term liquidity by accumulating governance and redistributing bribes to its participants.

ve(3,3) decentralized exchanges

veToken Model

In 2020, the well-known Curve DEX introduced the veToken model to incentivize liquidity provision while rewarding long-term holders. Pools are incentivized with CRV tokens, and locking CRV tokens gives veCRV tokens. veCRV tokens have three use cases: earning 50% of the swap fees of the platform, voting for the allocation of future CRV rewards, and increasing APR boost for farming rewards.

Other protocols, such as Convex, have been built on top of Curve to optimize these use cases and become large veCRV holders. By accumulating large veCRV positions on behalf of their users, they provide the best APR boost and a bribing layer to incentivize users to vote for specific pools.

ve(3,3) Model

In early 2022, Andre Cronje introduced the ve(3,3) model for Solidly, his new Fantom DEX. Heavily inspired by Curve’s veToken model, it brings about the following changes:

  • All swap fees of a pool are earned by veToken voters of that pool (so farmers only earn token emissions).
  • Pools can be bribed to attract voters, giving them more revenue in exchange for their emission power.
  • Lockers earn a rebase of 100% to avoid dilution (this is the (3,3) part of the model, inspired by the OHM protocol).
  • Locked positions are stored in NFTs (called veNFTs), so holders can trade them on secondary NFT markets to exit or enter usually at a discount.
  • Lockers can add new tokens to the DEX.
  • Emission percentage is controlled by a formula that takes into account the ratio between locked supply and total supply. Basically, higher locked percentages lead to less emissions, which “should” reduce sell pressure over time.

Andre Cronje also popularized the initial allocation of veNFTs to selected protocols of the chain.

From a tokenomics perspective, most consider this first experiment a failure. However, it did lead to several attempts to improve the model.

Why ve(3,3)?

This model aims to solve several problems in DeFi:

Decentralized allocation of incentives for a general DEX

  • Most DEXes allocate rewards with a centralized system, meaning the team behind the DEX chooses where rewards go, rather than it being market-driven.

Long-term sustainability for the farming token

  • By routing all swap fees to lockers, it is expected that the token will always have an intrinsic value as it opens up the possibility of a “cash flow for life.”
  • By offering a bribe system, it allows for strong early incentives to lock up the token.

One argument often presented to motivate ve(3,3) is the “flywheel”: high bribes leading to buy pressure on the token for locking, leading to higher APRs for pools, leading to more TVL, leading to more volume, leading to more swap fees, leading to more rewards for lockers, leading to more motivation to acquire the token, leading to more bribes.

So far, it is unclear if this flywheel can really emerge without external incentives and under bad market conditions. One issue that is not often mentioned, though, is the opposite of the flywheel: the death spiral, where strong dumping of rewards reduces APRs and negates all assertions from the flywheel. This has been observed on several forks, and it is hard to know if they will survive, especially given the strong competition observed in the field.

Fork Season

The first wave of forks occurred quickly in Q2 2022, with notable examples including:

Dystopia (Polygon) and Cone (BNB chain), built by Tetu’s team. Important changes include:

  • Reduction of the rebase APR to reduce the advantage of early lockers (which led to low buy pressure from the market)
  • A higher share of veToken required to list a new token (reducing the possibility of listing toxic tokens to acquire most of the emissions)

Velodrome, on Optimism. Important changes include:

  • Reduction of the rebase APR
  • Emission rate follows a predictive pattern (no longer depends on locked supply vs total supply)
  • Removal of the farming APR boost system

Dystopia and Cone are mostly considered to have failed, while Velodrome is considered to be the first successful ve(3,3) DEX.

It is difficult to determine if this success is due to the model or other factors such as:

  • Strong OP incentivizes for locking.
  • Low DEX competition on Optimism.
  • Partnerships with Optimism projects, bribe matching from Velodrome team.

The real ve(3,3) season happened in Q4 2022 and Q1 2023. Following the success of Velodrome, several teams attempted to innovate and deploy a ve(3,3) DEX on other chains. Notable examples include Equalizer on Fantom and Thena on BNB chain.

These two projects had a promising start, leading to more forks and early participants on the Arbitrum chain, making the field highly competitive on that network. However, these forks are currently struggling from a price action point of view, and it is uncertain which, if any, will survive.

Fortunately, bribes are still flowing in on most successful ones, and Autobot degens are here to risk their bags on all these experiments!

Autobribes Protocol

The goal of the Autobribes Protocol is to act as an additional liquidity incentivization layer that supports the underlying ve(3,3) DEX by locking tokens instead of dumping them.

The Dumping Issue

Currently, dumping reward tokens is the most efficient way for liquidity providers to quickly realize their yield. Early emissions are high, and projects tend to artificially pump their early market cap, which attracts mercenary liquidity providers to farm and dump before leaving the system.

Two recent forks have attempted to address mercenary liquidity:

  • Chronos has introduced the Reliquary into their LP staking system to give more emissions to long-term liquidity providers and disincentivize unstaking.
  • Bug Finance (not yet released) will impose a tax on early unstaking and will use the revenue to build protocol-owned liquidity.

While these kind of solutions are necessary for long-term sustainability, they do not address the issues of token dumping and long-term locking, which can lead to a death spiral.

Autobribes solution

Ve(3,3) is often considered part of the “real-yield” narrative due to its voting rewards, which consist of swap fees and bribes. On the other hand, tokens produced through emissions only have intrinsic value if the voting rewards continue forever.

For the Autobribes protocol, our idea is to act as a ve(3,3) maxi and redirect voting rewards to farmers, in exchange for their farming rewards. The flow is simple:

  • Users stake their LP tokens on our protocol.
  • Our protocol stakes their LP tokens on the underlying ve(3,3) DEX.
  • We farm and lock their tokens.
  • We vote to optimize some metrics according to our needs on a weekly basis.
  • We redistribute voting rewards to our stakers.

Through this process, our protocol runs the risk of becoming the veToken bag holder, but it also provides real yield to our stakers. Additionally, stakers have an arbitrage opportunity: when our APRs are high, they can stake through our protocol, and when the farming APR is higher, they can stake through ve(3,3) DEX.

Even when our APRs are lower, some farmers might still choose our protocol because they prefer a passive strategy. They don’t want to claim and dump, nor do they want to accumulate a farming token that only goes down. We take the risk, and we offer a blue chip token in exchange.

Autobribes believes in ve(3,3) so you don’t have to worry about it!

Using the Reliquary for Sticky Liquidity

As explained in our previous article, the Reliquary, a system introduced by Byte Masons, is an excellent way to encourage long-term liquidity provision without locking in users.

The Reliquary offers a multi-pool staking system, where users deposit their assets in NFTs called Relics. The Reliquary distributes reward tokens to the pools according to an emission rate and individual pool allocations. Each pool then distributes rewards to stakers according to a maturity curve, which can be customized to increase rewards over time. Each Relic tracks its own maturity and level.

This system provides several advantages:

  • Participants who stake for longer periods receive more rewards without locking up their assets.
  • The reward strategy, pool allocations, and curve of each pool can be fully customized.
  • Relic NFTs allow for the transfer of a position, so it can be sold without unstaking from the protocol. Relics with high maturity also have additional value.

As we did with the Reliquary Prime, we’ll use the Reliquary for Autobribes to incentivize users to stay longer in our system.

In future iterations, our protocol could even offer to buy back Relic NFTs in order to build long term protocol-owned liquidity across various blue-chip token pools.

Bootstrapping Liquidity and Incentives

The problem of attracting liquidity

APR remains the main metric justifying liquidity to move in a protocol. The question for us is: how can we compete with farming APRs?

To be more specific, how much farming and locking time is required to earn the same reward value from voting as we would get from farming rewards for a given LP TVL? Let’s refer to this as the bootstrapping period. Assuming no external incentives and constant token prices (which is of course false), our protocol will become competitive with the underlying ve(3,3) after this amount of time, allowing us to attract additional TVL.

It turns out that the bootstrapping period only depends on the voting APR and not the farming APR. A voting APR of 100% means you need a year of farming to accumulate enough veToken for your voting rewards to exceed your farming rewards in value. A voting APR of 200% only requires 6 months of farming. See this annex for demonstration.

At the time of writing, the average voting APR on Velodrome is close to 60%. This translates to approximately 86 weeks of farming. Although we focus on the long term for Autobribes, this length of time is an eternity for DeFi farmers !

Autobribes will be initially tested with funds from the Optimism Prime treasury. However, as our treasury has low liquidity, it will take us some time to generate a meaningful veToken position for Autobribes.

So the question is: how to speed-up that process ?

We are considering two approaches that can be conducted together:

  • Fundraising, to seed initial liquidity in the system.
  • Issuing a new token, to incentivize additional deposits over time.

Fundraising

Funds could be raised through a NFT sale. The proceeds from this sale would be used to purchase LP tokens and provide initial liquidity to the system. This initial liquidity enables our protocol to farm and build a large veToken position. Rewards earned from the seed liquidity positions are redistributed to NFT stakers. This process is similar to what Mummy protocol did to seed its initial MLP liquidity, but in a different context.

Issuing a new token

In addition, a new token can be issued to further incentivize early deposits. We are considering using the esToken model, which has been popularized by GMX and tends to discourage short-term dumping through a smart vesting system. While there are minor variations in the DeFi space, the basic mechanics are as follows:

  • Users receive esToken (for “escrowed staked”) instead of liquid tokens as a reward
  • esToken can be staked to earn a share of the protocol’s earnings or vested to be exchanged for the liquid token
  • However, to vest, users must give up their share of the protocol’s earnings and hold some liquidity in the platform. Vesting lasts a year to ensure a minimal amount of liquidity remains in the system and sell pressure is diluted over time.

To further incentivize fundraising, a share of esToken can be reserved for seed investors.

Multi-chain fundraising

This structure can be implemented on a global scale to bootstrap the Autobribes protocol from a multi-chain perspective. But then it can then be replicated for each chain and ve(3,3) DEX to bootstrap liquidity for that specific DEX. This approach could be useful for raising additional funds when a new ve(3,3) DEX emerges, as well as offering seed investors more flexibility in their exposure to each ecosystem.

Research & Development

We believe that the Autobribes project can lead to research and development in several DeFi related fields: ve(3,3) model, liquidity provision optimization, decentralized fund management, and incentivization systems more generally.

Here are some ideas we want to explore with Autobribes. The Autobot community from Optimism Prime will initiate this exploration, but we hope that many others will join us in this research.

Liquidity Incentive Management

A significant part of Autobribes is focused on “liquidity incentive management.” While the protocol only borrows liquidity from its stakers, it still needs to make several choices and adapt them on a weekly basis, such as:

  • Which pools to offer?
  • What allocations to make?
  • What maturity curves to use?
  • Which reward token to distribute?

These are the parameters of the Reliquary and need to be carefully chosen to achieve long-term goals for the protocol and its ecosystem.

Other important decisions to make are:

  • What voting strategy to use?
  • How to distribute voting rewards? Should they be given all at once, or diluted across weeks to match a specific APR? What part should be kept for development and active management?
  • Should the protocol attempt to build protocol-owned liquidity, for example, through buybacks of users’ positions?

These choices are not straightforward and require research, monitoring, data tracking, active management, and strong involvement in the DeFi space. Each DEX likely requires a dedicated team for effective decision-making.

Contribution to the Development of the Reliquary

The Reliquary is emerging as a promising DeFi primitive that can replace previous staking systems. We believe that our work on Autobribes protocols can provide insights and open-source contributions to this system.

Through the development of Reliquary Prime, we have already identified improvements that could be addressed as part of the Autobribes project. These improvements could also benefit other DeFi projects that use the Reliquary.

Building Additional Protocols on Autobribes

If Autobribes becomes successful, some ideas for additional protocols to build on top of it are:

  • A lending protocol that allows users to stake their tokens while we farm with them.
  • A tokenized decentralized fund that builds a large treasury of LPs and deploys them cross-chain on several Autobribes instances to maximize yields for holders and keep growing.

Roadmap

The protocol has already been deployed for Velodrome and Equalizer, which will serve for initial testing. Our focus for the upcoming months will be:

  • Test Velodrome and Equalizer Autobribes using funds from Optimism Prime Treasury
  • Adapt our fork of the Reliquary to support DEXes with different staking systems (Thena for CL positions, Chronos for maLPs, etc.)
  • Choose initial pools to deploy and incentivize
  • Reach out to ve(3,3) DEXes to see if they find the model attractive, build partnerships, and try to obtain grants
  • Have the code reviewed by pairs and find funding for audits
  • Find seed investors to bootstrap the protocol

Autobribes V1 Beta Test

If you have made it this far, you are likely interested in testing Autobribes.

Please be aware that Autobribes is unaudited, so use it at your own risk.

The user interface is currently hosted on the Optimism Prime website at this URL: https://www.optimismprime.io/autobribes.

We plan to deploy a dedicated UI for the protocol after testing and before reaching a larger audience.

We have initially deployed Autobribes for Velodrome and Equalizer, but we will soon support other ve(3,3) DEXes as well. To access Autobribes for Equalizer, change the network from Optimism to Fantom at the top (and do a hard refresh with CTRL+F5 if you receive an error message).

The pools we have chosen to start with are:

  • ETH/USDC on Velodrome
  • FTM/USDC on Equalizer

As our goal is to target long term liquidity providing, the maturity curve is defined over a period of 52 weeks, one level per week, with the following level multipliers:

It’s inspired from the BEETronix maturity curve, but chaining 3 sigmoids instead of 2 to account for the long period.

The rational for this curve is:

  • The initial steep rewards early newcomers as they see their APR boost quickly increase
  • Reaching week 14 of staking is rewarded with a new steep, then comes 26 weeks of slower but smoother grind
  • Finally reaching week 40 allows access to the final strong steep, offering quick access to the moon

The veNFTs for these first two instances of Autobribes will be created in the next few weeks after some farming has been done with deposited assets. In the meantime we use funds from Optimism Prime’s treasury as rewards.

References

About the ve(3,3) model:

About ve(3,3) sustainability and ways to get sticky liquidity:

About the Reliquary:

About esToken model:

About Mummy NFT fundraising:

Decentralized Finance
Ve33
Solidly
Liquidity Management
Liquidity Provider

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celeborn2bealive
Optimism Prime

Written by celeborn2bealive

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