DeFi 101: The Sonne Side of DeFi
Sonne Finance was the first native liquidity market on Optimism that provides a decentralized, transparent, and non-custodial lending environment.
What is Sonne Finance?
As we saw Layer 2s really take off in 2022 and gain momentum, it was only a matter of time before lending protocols not only began supporting them but also started launching natively on these chains.
That is where Sonne Finance stepped in to become the first liquidity market on Optimism, currently boasting an impressive $33m TVL. Their lending protocol is forked from Compound and offers a familiar peer-to-peer, decentralized, and non-custodial environment that DeFi enthusiasts will be pleased to see. Unlike Compound however, Sonne has integrated with Velodrome to create an unmatched and powerful mechanism that rewards its stakers through bribes. Their goal is to provide the best incentives around with the deepest pockets, all while being native to Optimism. Read more.
Sonne currently offers the following assets for lending/borrowing:
- WETH
- USDC
- USDT
- DAI
- OP
- sUSD
- SNX
- WBTC
- LUSD
- wstETH
Sonne Staking and Revenue Sharing
In order to distribute protocol revenue and VELO rewards fairly, Sonne introduced a staking and revenue share system which currently consists of sSONNE and uSONNE. Initially, Sonne provided 80% of the protocol revenue and VELO rewards to stakers. However, after the first three months, they switched to a 100% distribution model as team tokens became started to become unlocked. So where does this revenue come from? The answer is simple. In order for the protocol to generate any income, a risk approach fee is added to the pools, meaning the riskier the pool the higher the fee will be.
As mentioned earlier, there are two staking pools: sSONNE and uSONNE, each with different reward methods. sSONNE rewards are used for purchasing SONNE tokens from the market and distributing them to sSONNE stakers, while uSONNE rewards buy USDC from the market and distribute it to uSONNE stakers.
It’s important to note that once you deposit into one of the staking pools, there’s a lockup period of one week before you can unstake. This is mainly to prevent “just-in-time stakers,” which are often bots.
So let’s talk a little about Velodrome. In order to reward stakers, Sonne cleverly uses Velodrome by depositing SONNE tokens and USDC as an LP, and then, with their liquidity emissions, bribe Velodrome voters to direct those emissions to the SONNE/USDC pool. This way, Sonne earns VELO token rewards that go straight to SONNE stakers. As an extra bonus, stakers can also pick if they want to be paid in SONNE tokens or USDC by staking with sSONNE or uSONNE.
Summary
Sonne Finance is making waves as the first native liquidity market on Optimism, and with various assets to lend and borrow, its unique collaboration with Velodrome ensures consistent rewards for stakers. Through their fair staking system (sSONNE & uSONNE), Sonne creates an attractive environment for users, who can pick their preferred pool based on the rewards. In order to drive revenue, they operate through a tier-based risk fee model and a one-week lockup period to deter bots, ensuring a genuine user-driven community. We will no doubt see Sonne Finance continue to strive on the Optimism network, with their accepted assets only increasing and out-of-the-box solutions for rewarding their user base.
