Year in Review: 2023
Progress, Perspective, and Innovation
Many things can be said of crypto in 2023: Uncertain, challenging, exciting, and ultimately fruitful for both Optim and the entire industry. The year began on the heels of the most tumultuous and difficult time in recent memory, with the FTX collapse in late 2022 coupled with surging inflation and aggressive monetary tightening. The year ends with a renewed vigor as builders, investors, and the general public advance web3 forward with resolve.
The depths of the bear market during the first half of 2023 forced a reckoning across the entire industry. Many companies and projects dissolved, some pivoted, and others such as Optim strategically scaled down then came back with a vengeance during the second half of the year as a clear path emerged. Adaptability, resilience, and innovation were key themes.
Cardano Ecosystem Growth
Cardano’s DeFi ecosystem matured and grew tremendously. While 2023 was only the second full year of smart contracts on Cardano, countless advancements and achievements were realized. Development costs fell, tooling improved, liquidity increased, new protocols launched, and many teams across the ecosystem enhanced existing protocols. Nearly half of Cardano’s top 10 DeFi protocols launched in 2023 with TVL growing from 200m to 700m ADA, placing the DeFi ecosystem firmly in the Top 10.
The widespread adoption and advancement of Aiken language dramatically reduced development timelines and costs. We foresee this as a catalyst for accelerating innovation, iteration and deployment in the coming year. New tools and emergent design patterns such as transaction chaining saw growing adoption and improvements as ecosystem-wide contributions accelerated innovation.
Increased liquidity and activity across Cardano DeFi enabled the progression of interoperability due to better data availability for financial modeling and parameterization. One such example is secondary market data for Optim Bonds on the Danogo trading platform. Better understanding the market clearing rates and volumes of Optim Bonds post-issuance allows a lending platform like Liqwid to set the appropriate parameters for using Optim Bonds as collateral. Understanding the dynamics of collateral liquidation is crucial for ensuring a well-functioning and resilient lending protocol.
Progress made this past year lays the groundwork for the deployment of more advanced products and protocols as market data, liquidity, interoperability, and tooling continually improve. Much of 2022 and 2023 were spent establishing a strong foundation for the ecosystem. Core DeFi protocols launched, various best practices were established, design patterns were discovered, and security was enhanced.
Optim Liquidity Bonds
Optim Liquidity Bonds, our first product, launched in December 2022. We supported and made incremental improvements to the protocol throughout 2023. While first targeted at SPOs as a way to bootstrap new pools with additional delegation, Liquidity Bonds have primarily been used to gain leverage in ISPOs. Borrowers have been eager to support ecosystem projects and participate in ISPOs with more ADA than they own or are able to borrow through overcollateralized lending. Lenders have been happy to earn what’s typically around double the base staking yield by selling their ADA staking rights for a fixed duration.
Optim’s TVL peaked at nearly 50m ADA during the ISPO boom that occurred mid-year during Cardano’s ‘DeFi summer’. Throughout the year Liquidity Bonds achieved a total volume of approximately 80m ADA and have stabilized at 20m-30m TVL. The average APY earned by lenders throughout the year was around 6.5%. As the Liquidity Bond market has moved towards frequent issuance of higher yield, smaller, shorter duration ISPO Bonds the fees generated for the Optim DAO have increased. December saw 27,000 ADA in fees accrue to the Optim DAO.
We’re proud to have developed a sustainable market that generates ‘real yield’ for lenders without relying on token subsidies in the form of emissions. Millions of ADA in interest has been paid to lenders over the course of 2023. While OPTIM tokens were allocated to liquidity providers during the first half of the year, these emissions were suspended with little to no impact on the market. Liquidity is still strong, with over 3.5MM ADA lent last epoch (456).
While volume can be sporadic and is largely dependent upon a stream of quality ISPOs, the protocol is feature complete and can continue to function with minimal maintenance from Optim Labs. We expect Liquidity Bonds to continue experiencing strong demand throughout 2024 as building on Cardano proliferates and the ISPO remains a popular tool for token distribution.
Optim Token and DAO
In October of this year both the $OPTIM token and Optim ODAO launched. This pivotal step towards decentralization was successful on many measures. There are currently over 1500 $OPTIM holders, with that number set to increase as airdrops to protocol participants occur in the coming months. Four ODAO votes have occurred thus far, with one currently active, on a range of important issues. From further formalizing the governance structure to managing protocol owned liquidity parameters, the ODAO has been active in proposing, debating, and directing the future of Optim.
The initial ODAO votes have seen the participation of over 10% of all $OPTIM in circulation. This activity is community driven and led as no team members or investors have tokens for voting. Continuing this trend of a truly decentralized ODAO will be a focus throughout 2024 as more tokens unlock and measures are considered to prevent concentrated voting blocks, a common issue with many DAOs.
As Optim continues to innovate and enters a new era of building and growth on Cardano it will be crucial for the ODAO to scale accordingly. We look forward to helping further streamline and formalize governance that can grow alongside the protocol as more decisions are made in a decentralized manner.
Optim To Date
Optim’s initial Liquidity Bond product was a pivot away from our original goal of ‘yield aggregation’ for Cardano. Strictly building on top of other projects wasn’t a viable option during 2022 and 2023. The ecosystem’s slower than expected rollout of DeFi primitives due to technical hurdles coupled with a deep bear market forced us to rethink our strategy.
Our new direction of building standalone products with a focus on facilitating yield opportunities resulted in the launch of Liquidity Bonds, which has been a resounding success.
However, the demand for Liquidity Bonds is dependent on a steady stream of quality ISPOs on Cardano. We believe that ISPOs as a viable and common fundraising method will die out in 18–24 months as staking yield falls into the mid to low 2% range. While projects may still use ISPOs for marketing and token distribution, the percentage of supply distributed will likely decrease, resulting in taking leverage via borrowed stake less popular. Liquidity Bonds are currently feature complete and can continue to run with little input from the Optim team.
Throughout the second quarter and early third quarter of 2023 Optim built a tranched lending platform similar to Maple Finance to enable compliant real world assets (RWAs) on Cardano. This emergent area of crypto is expected to see tremendous growth over the next 5–10 years, with EVM chains onboarding about $4 Billion in RWAs in 2023. A majority of these assets are backed by US Treasury bills in the form of sDAI (MakerDAO) and stUSDT (Tron).
We finished a majority of the protocol design and back-end smart contract code, but decided to put the project on hold as it became clear native fiat-backed stablecoins wouldn’t materialize. A majority of RWAs are facilitated by and require inputs of reliable fiat-backed stablecoins. Seeing two promising candidates in USDA (Emurgo) and USDM (Mehen) gave us hope that we could soon deploy and bring this important aspect of DeFi to Cardano.
The remainder of Q3 and all Q4 of 2023 were spent launching the $OPTIM token, getting the ODAO on firm footing, and designing the next protocols that will define the future of Optim.
Optim’s New Era
While facilitating yield through innovative protocols built on Cardano will always be the core of our mission, circumstances have forced Optim to think more boldly about how to best execute on our vision.
Maximally leveraging Cardano’s unique properties has always been a priority when designing products at Optim. Native liquid staking was the basis for our Liquidity Bonds, which aren’t found on any other blockchain. Continuing with this theme in a more ambitious context has led us to design an L2 — Leviathan. This critical infrastructure will enable us to deploy more ambitious yield protocols as well as help the DeFi ecosystem overcome many limitations. Speed, composability, and interoperability must be improved if we are to advance DeFi in a meaningful way in the coming years.
Leviathan leverages Cardano’s unique deterministic transactions as well as its exceptional liveness property resulting from true decentralization. While the term ‘L2’ means different things to different people, and some might say Leviathan is an ‘L1.5’ , we don’t care to get caught up in semantics. Hyperspeed, composability, and interoperability in a practical way that actually ships is our goal. We’ll continuously improve, iterate, and advance the system as time goes on and more contributors come into the fold. Some of the basic ideas behind Leviathan can be found in this article, with the whitepaper V1.1 release expected in the coming weeks. Significant progress has already been made on Leviathan, with the design and code well underway.
Optim is also developing a number of yield products designed specifically for deployment on Leviathan, the first of which will be OADA. Information on OADA can be found here, with more documentation prepared for release in January. Additional products from Optim as well as other teams will deploy on Leviathan as we build out the protocol, overcome technical constraints, and expand what’s possible on Cardano. We’re excited to bring a unique and practical scaling solution to market and continue to contribute to the growth of our DeFi ecosystem.
As development progresses on both Leviathan and OADA we’ll be better able to provide accurate timelines and a release roadmap for the community. We expect to have enough clarity for such projections by mid Q1 of 2024. Taking charge of our own destiny, moving forward with a bold vision, and creating innovative protocols that enable scaling, speed, and yield will be the theme of 2024 and beyond.
