SLURP-9 | Deploy stake.link to Optimism

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Abstract

We propose a full deployment of stake.link to Optimism, leveraging CCIP. (co-authored by Eric of Linkpool)

Rationale

Optimism is a fast growing L2 and presents stake.link with the best opportunity for growth potential. By leveraging Chainlink’s recently launched CCIP, a full stake.link deployment to Optimism will allow you to:

  1. Bridge stLINK, SDL, and reSDL back and forth from Ethereum Mainnet to Optimism
  2. Purchase stLINK, SDL, and reSDL on Optimism
  3. Stake LINK and receive stLINK on Optimism
  4. Stake SDL, and generate an reSDL NFT on Optimism

Optimism also has the most robust grant program for L2s. Upon successful passing of this SLURP, a Builders Grant (requesting 40k OP tokens) and a Growth Grant (requesting 150k OP tokens) will be proposed via Optimism’s Grants Council.
Moving to Optimism also allows us to take advantage of the Velodrome flywheel (and the added “Tour de Op” bonuses here ), which could boost liquidity mining incentives on Optimism, and thus liquidity, while preserving roughly equivalent daily SDL emissions (currently at ~3800 daily). The details regarding the emissions (LP Incentive Program) and OP grants will come at a later time.
Our move to Optimism would not be contingent on a successful grant.

Specification

Discussions with the Chainlink Labs CCIP team have indicated that integrating their lock and mint bridge is quite simple, and can be achieved with a fair amount of speed. Discussions with the Velodrome team have begun as well. Expansion on the proposed liquidity mining program on Optimism, including any farm/bribe/purchase of Velo tokens necessary to boost the VELO/OP rewards for liquidity providers on Velodrome. The following will describe our proposed phases for the deployment of stake.link on Optimism, but some elements do depend on the proposal and passage of additional SLURPs.

Phase 1 - Asset Bridging and Trading Pools

Leveraging Chainlink’s CCIP, the wstLINK (wrapped, non-rebasing stLINK) and SDL contracts will be deployed on Optimism, will provision Locking capabilities for SDL and wstLINK to the Ethereum Mainnet CCIP DON, and will provision minting capabilities to the CCIP DON on Optimism.

Liquidity pools for stLINK/LINK and SDL/LINK will be created on Velodrome. Dependent on an additional SLURP, SDL liquidity mining incentives will be launched for these pools, attracting both current and future LPers to migrate liquidity to Velodrome.

Estimated timeline: 4-6 weeks

Phase 2 - Native Deployment

A full deployment of the contracts powering stake.link, including the LINK staking pool, SDL staking, reSDL locking, etc. will be the next target. This will require additional development work and auditing for the mechanisms necessary to batch and transfer LINK staked on Optimism to Ethereum Mainnet and batch and transfer stLINK rewards up from Ethereum Mainnet to Optimism for SDL stakers.

Estimated timeline: 4-6 weeks after Phase 1

Phase 3 - Continued Improvements

Additional incremental development targets will continue, including bridging reSDL NFTs to and from Mainnet and Optimism.

Timeline: ongoing

Copyright

Copyright and related rights waived via CC0.

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100% support contingent on team confirming technical feasibility.

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I am strongly opposed to deployment on Optimism:

  • Optimism still has not deployed fraud proofs which creates significant risk. L2BEAT provides an excellent overview of its immature state of development which extends beyond its lack of proofs.

  • User interactions with SDL are “set and forget” and therefore gas costs are not of particular concern.

  • Chainlink’s CCIP is early in its mainnet deployment and it is likely wise to wait for further usage and testing of the protocol.

Given these concerns, allocating developer resources to a deployment to Optimism is premature and carries substantial risk.

It is possible that Optimism’s aggressive token distribution to incentivise usage of their rollup is the primary driver for this proposal. I also note that this approach has also caused concerns and opposition from other L2 teams: https://twitter.com/ajwarner90/status/1691656563461616022

We propose a full deployment of stake.link to Optimism, leveraging CCIP.

Who is “we”? Are you speaking on behalf of the team?

An alternative would be deployment on Arbitrum which is far more mature but I don’t think deployment on any L2 should be a priority at this time.

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I support this initiative, although I admit that I need to look further into the concerns raised by EqS. Advantages I see:

  • It gives the protocol the opportunity to become the defacto staking of LINK in other chains, which gives the starting signal for stake.link to have a totally new and extremely useful value proposition.
  • If we were to use CCIP we would be firewalled by the CCIP anti-fraud network or whatever they call it now, as Optimism is one of the first networks to launch it, and the risk could be relativised.
  • The liquidity incentives mentioned by Seth could make providing stLINK liquidity in pools even more lucrative than staking LINK itself.
  • I believe that following the implementation of SLURP8, a significant portion of these new value propositions could be captured by the SDL token itself.

Happy to hear your thoughts SDL sisters.

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This Slurp is coauthored by Eric of Linkpool. I will edit to clarify.

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It is not the primary driver, but it certainly is part of the conversation.

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The incentives are rational. I think it’s worth pursuing, especially as the work done here can be used as a template for future bridging. There’s also a possibility that in the future, LINK collateral could be desired in places other than ETH mainnet, and the platform should be prepared to function cross-chain.

I want to point out that there is very little LINK liquidity on Optimism. There is zero on Velodrome and a small quantity in Mummy’s vault. To make our liquidity more effective, what if we drove wstLINK/ETH and wstLINK/SDL pairs? At this time, it seems like broadening market access to our two yield-bearing tokens would be the most prudent use of L2, rather than trying to recreate the mainnet-native staking platform (and direct convertibility of LINK<>stLINK) on L2.

reSDL staking on L2 does make sense to me in terms of making the system more accessible. How will cross-chain rewards remain fair and secure? How will the system “know” the total amount of reSDL in existence across chains (for the purpose of splitting rewards) and how will those rewards be delivered in a way that is scalable and not exposed to potential failure of one of the connected chains?

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This is an intriguing point that warrants deeper discussion. Imho, considering a pairing with a CCIPed LINK would be a worthwhile endeavor for several reasons, primarily due to LPs likely desiring exposure solely to LINK while also mitigating impermanent loss for the stLINK pair.

Afaik this shouldn’t pose a significant problem. Just for reference, Synthetix has managed something more intricate by utilizing a tailored Chainlink data feed to establish a unified debt pool spanning both Optimism and Mainnet. These types of mechanisms ought to be considerably more straightforward to construct using Chainlink Functions.

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We could solve this liquidity problem ourselves by just creating a LINK/ETH pair, but this adds a third pair to incentivize. With wstLINK/SDL and wstLINK/ETH I was hoping to keep it down to 2.

Without a way to trade ETH for LINK on-chain, it would only be possible to enter our LINK/SDL and LINK/wstLINK pairs by bridging over LINK from mainnet. Our LPs would be a walled garden. And maybe that isn’t our problem to solve. I don’t think it will encourage trading volume or participation if Optimism users can’t easily swap into our pairs, and our liquidity would be mostly dead, but hey, if we’re bribing, perhaps veVELO holders won’t care.

Which leads me to ask, when we’re talking about “liquidity mining incentives”, I assume we mean bribes? We can’t add rewards directly to the gauge, “incentives” are given to veVELO holders so they’ll vote for our pairs. This should be net positive for us - it’s weekly anyway, so if it stops being fruitful, we can just stop bribing - but is there an idea of how much we’ll be bribing and what reward rate / TVL we’re targeting?

Also I just wanted to ask, for clarity, will we be bridging wstLINK? Or is the rebasing mechanic of stLINK expected to work fine cross-chain? (And can Velodrome’s gauge handle rebasing tokens?)

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Confirming!

First and foremost, a sincere thank you as always for your thoughtful and detailed contributions. Always look forward to your feedback!

I think an enormous portion of our userbase would disagree with this point though. Moreover, providing folks an option - whether that’s an alt L1 like Avalanche or an L2 like Arbitrum or Optimism is a value add in terms of expanding the total addressable market. We’re also looking to be proactive here. While gas fees are currently not terrible on Mainnet, there will come a day again soon where they are.

Food for thought, and like I said, greatly appreciate the resources and your feedback!

We’ve got a few things in the pipeline here (SLURP-8/reSDL, the Staking Queue/Priority Pool which I’ll expand on in a SLURP this week) and I’m curious to know beyond those developments, what would you say should be a focus for now?

Great point, and something @SethVdL called out as well. I’m working on a SLURP for the future of liquidity mining incentives on Mainnet and on Optimism presuming this SLURP passes but I’ll go into more detail there.

Another great question. Our plan is to leverage CCIP’s bridging and messaging + Automation to batch LINK down from Optimism to Mainnet, and to batch rewards up from Mainnet to Optimism for SDL stakers/reSDL lockers. Smart contract & Chainlink Services stacked both directions.

Agreed on the ETH/LINK pair. Seth is assisting with a pair of governance proposals to the Optimism grants arm, a Builders grant and a Growth Experiments grant, the latter of which would grant us up to 150k OP, which we’d use in part to help incentivize an ETH/LINK pair.

I think contributing to that solution will be valuable, as I personally think we should launch and incentivize ETH/LINK, SDL/LINK, and stLINK/LINK. The latter two of course being our existing pools, and the formermost effectively connects the two pools to the rest of the ecosystem as you say. Would be sick if they had multi-asset pools though.

Ye, bribes. Intending to propose we deprecate ixETH LM incentives altogether, and the rest roughly as follows for short->medium term

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It seems to me that the purpose of our Optimism LP would be to make reSDL cheaper to enter and manage. The token doesn’t need to have a broad cross-chain strategy, it just needs to be accessible somewhere off mainnet. Do you see a strong need to bridge SDL to other chains beyond whichever L2 we pick?

Likewise, while clients in the future may request that staked LINK collateral exist somewhere other than ETH mainnet, I don’t see that happening any time soon, and it seems you agree, given that a hypothetical deployment of the staking platform on Optimism would be designed to send staked LINK back to mainnet.

I tend to believe that we really only need to have SDL on mainnet and on 1 L2, for access. Which means that certainly we could deploy the LINK staking platform on the chain where SDL has been bridged, and use the batching process that you’ve described. However, it would be far easier, and far less costly, to do so on a chain where LINK liquidity already exists. Even with the OP grant, the cost of bribing three pairs on Velodrome is likely much higher than it would cost to bribe two pairs on some other Solidly fork on Arbitrum.

There’s also the question of whether bribing is necessary at all for the goal of finding a home for SDL liquidity off mainnet. Involving a third party with unclear motives and incentives, just for the allure of higher APR, could be avoided by just incentivizing our own SDL pair on Arbitrum Sushiswap.

I do agree that Solidly forks have a lot of potential. They are surrounded by, shall we say, colorful characters, and I would prefer not to establish a deep relationship with any of them, as we would need to if we decided to park our SDL liquidity on one and commit to bribing it long-term.

stLINK, meanwhile, seems like something we should send everywhere; the more chains wstLINK reaches, the more yield opportunities it can access, and the broader exposure the public has to Chainlink staking. Those opportunities would include Solidly forks.

Beyond this initial SDL deployment, it seems to me that a more scalable cross-chain DeFi strategy should focus on just establishing wstLINK/LINK pairs wherever we can, and bribing them as a means of driving adoption of our LSD. Which would mean using Solidly forks in a mercenary capacity, for temporarily higher APR where it can be found.

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Even though that is one of the main goals, the overall arching theme of this proposal is for stake.link to be proactive and not reactive. It’s not unfeasible to think that we’ll see a similar rise in ETH gas costs and the platform being ready and mature on an L2 puts it in a position to solidify its position as the leading go-to LST platform for LINK staking.

Having not only reSDL management but LINK staking on an L2 lowers the cost of entry for any user who is new to the ecosystem to which the cost of staking would eat into or exceed the amount of rewards received.

I personally don’t, at least for the medium term. Longer term with staking growth and more adoption, it’d be easy to envisage a scenario where that does happen simply based on user preference like seen with most of the larger DeFi apps these days.

Ultimately, for the SDL treasury it’s better value for money. The more incentives by 3rd parties, the lesser the amount of SDL incentives from treasury. Hypothetically, if all 3rd party incentives stopped after a given period on an L2, the worst that would happen is a larger spend from the SDL treasury for incentives depending on what the current outlook is after the period of 3rd party incentives.

I don’t disagree here but practically it doesn’t make much difference, especially on an L2. Velodrome is the leading AMM on Optimism and has a lot of architectural synergy with reSDL due to the NFT design being inspired by Velodromes own locking NFT position. I would hope at some point in time for liquidity to be incentivised on different platforms and chains, it doesn’t need to be orchestrated by the DAO and we see natural growth driven by adoption. There could be of course further incentives, but at that point I’d expect the spend to be much less.

Very much agree with this point and with CCIP it’d take no development effort on our part. Simply a governance vote to whether we allow wstLINK to be used within certain CCIP lanes, there could also be a vote to whether wstLINK would be approved on all CCIP lanes now and in the future. Again, I hope a lot of this especially with TVL growth would be natural and not needed to be driven by governance.

There’s a very key point to this that I’d like to emphasise. Currently the LINK token on any chain is typically LINK minted via the chains 1st party bridge. If I’m not mistaken, all of these synthetic tokens only allow the bridge to mint that token. Because of that CCIP wouldn’t be able to mint more of that chains LINK token, rather there’d have to be a newly deployed CCIP LINK token with a pegswap style dynamic on each of those chains with the push that the CCIP version of LINK would be the canonical LINK token. Achieving this goal on Optimism would be much easier.

For cross-chain LINK staking to become a reality, then we have to use the CCIP version of LINK as we need to programmatically send LINK via CCIP over to ETH mainnet to be staked. That can’t be done with the chains own bridge, or even if it is supported, I wouldn’t want the protocol to accept the risk of using a different bridge with its own security guarantees.

In the case of deploying on Arbitrum, if anything the amount of LINK liquidity on there is a negative as it would introduce fractured liquidity. Since we’d be looking to create pools on the CCIP version of LINK vs the chains bridged version and Optimism has no LINK pools, this to me is a positive as it means the protocol can setup fresh pools without any concern of fracturing liquidity. Once stake.link’s position has then been established, it would be much easier for the protocol to do the same on other chains since there’d probably already be the notation of LINK on those chains and with stake.link’s deployment would come more weight for the CCIP LINK pools to be liquid.

Just around the choice of L2’s as a whole, in the future I can see Optimism receiving a lot more input from other teams simply because Arbitrum Nitro is under a BSL license whereas OP stack is MIT.

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We’ll see, to secure these 3rd party emissions the treasury would be paying huge amounts of the token supply to unknown veVELO voters with unknown motivations, at a time when L2 liquidity is not especially critical. This is not a casual invitation to “go if you want”, this is a major deployment with major spend compared to the existing liquidity incentive program. I would characterize this move as an operational shift to Optimism, even if the main contracts are on mainnet.

If we intend to create and whitelist a ccipLINK token in the Ethereum → Optimism lane, I assume we would also request that ccipLINK be accepted as an oracle payment token?

If we’re already going this far — creating the token, replacing vanilla LINK, creating a ccipLINK/ETH pair — just to enable users to enter the staking queue from Optimism, I would instead propose that we allow Optimism reSDL holders to enter the queue on mainnet, with LINK they hold on mainnet, concentrate incentives on the wstLINK/ETH pair, and request wstLINK be accepted as an oracle payment token. wstLINK would still be batched from mainnet and sent as rewards to reSDL stakers on Optimism.

Staking remains accessible to those who want to make use of their reSDL allocations. Non-reSDL holders can still enter staking by buying wstLINK from the pair. No need for a convoluted cyclical system to bridge LINK from mainnet, only for it to be bridged back again later.

This would serve as a template for future expansion. Simply deploy and incentivize wstLINK/X to a chain. That chain now has easy access to a canonical payment token, the chain gives yield to the LSD, and staked LINK becomes effective liquidity instead of sitting dead in staking contracts. Vanilla LINK liquidity would likely gravitate back to mainnet, becoming less fractured, which would be a benefit while its supply is continually absorbed by staking.

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L2 deployment in the future is a must but right now, I just don’t think it’s that pressing and that waiting could bring greater clarity. Sometimes the best decision is to not take a decision.

SDL has great potential as the first Chainlink LST and I wouldn’t want to see this risked in any way due to premature decisions that would have only brought marginal short-term benefits. Reputation takes a long time to build and can be quickly lost.

Just to expand on the choice of Optimism and Velodrome a bit more though:

  • Why were other L2s apparently not explored? It’s a bit surprising that Arbitrum wasn’t at least considered given it’s lead in both TVL (excluding the project tokens, Arbitrum’s TVL is $4.1b, while Optimism’s is $1.5b) and tech maturity. If we are going the L2 route, wouldn’t it be worthwhile asking a Arbitrum BD representative to provide input on this proposal and set out incentives that they could provide? SDL has real potential, we should leverage that in discussions.

  • Why the focus on Velodrome? It’s a Solidly fork, has a (primarily or fully?) anonymous team and only has a market cap of $11m. I also see that they had an anonymous team member steal $350,000 from their multisig in August last year which is concerning. Has there been a risk assessment of using their protocol? I remember when a Bancor collaboration was previously considered by the team and that was wisely walked back.

It would be good to have more clarity on the decision-making process that led to the decision to select Optimism and Velodrome for this SLURP compared to other options.

I actually think that education to the community about these initiatives and Chainlink staking more broadly (marketing) should be the primary focus at this time. Both SLURP-8 and the Staking Queue are significant improvements for SDL and explaining benefits such as assured staking space for holders is important.

I think that another major goal should be getting public acknowledgement/recognition from the Chainlink team. They will hold 7.7% of the SDL supply and acknowledgement would be greatly beneficial for the project.

Alongside that a broader consideration of L2 deployment!

Thank you for the kind words.

I do think this warrants getting input from Arbitrum as this L2 decision would lock us in for some time. In addition to Arbitrum’s far more mature tech, this rollup also has prominent Chainlink partners like GMX (who will be providing protocol revenue to stakers in the future).

I was not aware of this fishhook in CCIP, it will be interesting to see how teams deal with this.

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Obviously Arbitrum was the leading contender vs. Optimism. Candidly both are in relatively nascent stages, and its a credit to the Optimism tech stack that they’ve got additional core contributors like Coinbase themselves given their selection of the Optimism stack for Base.

The primary differentiator here between Arbitrum and Optimism is twofold:

  1. Theres relatively little LINK on Optimism. (~430k on Optimism vs. 2.8m on Arbitrum.) If we can 10x the LINK on Optimism, that represents an enormous win for stake.link as a protocol.
  2. The relatively mature and robust grant program offered by Optimism for new protocols to deploy there. I’m aware that Arbitrum has recently started offering similar incentives.

Yes there certainly has. Their protocol (in particular the v2 contracts) have undergone security audits, and have an ImmuneFi bug bounty. But I’m not - and neither should you be - under a false impression that these are sufficient to guarantee security.

Ultimately the Bancor collaboration was only ever going to be about enabling them to put their dormant LINK to use in Chainlink staking.

The long story short is that Velodrome is the leading DEX on Optimism, and has enjoyed substantial support from the Optimism team.

A few points of clarification:

  1. We are not, and will not be locked in to any one L2. The technical blockers to deploying (primarily CCIP based) once resolved will essentially allow us to deploy to any other network fairly rapidly.
  2. I’d disagree that Arbitrum’s tech stack is “far more mature”. Optimism’s node software is much easier to launch, sync, and run. Both lack permissionless validation/fraud proofs and a decentralized sequencer. In my opinion anything prior to that is a question of how centralized it is. We’re working in a space of cutting-edge tech, and perfect must not be allowed to be the enemy of good. (Although I will always prefer secure over fast)
  3. Both networks have active DeFi economies with multiple teams leveraging Chainlink services.
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Thank you for taking the time to write this out. Looking forward to seeing the Optimism deployment.

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