Hyperstructure Chain Chat
As a community we can look at deciding where we want to launch the hyperstructure. Focusing on a limited number of chains will focus our growth of partnerships, yield, and the protocol’s favorite - prize generation.
Reflecting on V4
V4 deployed on two chains Ethereum and Polygon, with Avalanche added shortly after. Optimism can be seen garnering the most attention for the V4 protocol, absorbing much of the Polygon liquidity. Optimism incentives drove a lot of growth in protocol TVL. Polygon continued to be the second most popular chain, differentiated by its low gas fees and more frequent prizes. On Ethereum gas fees made adoption hard. We hoped for incentives on Avalanche but they never came to fruition and the prize pool there never really took off. All chains suffered from low Aave USDC yields through the bear cycle.
On to V5
We can evaluate chains for potential protocol growth by looking at
- DeFi TVL and active users
- Potential for chain sponsored incentives
- Where Poolers are and want to be
- Yield source possibilities partnerships and integrations (relates to the first point)
The Hyperstructure brings hyper prizes by combining yield from all yield sources into one prize. This is achieved by using POOL as the prize asset. As such we will need to be able to bridge POOL anywhere the Hyperstructure lives. This puts an obvious target on chains with bridges for POOL. Especially EVM equivalent L2s with a possible exception for Polygon as a sidechain. We will also need to consider liquidity for POOL to minimize slippage as swapping POOL becomes an integral action of the protocol’s daily life.
The V5 prize system operates on a per-chain basis, with each network having its own prize pool, yield, and prizes. We can prioritize having a clear and accessible path for Poolers to find the prize pool they’re interested in. Too many options can be confusing. We can aim to generate attractive prizes. Building in too many places means less focus on headline prizes. We can ensure sufficient POOL liquidity to support efficient protocol operations without spreading ourselves too thin across multiple chains.
Again with these considerations I suggest we limit ourselves in the beginning, so strategizing our best opportunities for growth of the protocol becomes an important first step to going to market with V5.
First stop on the tour of possibilities is the mothership. Mainnet retains the majority of DeFi TVL with $27.8B today according to DeFi Llama https://defillama.com/chains. Mainnet is our POOL liquidity stronghold and the home of POOL governance.
PoolTogether V4 never quite had traction on Mainnet. Topping out with a TVL around $7mm. It was advertised as being anti-whale and often delivered prizes that were unclaimable due to gas ($10 prizes with $20 claim cost). Perhaps most notably the Ethereum prize pool was never incentivized to drive new growth.
With V5, I hope to see PoolTogether succeed on Mainnet. Whales should be as welcome as all Poolers. Gas will continue to be an important factor to consider and design around, impacting both yield liquidation and prize claiming. We will be analyzing gas costs on testnets to help determine how best to set up V5 on Mainnet. Perhaps opting for weekly draws so that prizes can grow bigger and keep costs as a percentage down. We should consider ways to incentivize Poolers, potentially with POOL, or other partner incentives.
PoolTogether likes Optimism. V4 had the most success on Optimism. PoolTogether was showcased as the front door to DeFi. A public good in DeFi education. We have a strong voice in OP governance through the PoolCollective. Current Poolers are overwhelmingly deposited to Optimism, minimizing the need to bridge. We have received two OP grants that have been instrumental in driving the majority of V4 growth.
On the downside, Optimism has a fraction of the active users and TVL of Arbitrum. With V4 we saw our growth dilute our yield source, driving USDC lending yields below 0.5%. Great for borrowers but bad for prizes. An ecosystem with limited yield opportunities is limiting for PoolTogether growth. V5 will unlock more yield opportunities with permissionless integrations but the total market opportunity has to be considered relative to the other options.
We have been on Polygon POS since the earliest days, starting with PoolTogether V3. Polygon has always offered the lowest transaction costs. Today a prize was claimed for .05 MATIC or approximately 5c. Compared to Optimism where claims cost roughly 10x as much. While L2s continue to evolve, there is a hope costs will be driven down, but Polygon remains a place where the protocol is more accessible to smaller Poolers. A Pooler with $1k deposited on a yield source of 5% can expect $50 in prizes on average per year to earn, which is more engaging when split into smaller amounts. Low cost networks like Polygon mitigate the problem of users sacrificing large shares of prizes to gas.
The low gas costs combined with Polygon’s leading partnership capabilities in the space make it a high contender for V5 deployment. With current L2 practicalities Polygon’s security as a sidechain is arguably comparable to Optimism or Arbitrum. With more development on decentralizing L2s this will not be the case, but it will continue to be seen to which costs users are willing to pay the extra price for security guarantees.
Polygon incentives are not likely. Incentives show more potential for growth than lower fees. If weighing between Polygon with no incentives and a chain that has incentives it is likely more growth will follow the incentives.
Arbitrum holds the most TVL of any L2 with $2.4B and has a very partnership centric ecosystem. It would be good to explore how we could fit into the Arbitrum ecosystem as their liquidity mining for ARB is just getting started and they have by far the strongest DeFi ecosystem of any L2. Transaction costs are similar to Optimism.
The community showed overwhelming support for deploying on Arbitrum on the governance forum and it is a recurring request on Discord.
zkSync Era and Polygon zkEVM
The newest L2s on the scene. These chains need more users to scale. Transaction costs remain a little higher until usage grows, which effectively distributes the cost across the batched transactions. Apps like Aave have already planned their deployments on both chains. There are no tokens for these ecosystems, yet. We saw with Optimism and Arbitrum that it paid off big for protocols to be early adopters where significant airdrops were allocated to protocols to incentivize further growth.
Scroll and Base
Still on testnet but very promising. We should consider allocating resources to not just communicate with these teams but also deploying on their testnets. Building these relationships early can really solidify our place in their ecosystem.
At the same time, we have no metrics to evaluate if DeFi will be successful on these chains, and we have seen that growing a DeFi ecosystem can be difficult with incentives, let alone without a chain token to drive users to bridge liquidity and make transactions.
We can see there are a lot of options to choose from and this is not a complete list. Starting out it will be crucial from my point of view for V5 launch to only deploy on 2-3 chains. We have to juggle our strategy across these opportunities and minimize speculation by communicating with all of these ecosystems to gauge their interest in working with us. In my opinion we should have Ethereum as a point of focus with two other chains as alternatives to the higher stakes of Mainnet’s gas limitations. Incentives will continue to be our number one lever for growth until much wider adoption hits the space more broadly. We need to look for ways to secure incentives like we did with OP. Incentives are the biggest opportunities right now to showcase the promise of DeFi prize savings. We need more info to make this decision, making connections with all of the chains to get a better feel of where the protocol can be best positioned for growth.
This chart from DeFiLlama shows three important metrics: number of protocols recognized, chain active users, and TVL.
Other considerations - In this decision making process we should account for any technical hurdles or dependencies V5 might encounter in deployment on each respective chain.
Hopefully this thread can help to organize the discussion around where we want The Hyperstructure to be. Some questions for you - What did I get wrong? What options did I leave out? What are your favorites? What’s most important to you? I look forward to your feedback.