Vesper + Ajna: Smart Farming Grant Proposal

Hello, my name is Zane Huffman, and I am here representing Vesper and Metronome. Below you will find our draft grant proposal.


Vesper + Ajna: Smart Farming

Request

Receiving Address: 0x9520b477Aa81180E6DdC006Fc09Fb6d3eb4e807A - Vesper DAO Treasury
AJNA Amount: 750,000 AJNA (~$75k)

Applicant and Team Information

Applicant Name: Zane Huffman
Email: zane@bloq.com
About you and/or the team: Strategy/BD Lad at Vesper and Metronome
Additional Links: https://app.vesper.finance Smart Farming - Metronome - Synthesizing the Future of DeFi

Project Information

1. What is it?

Smart Farming reflects a one-click leverage functionality on top of lending markets for the purpose of multiplied exposure to productive collateral.

Smart Farming takes advantage of high yielding Vesper vaults, which enable compounding yield on top of stablecoins and Blue Chip assets like wstETH.

Smart Farming interfaces with DEXes and takes advantage of Flash Loans to offer users the ability to one-click zap in and out of these positions.

2. What problem is being solved, how?

As part of the broader vision of Ajna lending markets to support the long tail of crypto, Smart Farming streamlines the experience for users looking to multiply their exposure to Blue Chip yield in a seamless manner. Without this buildout, productive collateral is limited on Ajna (mostly just stETH) and users looking to leverage access to high yield must do expensive and cumbersome looping.

Vesper vaults are the culmination of several years of live-in-market development. They are highly mature and support nuanced strategies and more exotic assets under the hood. For example, Stablecoin vaults can yield through Curve-Convex-Frax LP and Staking, and Vesper additionally supports an “LSD+” experience - offering APY on top of assets like wstETH and rETH.

Through Vesper + Ajna and Smart Farming, users can access very high, risk-sensitive, leverage yield in a way that is not currently seen in Ajna or more broadly throughout the space.

3. How will this project be a source of growth or success for Ajna? Please include a step-by-step summary of how you imagine the completed project will affect Ajna.

This initiative will establish the highly productive, organic borrowing activity to the benefit of Ajna.

  1. New markets introduced will allow users to multiply access to high stablecoin and ETH yield through corresponding Ajna markets.
  2. $AJNA lender incentives will drive more lending TVL and support greater utilization of the supported markets.
  3. This activity reflects highly efficient revenue for Ajna, as users are highly demanding and insensitive to interest given high collateral APY. High velocity nature of the activity can also drive larger origination fees.
  4. After successful market data, new grants can be supported in future cycles to grow TVL further and extend to new markets.

4. What is/are the objective(s)?

  • Grow Ajna TVL and borrow activity by $10-15 million through duration of incentives.
  • Establish a third party frontend for the purpose of Smart Farming on top of the corresponding Ajna pools.
  • Accelerate organic borrow activity at high interest rates to the benefit of the protocol.
  • Unlock a USP of Ajna as the go-to lending market for leverage yield farming. By extending support to higher yielding DeFi positions and more assets, plus servicing deeper liquidity to those positions, Ajna can offer a wider array of leverage yield than any other protocol.

5. What is/are the deliverable(s)?

  • Enable Smart Farming through third party frontend for users to access leverage yield farming on corresponding markets.
  • Drip $AJNA over 4 months to lenders of those lending markets. AJNA will be distributed at a rate that targets an extra 10% => 5% APR for the corresponding lndrs.

6. What is the timeline for completing the deliverables?

  • AJNA incentives to begin streaming in advance of Smart Farming deployment
  • Third party one-click Smart Farming functionality to be deployed ~4 weeks after receipt of grant.

7. What level of support do you anticipate needing through the duration of the project?

Community engagement to ensure exposure and utilization.

8. How often will progress reports be published to the forum?

Updates will be published to the forums once the following milestones are achieved:

  • Successful internal test
  • Public Beta deployment
  • Public Launch

9. What are the estimated costs associated with the full completion of this project?

This buildout will require roughly 2 sprints (4 weeks) of work across the entire engineering team, which consists of 3 Smart Contract engineers and 3 Javascript engineers (all FTE).

10. If applicable, How will the project be maintained after completion of the grant?

At the completion of this first grant, the value proposition will be well understood. The community can coordinate to support a further grant to extend incentives and introduce new markets. If no further incentives are received, the markets and frontend still will function normally (although may be limited in volume if significant lending TVL leaves).

Additional Information

11. How will you handle a delay in your project timeline?

Should any disastrous instance occur, we can coordinate with the community to delay the beginning of AJNA incentives drip.

12. How will you handle a scenario where the project can’t be completed due to insufficient funding or other factors?

Should the team be unable to carry out the project to fruition, the team will coordinate with the community to return the grant.

13. How will you handle a scenario where the project is completed, but significantly under-budget?

The team is funding the development in-house. 100% of the grant is to be distributed as incentives. If we cannot execute due to lack of funding, then the steps outlined in #12 above will be carried out.

I hodl AJNA and Vesper, and I would like to see this implemented.

1 Like

Initial Thoughts

I’m inclined to vote no.

  1. $250k (2.1m AJNA) is a huge ask considering the maximum distribution of the grant cycle (7.3m AJNA).
  2. I’m unconvinced whether this is a good spend of resources;
    It seems like it funds a short-term benefit, but is not long-term sustainable.
  3. A new third party frontend is cool, but it seems like the protocols have pretty low TVL and users themselves. Not sure if this is a value add. Will it attract new users? Why don’t more people use Vesper/Metronome now?
  4. I’d prefer to keep incentives limited to the protocol’s pools themselves, not 3rd party strategy pools. (Unless there’s a really good argument for it.)
  5. Summer.fi already has a looping tool for Ajna pools. I guess your protocols gets liquidity from outside the loop to make a position more leverage-able? Do I understand that correctly?
  6. Nice that 100% of the grant is going out as incentives, but still feels like too much. Additionally, why are these 250k USD in AJNA distributed so rapidly? 4 months is such a short time frame. It makes me think this is a short term growth hack that doesn’t truly produce long term organic usage of Ajna. Sure you can produce some additional TVL by throwing money at users, but is that TVL sticky?

Questions

  1. Which markets are planned to be incentivized?
  2. What’s the difference between Vesper and Yearn?
  3. How many MAUs does Vesper currently have?
  4. Will Vesper be providing any VSP incentives to these Ajna-underpinned Vesper Pools/Vaults?
1 Like

Hey there, thank you for your detailed feedback! Allow me to react:

  1. On grant size/distribution rate - Since this is the first round of grants, the amount requested is more art than science. Intention was to estimate a distribution rate that would drive a significant uptick in TVL and over a timeframe that would allow us to “re-up” the incentivization should the community prefer.

However, we did go ahead and publish early to get feedback, no problem to modify the size/length of the grant in line with expectations of the community.

  1. On existing adoption - This leverage yield farming loop is bottlenecked by access to borrow liquidity (right now just through Metronome, through Synthetic assets). These assets have consistently been 1-2% under peg, which actually highlights a very high demand. Users are willing to loops in and take an upfront 1-2% loss (multiplied by their rate of leverage) because the yield is high and consistent.

Extending to Ajna and other lending markets allows us to spread liquidity demand and better accommodate more users.

  1. On location of incentives - Apologies if ambiguous, these incentives are to be distributed to Ajna pools, not Vesper or Metronome. The pools will use Vesper positions as collateral but they are Ajna pools.

  2. Indeed it has been a long grind, however Vesper does have some brand recognition and the emphasis on high security resonates across both communities. There is already some cross-pollination which is how we were introduced to Ajna originally.

  3. This experience is similar to Summer, however we are introducing more complex collateral (Vesper pool deposits). This requires more complicated interactions than a simple looping. It also enables users to earn higher APY for the position. Summer currently could not support this flow out of the box (but it would be great if they extend support as well - their users would receive the same benefit/incentives).

  4. Covered by #1 :slight_smile:

~~

  1. USDC Lenders to vaUSDC (Vesper USDC) collateral and ETH Lenders to vastETH (Vesper stETH) collateral are to be incentivized with the AJNA grant.
  2. Both Vesper and Yearn are yield aggregators. However Yearn leans more towards “yield compounding” whereas Vesper offers strategies that will wrap into more exotic underlying assets. For example, Vesper users Curve/Convex/Frax strategies on the backend whereas Yearn will separate those underlying assets into different strategies. As a result, Vesper can support more exotic pools (like LSTs) as well as more intricate (and higher yielding) strategies. In leverage yield farming, the base collateral APY is very important because it enables more borrowing at higher interest rates.
  3. We do have several thousand active wallets, I can get more specific info there.
  4. Yes, we have an open emission that incentivizes certain pools monthly. We can contribute a significant portion of these VSP, however the token is almost fully distributed and the total monthly emissions is quite low (20k VSP).

LMK if that all makes sense!

UPDATE: After feedback from @Davidutro and others, some modifications have been made to our grant proposal:

  1. AJNA requested reduced significantly (from 2.2mm AJNA to 750k AJNA).
  2. Criteria for distributing AJNA changed from a set distribution to a target “APY Boost” of 10% => 5% over the duration of the grant.

Thank you :slight_smile:

What makes this a no, but a shorting platform for 1/4th of the total grant round a yes ? @Davidutro

This proposal is now live: https://grants.ajnafi.com/proposal/30236469608671429398422676468132795533117073943141343589472983430176726402948

@greenjeff Thanks for your replies!

  1. no worries, thanks for bringing to down a bit! Makes it easier to consider.
  2. I see, so the incentives would be directed at these LP token Ajna pools to try and attract more of that lender liquidity. I think this will still be challenging given a 15% DSR and generally high yield environment rn. It might make most sense to revisit this grant request in the future when the AJNA token market has more liquidity itself and when the “risk-free” yield of Defi drops a bit. Hopefully these MM proposals will result in a healthier AJNA market.
  3. Ah, ok, I misunderstood. This is good.
  4. Is Vesper/Metronome on other chains? Curious how you came across Ajna :smile:
  5. I see.

1b. So vaUSDC/USDC and vastETH/ETH pools only, got it.
2b. I see. I thought yearn strats are fully customizable and can support that same level of complexity.
3b. Sounds like quite a lot.
4b. Cool, good to know.
The two are totally different.

One more question @greenjeff; is the Vesper setup coming to L2s? I would be more keep to fund something like this on a non ETH mainnet Ajna instance.


@Doppler

While I am still leaning no, I am more open to funding this in a future grant cycle given the additional info shared and cost adjusted.

The way I see it;
This is an incentive request for a short/medium term program to pull users into specific pools with leverage and yield farming crowd as the primary target user. It will run out. It may not be long term TVL/Liquidity. It’s on mainnet which is expensive. It doesn’t improve the UX of the more general Ajna user.

The other, Shorty, is a UX unlock. It makes it easier to short anything on Ajna. Not only that, but it also includes a revshare agreement that sends revenue to market make AJNA.

Seems like two totally different value propositions and strategies to me. I find shorty pretty attractive.

I would actually argue that this buildout is fairly adaptive to different interest rate environments -

Vesper stablecoin pools are also earning very good yield in this environment - consistently 20%+ in these months. ETH and LST pools are yielding quite well. Even with the 15% DSR, there is an equilibrium where both leverage farmers on the collateral side and incentivized lenders are simultaneously tracking over 15%. And ofc, ETH APY environment remains different. I think that’s an easier sell - the “similar” risk-free rate that someone like aave or compound offers is still low-single digit % APY.

Vesper/Metronome are on Optimism as well. Technically, this grant doesn’t specify a chain. Mainnet is the stand in given that most Ajna TVL is here but there is no problem to gear the grant towards Optimism deployment. Once the buildout is done it is trivial to support both chains and all pools anyway.

Vesper/Metronome historically has had a good relationship with Maker community. Ajna was introduced by several community members who are users and holders of each projects’ tokens.

I understand and respect the hesitation with optimizing what is effectively an “emissions allocation”. I would flag that this buildout is committing significant work, unsubsidized, and well in excess of the grant size requested for a very robust, fullstack product that we have not yet extended to any lending market beyond Vesper/Metronome. There is value to Ajna to have access to this product, and this product is being introduced with no additional cost.

We are thinking of this grant, which is forwarded entirely to Ajna users, as a bit of an insurance for us that we will be able to drive some initial adoption to validate the work being done. We do have other external integrations that we are deprioritizing in favor of Ajna. The permissionless nature of Ajna is exciting because we can grow together on new chains and new markets. We have many more assets that we would like to support - and we believe that this grant serves as a good faith anchor to continue building on top of and around Ajna into the future.

Ty for that context, def helps. Yea I can see the 15% DSR is inconsequential given the yields you guys are generating. Didn’t realize it was so high; though tbh I didnt check it when I was writing my comment. I should have!

:fire: great to hear. I think Ajna needs more L2 love. Eth mainnet prices so many users out.

Hope my assessment wasn’t too unfair! I really respect that you guys are building this out, it def makes sense for your users and overall product/market fit.

Good way to think. I’ll take all of what you said into account when I make my final voting decisions for this cycle tomorrow.

1 Like

I support external integration through the grants program over funding internal development that are contracted pretoken and pregrants program