The first phase of DeFi summer on Polygon, we saw huge economic activity led by native Polygon projects like QuickSwap, AaveGotchi, Dfyn and Ethereum blue-chips like AAVE, Curve, Sushiswap, Balancer that chose Polygon to scale to the next million DeFi users. These projects brought along with them more than just TVL but their communities (the scarcest commodity in DeFi) and engaged in first of a kind low gas composability only on Polygon. We welcomed their communities with blockchain wide liquidity mining campaigns, assisted them with integrations with L1-L2 communication, helped market product launches across the 1M strong Polygon community. This synergy helped most projects to generate more revenue on their Polygon markets than Ethereum counterparts.
Our team recently did some analysis on Network effects in DeFi and came across an interesting metric popularised by Robert Metcalfe, one of the co-inventors of the Ethernet. According to him, a network’s value is proportional to the square of the number of nodes in the network, and in the case of Polygon DAU. Despite a crash in the market and a 60% percent fall in the price of $MATIC from its all time high (“ATH”), the value of the network continues to show a strong upward trend. The below diagram clearly shows the upward trajectory in network value.
With multiple top mobile wallet integrations and exchanges off-ramps onto the Polygon network in the works, growing the pie of onchain users is top priority. With partnerships like 0xDAO where Polygon and the 0xProject jointly announced a $10M DAO to fund projects that use 0x APIs on Polygon with a mission to onboard the next 1M users. Lending markets and big DEXs act like the bedrock of DeFi ecosystems and many dapps build on top of these platforms. By including them in our decision making process — we want to invite new projects to make use of our DeFi legos and thereby build new types of DeFi primitives on Polygon. Over time we have built a very large and dynamic community and we want to be able to leverage their strength and combined experience to be able to make the best decisions for the future of the Polygon Ecosystem and scaling Ethereum towards our future products..
Polygon DAA hockey stick growth
There are multiple models of engaging community and setting up governance but broadly they fall into 2 categories (although operationally they are fairly nuanced and have overlaps) -
We have been discussing the pros and cons of both these models extensively with above-mentioned projects and received valuable feedback. Operational, logistical and human resource costs involved in both models are quite different. Never has a network level DAO been successfully run that has incentives aligned with all its members. It certainly is a difficult task to go into a full DAO mode from day one. A DAO model from day one with inexperienced coordination misses the point about “separation of concerns”. (More on this later and how different working committees can work together to achieve this)
On the other hand, a committee of individuals/projects that have aligned interests to grow the Polygon DeFi ecosystem (more fees/yields for them) will govern and help incubate new projects here to increase composability on their markets. For instance a project building on AAVE’s Credit Delegation feature brings a novel capital efficient product that AMMs, smaller lending protocols with a good credit score could leverage to bootstrap their liquidity.
A yield aggregator like BadgerDAO whose primary objective is to bring native BTC into DeFi and build smart automated products, their interests are aligned if more yield generating sources for BTC are created in the ecosystem, more utilization of their synergistic partnership with Ren and their bridge, which generates them more fees. Totally possible when new projects are incubated/bootstrapped via this DAO which uses interest bearing ibBTC as collateral. And hence more they can contribute and invest in building innovative products for their community that increases overall TVL, contracts deployed (true DeFi metric of activity) and of course DEXs like QS and SushiSwap benefit from all of this as they are the eye of the storm raking in all the trading fees.
Composability numba go up !!
The ideas/projects could be as simple as creating audio/video walkthroughs of using Polygon dapps like QuickSwap and AAVE via Huobi Wallet/TWT, go a step further with RabbitHole (big fans !!). Or even development grants or liquidity mining boosts to bootstrap their native Polygon projects building the next great DeFi primitive across derivatives, fixed-yield, Social DeFi etc. creating a net positive for the ecosystem. One great example we saw of the community introducing and leading a project is IndexCoop’s recent Polygon Index. We were overwhelmed by the feedback and excitement around this product as the forum post quickly became the most active post in just 5 days. So I guess we do have people rooting for our success and we want to give them more avenues to channel this shared ambition.
On a secondary note, Polygon PoS chain sees most of the DeFi activities today. But with increasingly blurring of lines across DeFi, NFT and Gaming as seen by native projects like Cometh Games and AaveGotchi. Polygon SDK that allows you to build your chain either secure by your own validators or Polygon’s validators will be a game changer. Sports prediction platform SportX recently launched SX Network and will be going live very soon as the first Polygon project to do so. To scale your solutions on the SDK, requires multiple integrations with ChainLink, TheGraph, wallet integrations and on/offramps etc. These could be jointly funded by both projects via this DAO. Without leaking too much alpha here but anyone building tooling, integrations and projects on Layer2 [REDACTED] rollups also benefits from this DAO.
However this is easier said than done. Coordination mechanisms in DAOs are still being experimented upon. Active DAO membership is low despite introducing NFTs/PoAPs for active members. This is something the community can chime in with ideas, but we have a few as starting points — every committee member (individual or dapp) should “champion” at least 1 proposal in their tenure of 3 months in the council. Failing to which they are rescinded of their seat. They will be compensated during this tenure. As the Polygon ecosystem grows, the committee members have a front-seat opportunity over others to increase cross-collaboration for their products as mentioned above. Voting for elections of new members could be implemented in multiple ways like by using staked MATIC on PoS or via the DAO tokenholders. We encourage the community to start a healthy discussion around this.
With this DAO we welcome all active community members and DeFi projects to pitch in ideas to chalk out this idea to bring DeFi to the next million users.
A cursory demarcation of different working groups aka committees could look like this -
A Polygon native projects committee (of 3/5) that helps operationalise smaller grants of <$100k with a forum discussion and follow up call if necessary.
Polygon blue-chips like QuickSwap, Sushi, AAVE and infrastructure providers like ChainLink and theGraph to help formalise the process via forum discussion and a snapshot signalling vote from the community.
Onboarding web3 developers and building tooling to support Polygon with ChainLink, TheGraph, UMA, Covalent etc.
We want to push this conversation to our Polygon community so feel free to discuss your ideas and thoughts here. We would love to get your feedback on how to move ahead. Polygon DeFi phase 2 is just getting started — DeFiForAll mission intact.
Author: Hamzah Khan
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