0x Polygon Grant Application from Ruler and Cover

Hello everyone! On behalf of the Ruler and Cover protocols I would like to outline our application for the following joint grant that was announced between 0x and Polygon.

let’s start by quickly introducing both protocols:

Overview

Cover Protocol provides peer to peer coverage with fungible tokens. It lets the market set coverage prices as opposed to a bonding curve. The process starts when market makers (MMs) deposit collateral to cover a product. MMs will receive two types of fungible cover tokens in exchange for their deposit. MMs can choose to sell the fungible token(s) to earn a premium. Coverage seekers can then buy the coverage they need.

Ruler Protocol is a peer to peer lending protocol where loan interest is also set by the market. Key features of the Ruler protocol is that it offers non-liquidatable loans at a fixed rate. Just like with Cover, the process starts with depositing collateral, in this case by the borrower, in exchange for fungible tokens. Borrowers can then sell these tokens to lenders for stable coins at a market price. After the expiry of the loan lenders can use these tokens to claim their premium or defaulted collateral if any.

As you can see both protocols rely heavily on the trading aspect between the coverage seekers/providers or lenders and borrowers. For a long time we had been using the Curve metapools to facilitate such trading but that requires a lot of incentivization in order to maintain deep enough liquidity. That would render large trades impossible due to high slippage as well as make the entire model not so capital efficient.

0x Integration

From the very start of Cover and Ruler we were looking for better ways to facilitate trading among our users and 0x provides a solution for us. A few months ago we launched Coverrulers. Coverrules is a orderbook-like trading platform that would allow our users to exchange internal fungible tokens with no slippage and low gas fees. Coverrules is now the only way to trade Cover coverage and soon will become the only way to trade Ruler loans. Despite this switch not being officially announced for Ruler yet, Coverrules already facilitated larger loans that were not possible with the AMM system that is in place.

We believe that with low gas fees of Polygon and the order book system of 0x Cover will be able to offer some very attractive coverage rates on a wide variety of protocols that appear daily on the Polygon ecosystem. Ruler in its turn will enable users to borrow substantial loans without fear of being liquidated (first protocol of this sort on Polygon) and even use our platform to obtain pretty much the cheapest options in crypto.

What do we need funds for

Our protocols do consistently generate revenue and have a sustainable economic model. Despite that, in the current DeFi environment it is hard for a new protocol to attract lenders and coverage providers purely by generated fees. We are asking for MATIC rewards as well as ZRX rewards that we will offer as an incentive to lenders and borrowers trading loans as well as coverage providers and seekers trading insurance on Coverrules on Polygon. Besides that we will be considering incentives in our own native tokens - COVER and RULER. This grant we are asking for will directly translate to the fees that 0x will generate, as incentives will only be distributed to those users who trade on Coverruler - 0x based solution.

Emission Schedule

For both Cover and Ruler we ask our partners to provide $6000 worth of rewards per week per one collateral. Once we launch on Polygon we plan to support 4 native collaterals:

  • wMATIC
  • ETH
  • BTC
  • ZRX

Given the above number we would need $24,000 of rewards a month per individual pair or $96,000 per month. For Ruler we would want to run the incentives program for at least 3 months.

For Cover at a start we are planning to provide coverage for the following protocols:

  • AAVE
  • Curve
  • Quickswap
  • Sushi

Given the above number we would need $24,000 worth of rewards per month per insured protocol or $96,000 worth of rewards per month. For cover we would also want to run the incentive for at least 3 months.

Below you will see three options that are only different by how long we would like to run the incentive program for: 3 months, 5 months or 6 months. We would also want to break down the rewarded tokens in a 70:30 proportion in MATIC:ZRX respectively.

Relevant Links

Contacts

TG: @Cryptocorgi, @DeFi_Ted
DISCORD: cryptocorgi#7032, DeFi Ted (Bakes)#0367

Also feel free to reach out in any official Ruler or Cover group on any platform. We are open to any suggestions and opinions.

Options

1. Option 1

Run the incentives program for 6 months thus award Ruler protocol and Cover protocol $576,000 of rewards each or $1,152,000 total.

2. Option 2

Run the incentives program for 5 months thus award Ruler protocol and Cover protocol $480,000 of rewards each or $960,000 total.

3. Option 3

Run the incentives program for 3 months thus award Ruler protocol and Cover protocol $288,000 of rewards each or $576,000 total.

4. Option 4

Do nothing

6 Likes

Ultimately the 2 protocols will rely heavily on the 0x Protocol and the orderbooks structure for the long term success of our protocols.

As a market driven priced rate for risk lender and premium for risk insurer it is imperative that orderbooks form the basis of our ecosystem to be able to provide the most capital efficient outcomes for our users.

We also have upgrades slated that will increase the use of orderbooks for passive liquidity participants like AMMs that would drive further use and adoption of the 0x tech stack.

5 Likes

Hi! I’m Peter. I’m a user of both ruler and cover. Ruler is a distinct lending-borrowing platform with non-liquidation unlike many lending platforms available in the Defi space today. Cover is also a great project but with a funding lag too. Due to the plans which the team has scheduled, if funds are granted to the team, cover would distinguish itself as the best coverage platform in the Defi space. The Coverrules team are a very dedicated and goal oriented team whose lag bothers on finance. Being in short of funds, still tries to incentivize users.
I’m giving my support to the team for this grant.

TG: @Ujala_peter

3 Likes

Cover is solid project and is very likely to succeed with some funds. Team has greatly improved capital efficiency in v2 and coverage will be very affordable by coverage seekers while give providers attractive premium. It is open market and thus more decentralized than Nexus Mutual.

2 Likes

I am users of both ruler and cover protocols. I was exposed to 0x via ruler order book system. ATM, most defi project focuses on AMM, and order book is not main stream anymore.

If the grant is approved, it will be used to increase the publicity of both OX and ruler eco system.

2 Likes

Hi team, thanks for presenting this proposal.
I wasn’t familiar with your products and protocols, and I’m curious to learn more about them.
In the meantime would you mind sharing a bit more detail on how are you planning to distribute the incentives?

Thanks in advance!

3 Likes

Yes, absolutely! We are currently testing a reward distribution approach on ETH on coverrules.com.
Users place sell and buy limit orders on the order book and then we take random consistent snapshots of the order book. We see how far from the market price your order is and how large it is. We use this number to then compute your weight of rewards for this snapshot. People then can go on the order book and see how many rewards they are eligible for. They can then claim these rewards once a week. As we are at the very start of giving incentives to order books users, we are still looking for best ways to do this and improve our approach. By the time Ruler and Cover would launch on Polygon we would have a solid and battle tested approach that we are exploring now on ETH.

4 Likes

Interesting! Looks like a great idea to have P2P coverage market. Insurance is not popular right now but have the potential to be the next big thing.

1 Like

Thanks for the reply - ok it looks some sort of liquidity mining program over orderbooks, interesting. Has that worked well for you?

On another note, I’ve seen you guys submitted this proposal on snapshot for temperature check. I’m glad you guys did that so we can get a more concrete signal from the community.

Looking at the options, they’re all ~$500k and above. Personally, while I’m absolutely in favor of experimentation (with underlying risk of sunk cost), I find it too steep.
I would find it very useful to have an extra option in between 3 and 4.
For example, what about running incentives on 2-3 protocols/collaterals and/or running it for 2 months instead of 3?
If viable, would you guys consider adding it to the options of the temperature check?

3 Likes

The 0xEVE team has reviewed and scored the proposal as shown below.

In summary, we support funding based on the merits, but feel that the amounts requested are high. We haven’t yet developed a good way to incorporate this factor into the scoring, so for now, we will just include it as a comment for the community to consider in their evaluation.

We encourage the Ruler/Cover team to provide additional information regarding how the incentive amounts were determined and/or reduce the amounts requested, which (as @mintcloud suggested above) could be achieved by reducing the scope/duration/etc., and propose it as an additional option or some other approach.

As it stands, the funding range of the various options proposed comprises 8-17% of the total Treasury budget, depending on the option chosen.

4 Likes

Hi @nikita in light of the recommendations on the amounts etc.

We will provide a revisal shortly to be more in line the specifics in regards to our offer vs total allocation for 0x. We have also now managed to get some more accurate data on our end around performance metrics we can include.

We appreciate the initial support of the request.

4 Likes

Thanks @DeFiTed. Let me know how you want to proceed with the current snapshot proposal too.

If you’re planning to revisit the options, it’s potentially better to edit (can you?) or delete the proposal to create a new one.

Let us know

1 Like

Despite interesting concept, the proposed funding is a good chunk of the treasury funds. At current stage of this proposal I vote for not accept it. However, if there is more depth economic research or data that supports the return of investment that the protocol will obtain from this proposal in terms of users and protocol fees, I can change my view. I would like to view a calendar with deibursement of funds and what expect at final.

@mintcloud we have deleted the snapshot proposal to have a bit more on a discussion here on the economic incentives structure and changes on the terms.

Reconsidering the framework to be within 2-5% of overall budget, would 0xProtocol be considerate of a KPI or success driven arrangement by where we were to have RULER+CALL Option in place for 0xProtocl as a why to align incentives thoroughly?

I am thinking something like a UMA success token where we apply a % of volume and liquidity of previous months performance as targets on the RULER and COVER platforms that we need to achieve in order to continue to the next term, however with increasing amounts of rewards if we continue to achieve revised targets.

We would than allocate a RULER+CALL OPTION to 0x in the beginning, why? Our success becomes your success. The more we grow and our token grows the higher the return it is for 0x.
Given the liquidity of our token in comparison to ZRX and MATIC, liquidity farming is almost a double edged sword for us, so having rewards for our small size today that are as deep as liquidity as these is just a god send.

That is why in return this variation would make a lot of sense. We get a KPI and targets to achieve to continue to receive and obtain higher amounts of rewards to grow with the users and 0x benefit by helping a project grow with them and are rewarded as such with the RULER+CALL OPTION strategy as outlined.

If we fail abysmally - you get some RULER tokens and we don’t get another round.

If we are a pass - great opportunity to review of how we can make it better

When we succeed - drinks!

2 Likes

I think this is a great idea and intuition. We need to explore corner cases around logistics (the option/success token should be tied to the Treasury) and how to handle tracking of KPIs.

Regarding targets, I personally would be mostly interested in users and volume VS liquidity (the latter in itself doesn’t do much alas, but rather serves the first two). You mentioned applying a % of volume of previous months. Would you mind giving us a sense of where RULER/COVER stood in terms of volume and # users?

2 Likes

@DeFiTed - I noticed you made reference to UMA’s tokens types as a potential solution to your outlined rewards program. I really like the direction you are going down here and can see a clear case for using UMA’s KPI options or our Success Tokens.

I’d be interested in working with you to put together a proposal with numbers behind it that aligns your goals with the comments above.

For context, we worked on 2 examples of proposals with other teams before. BarnBridge KPI options and ShapeShift Treasury Diversification. These might not be perfect examples of your intentions but are illustrations of previous proposals we worked on.

It should also be noted, we have no interest in taking any portion of the grant, just that if there is a case to use UMA’s solutions, we’d happily add some support.

Let me know your thoughts
Chandler - UMA team

4 Likes

Hi @Chandler-UMA - we would love to talk more about the success token at UMA and how to go over adding KPIs to this for aligned success.

We have redesigned our proposal to allow as a launch amount with KPIs starting in month 3 giving us 2 months to work out how to design this properly and what are the key measurables we are trying to achieve etc.

I will reach out to you via discord :slight_smile:

1 Like

Categories: 0x orderbook, 0x protocol feature development, polygon deployment

Ruler and Cover application for joint 0x/Polygon grant addendum.

First of all we would like to thank everyone for the attention and feedback that was provided for our proposal. We also appreciate the score evaluation that was released by the 0x team that helps us better evaluate our proposal. Given all of accumulated feedback we have noticed that the major pinpoints for the initial proposal were:

  1. Requested funds being a huge chunk of the grant budget.
  2. Lack of a detailed overview on how the funds are going to be spent.
  3. Lack of information on the return on investment whether it is in the increased user base for 0x as well as the protocol fees.

In this follow up post we will try to address these three major questions and we welcome any further discussion.

Observations from the month of August

Our team views both Ruler and Cover as long term projects that we would want to develop for years and not just months. That was the motivation behind askin the grant that could cover operations in a span of 3-6 month. A long term incentive program is much more appealing to us as we plan to support our users and build features for a much longer period than that. At the same time we understand that this results in a much higher grant application so we received multiple suggestions to shorten the program duration.

After reviewing all of the suggestions we have also noticed that a more KPI (Key Performance Indicator) based approach is also welcomed by the community. For this reason we would like to offer an approach where we will secure an amount of funds that will be unlocked on a per month basis if and only if certain key metrics are met. In a situation where we do not meet the KPI for a given month we forfeit the right for the remainder of the grant.

Before we get into the key metrics we would like to show some statistics on lending pairs that now operated on CoverRules for a month.

  1. Users who wanted to borrow against wETH at a rate of 1600 DAI per wETH had to use the orderbook for a month.

These numbers were generated while having a weekly emission of 600 xRuler ($18600).

Total Traded Value $3,168,979
0x Fee $525.81
1 Like
  1. Users who wanted to borrow alUSD against ALCX at a rate of 140 alUSD per ALCX had to use the orderbook for a month.

These numbers were generated while having a weekly emission of 10 ALCX (~$3000).

Total Traded Value $245,626.54
0x Fee $157.75

During the month of August we have been actively experimenting with the best way to incentivise the order book while making sure that there are no loopholes in a way that people earn the rewards. Despite low protocol fees we have managed to achieve the primary goal of this test month - attract liquidity to the order books to allow for borrowing against it. Our primary pairs on average had $1.5mm on the BUY side (available for borrowing) and due to our reward system we noticed a competition among market makers resulting in good borrowing rates at the platform considering loans are non-liquidatable. We have also received a lot of positive feedback form our users as this is a new and very interesting program that is unique as of the moment of writing.

Grant Spending Plan

Given the above two examples we believe that if we were to incentivise pairs that are common tokens (wMATIC, ZRX, ETH, BTC) and paired them with DAI, given the low gas fees on Matic we could expect similar performance to the wETH/DAI pair on ETH or better.

To achieve that we would want to propose the following grant allocation timeline:

Ruler

Collateral Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
ZRX $24,000 $12,000 $8,000 $8,000 $8,000 $8,000
wMATIC $24,000 $12,000 $8,000 $8,000 $8,000 $8,000
ETH $24,000 $12,000 $8,000 $8,000 $8,000 $8,000

Total Guaranteed: $108,000

Total KPI Based: $96,000

Cover

Coverage For Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
AAVE $24,000 $12,000 $8,000 $8,000 $8,000 $8,000
CURVE $24,000 $12,000 $8,000 $8,000 $8,000 $8,000
QuickSwap $24,000 $12,000 $8,000 $8,000 $8,000 $8,000
SushiSwap $24,000 $12,000 $8,000 $8,000 $8,000 $8,000

Total Guaranteed: $112,000

Total KPI Based: $128,000

Grand Total for Both Ruler and Cover:

Guaranteed: $220,000

KPI Based: $224,000

On this table only numbers for months 1 and 2 are guaranteed and paid out immediately if and after the snapshot vote to allocate grant passes. Allocation for the remainder of the months would be distributed based on the KPIs that we suggest below. If on any of the months past the second we do not meet the set KPIs we would forfeit the right for the rest of the grant.

All of the allocated funds are going to be distributed as rewards to the market makers. Given that, the above tables also serve as the emission schedule of how we will distribute the funds. No funds will be kept in the treasury or allocated to the team. All tokens will be distributed via the CoverRules order book. We have implemented and successfully tested a reward distribution system on Ethereum and we will be able to use it on Polygon as well.

KPIs

We suggest the following KPI’s that would gradually unlock the grant month by month:

Ruler

Collateral Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
ZRX No KPI No KPI TV of $2mm TV of $3mm TV of $3mm TV of $3mm
wMATIC No KPI No KPI TV of $2mm TV of $3mm TV of $4mm TV of $4mm
ETH No KPI No KPI TV of $2mm TV of $3mm TV of $4mm TV of $4mm

TV = Trading Volume

Cover

Coverage For Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
AAVE No KPI No KPI TV of $2mm TV of $3mm TV of $3mm TV of $3mm
CURVE No KPI No KPI TV of $2mm TV of $3mm TV of $4mm TV of $4mm
QuickSwap No KPI No KPI TV of $2mm TV of $3mm TV of $4mm TV of $4mm
SushiSwap No KPI No KPI TV of $2mm TV of $3mm TV of $4mm TV of $4mm

TV = Trading Volume

How we will achieve KPIs.

At this moment we have observed that we have a working model of attracting liquidity to the order book. Starting August we will be concentrating on making the process of borrowing against that liquidity as easy as possible.

  1. Users of our Lite UI will be able to market take up to the whole amount of the order book.
  2. We are searching for a UI/UX experience designer that will help us improve the application usability.
  3. We are considering improvements to the reward system that would incentivise the exchange and not just liquidity on the orderbook, resulting in more borrowing and protocol fees for 0x.
  4. We will be releasing educational material on how people can use our order book.
  5. We will experiment with a managed vault where users can deposit funds and “forget about them” while we manage the order book position according to the market’s fluctuations.

We are also going to be working on features that are not directly related to the order book that will increase the user base of the Ruler Protocol and Cover protocol thus the 0x order book.

Options

Under options we suggest the percentage of the amount that we outlined above. For example if the “100% of the ask” is selected then the grant will be allocated in accordance with the proposal below. If “75% of the ask” is selected we will decrease every month’s allocation by 25% and in reverse if “150% of the ask” is selected we will increase every month’s allocation by 50%

Option 1: 100% of the ask.

Allocate grant funding in the amount proposed above.

Option 2: 75% of the ask

Reduce each monthly amount for each pair by 25%

Option 3: 150% of the ask

Increase each monthly amount for each pair by 50%

Option 4: 2000% of the ask

Increase each monthly amount for each pair by 100%

Option 5:

Do Nothing

1 Like

Thank you @DeFiTed for the exhaustive . It’s especially helpful to see how things went in August.
I see the number of txns being around 10-20 daily, correct?
Do you have data on the number of unique takers in the month of August in the two markets you tested these incentives?

Thanks!