Sonne Finance: Rapidly Growing Lending Protocol in the Optimism Flywheel Effect

06/03/2023·1years ago

Sonne Finance is the first native platform to launch a lending protocol on Optimism, aiming to become the primary lending platform by providing the deepest liquidity and the most competitive incentive measures. It is currently the 9th largest ecosystem project on Optimism, with a TVL close to $40 million, experiencing a rapid growth of 60% in the past two months. In the lending projects, its TVL is second only to AAVE. With Optimism's technical and financial support for Sonne Finance, the business volume of Sonne Finance may double in the next 3 months. Let's explore the unique advantages of this protocol and the secrets that make it stand out among thousands of protocols together!

Introduction to Sonne Finance

Sonne Finance is a fully decentralized, transparent, and non-custodial peer-to-peer lending protocol that attracts a large number of users and liquidity through low impermanent loss and high returns, and provides more substantial incentives than other protocols. The platform provides currency markets for WETH, USDC, USDT, DAI, OP, SNX, and aims to be the most competitive incentive for currency markets on Optimism and have the deepest liquidity for native lending projects.

In the Stake section of Sonne Finance, there are two types of Staking pools for stakers to choose from. The main goal of staking is to distribute protocol income and VELO and other token rewards to stakers. The generation of protocol income is based on the reserve coefficient of different pools. The greater the risk of the pool, the more fees are generated, and correspondingly, the higher the returns:

sSONNE staking pool: Corresponding rewards are SONNE tokens, VELO tokens, and OP tokens. The pool rewards will be used to purchase SONNE from the market and distribute it to sSONNE stakers.

uSONNE staking pool: Corresponding rewards are USDC tokens, VELO tokens, and OP tokens. The pool rewards will be used to purchase USDC from the market and distribute it to uSONNE stakers.

According to a tweet, stakers have received up to 45% annual interest from protocol income. Why are the returns so high? And why does Sonne Finance's staking rewards include VELO and OP tokens? Let's continue to explore Sonne Finance's unique token economic model.

Sonne Finance in the Optimism Flywheel

Sonne's token strategy is built on Velodrome and Optimism's innovative flywheel:

Velodrome is the largest DEX on Optimism, with TVL leading all DEX projects. Velodrome has two tokens, among which VELO is an ERC20 token, and veVELO can be obtained by staking VELO, which is a governance NFT token similar to veCRV, and can vote to determine the reward weight of each liquidity pool. In the past half year, almost all newly added VELO has been locked for staking, and various projects are actively accumulating more veVELO to compete for the liquidity incentives and fee distribution dividends brought by voting.
One of the differences between Sonne and other protocols is that it does not simply reward liquidity providers with SONNE tokens, but instead bribes VELO and veVELO holders with SONNE tokens to vote for the SONNE/USDC token pair on Velodrome, making the APY of this USDC/SONNE LP higher. As a large LP of this token pair pool, Sonne will receive more VELO liquidity incentives and fee distribution dividends.
Sonne uses the staked SONNE tokens to provide liquidity to Velodrome to obtain substantial APR returns (for example, adding SONNE tokens to the USDC/SONNE token pair pool), and the locked VELO in Sonne can receive bribes and rewards, thereby obtaining rewards from the OP ecosystem in the form of OP tokens. These two parts of the rewards for SONNE stakers will be 100% returned to users staking SONNE tokens (80% in the first three months, and stakers will receive 100% of the protocol income after the team tokens start to unlock).

The logic of the flywheel effect can be understood as:

Various platform projects on Velodrome compete to bribe veVELO holders, and the well-operated DEX brings an increase in transaction fees.
veVELO token holders' income increases due to bribes.
The price of VELO tokens rises.
Sonne Finance, as an important LP, increases its APY due to bribing veVELO votes, gains more VELO, and the price of VELO tokens rises, resulting in continuously increasing returns.
Sonne Finance will receive VELO tokens and fee distribution dividends, OP ecosystem rewards, etc., and 100% will be returned to SONNE stakers.
Sonne staking returns continue to increase, attracting more stakers and liquidity.
Sonne provides more liquidity to Velodrome and continues to bribe veVELO holders with SONNE tokens.
The Velodrome protocol attracts more liquidity due to the rising price of VELO tokens.
Better liquidity further increases transaction fee income.

We can see that this flywheel is interconnected and layered, creating a symbiotic relationship between Sonne Finance and Velodrome. The current successful operation of the flywheel has not only brought explosive growth to Sonne Finance and Velodrome but also provided an opportunity for Optimism to build its native DeFi Lego based on Velodrome. Sonne Finance is the perfect integration of this important building block in lending. However, this flywheel binds the two closely together, and as two important protocols in the Optimism ecosystem, we also look forward to the utilization and promotion of this flywheel effect by the OP ecosystem, using its strong capital and strength to promote the construction of the OP DeFi Lego. It is reported that Sonne Finance is applying for the next round of Optimism sponsorship support, mainly for incentivizing borrowing. If approved, its TVL may increase significantly.

Token Distribution

The total supply of the SONNE token is 100,000,000, and the distribution and specific content are as follows:

60% - 60,000,000 – Farm rewards + bribes (community);
19% - 19,000,000 - Protocol growth;
12% - 12,000,000 - Team; (three-month cliff, two-year vesting)
3.5% - 3,500,000 – LGE liquidity generation participants;
3% - 3,000,000 - Community airdrop
2.5% - 2,500,000 - Initial liquidity;

The current circulating supply in the market is 40,419,431 SONNE tokens, with a token price of approximately $0.17 per token and a market value of approximately $6.8 million.

Future Growth Momentum

Sonne Finance is currently the 9th largest ecosystem project on Optimism, with a TVL close to $40 million, experiencing a 60% growth in TVL in the past two months, close to $40 million, and its TVL is second only to AAVE in lending projects. The recent hot growth momentum is not only due to the flywheel effect created with Velodrome but also related to the subsidy support from the OP ecosystem and the auxiliary effects of Sonne Finance's sister protocol.

Sonne Finance has launched a sister protocol, Mare Finance, on Kava, where most of the initial supply is airdropped to SONNE stakers. At the same time, Mare Finance will receive many veNFTs from EquilibreAMM (DEX on KAVA) to build another flywheel. These two similar sister protocols will mutually support each other's development, and it is hoped that these two flywheel effects will bring vitality and liquidity to their ecosystems, attracting more users and obtaining substantial returns.

If you are interested in Sonne Finance's lending protocol or the OP ecosystem flywheel, and want to delve deeper into it, the following media can be used:

More information:

https://app.vedao.com/projects/f596e53b6a0518c4d1123b9ff6f523989b1cf3edbcee25656f75ec660ca99400

Official website:

https://sonne.finance/

Official Twitter:

https://twitter.com/SonneFinance

Whitepaper:

https://docs.sonne.finance/

Sonne Finance OP subsidy application details:

https://gov.optimism.io/t/draft-2-gf-phase-1-proposal-sonne-finance/4779

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