Optimism is a layer 2 scaling protocol built on the Ethereum network that aims to provide faster and cheaper transactions for decentralized applications and smart contracts. Optimism is also known for its strong, public goods-oriented ethos, which is epitomized by the phrase “impact = profit.” One of Optimism’s key features is its two-house governance system: The Token House allows those who hold (or are delegated) the OP token to vote on proposals in areas such as grants funding and protocol upgrades, while the Citizens’ House — made up of designated badge holders — will soon be able to vote on retroactive public goods funding.

The Protocol Delegation Program, a proposal put forward by the Optimism Foundation, was approved by the Token House in a recent Special Voting Cycle. It aims to temporarily delegate a portion of idle OP from Optimism’s Governance Fund to a group of value-aligned protocols building on Optimism. This program allows these protocols to have greater say in the development of the ecosystem through direct participation in Token House governance. Once this program was approved by the Token House, it was followed by a proposal to carry out protocol delegation elections — which are described below.

The Proposal: Protocol Delegation Elections

This proposal outlines the process for selecting a subset of the protocols that will participate in the Protocol Delegation Program. Fifteen protocols have already automatically qualified for participation “based on total gas fees generated on Optimism during Season 2.” See the list on the Optimism Project Usage dashboard to get a sense of which protocols could potentially qualify; however: “protocols that already have 2M OP delegated or that have previously misused OP grants are not eligible.” The Foundation has contacted all interested, qualifying protocols.

“To incorporate other value-aligned protocols that do not meet the above criteria,
protocols that are interested in becoming more active in Optimism governance but that do not qualify based on gas fees may self-nominate…for an additional spot in the program.”

The proposal at hand includes a list of valid self-nominations, and Token House members can vote for any number they wish (including themselves as long as they also vote for other protocols). The eight nominees with the most votes will be eligible to participate in the protocol delegation program in Season 3 (in addition to the 15 that automatically qualified). These are the current frontrunners:

• ENS

• Thales

• Kwenta

• BeethovenX & Balancer

• Lyra

• Connext

• dHEDGE

• Polynomial Protocol

Governance Process

Optimism's governance is defined by its bi-cameral structure, as outlined above. However, governance structures are evolving in the protocol, which is actively experimenting with various processes in order to find the most appropriate to its needs and values. For example, while Seasons 1 and 2 of the Governance Fund allowed anyone to put forward a proposal to the Token House to receive a grant, Season 3 will feature a Grants Council (elected by the Token House) that will handle the entire grant process. The Token House will still be responsible for approving such things as protocol upgrades (like the upcoming transition to Bedrock), treasury appropriations, and the Council itself. The Citizens’ House will begin its governance activity on January 17 with RetroPGF Round 2.

In previous Seasons, proposals before the Token House have been presented in the forums following the guidance of specific templates; feedback was received there from a very active community before proposals moved to Snapshot voting. Although all voting so far has taken place off-chain, Optimism intends to move on-chain for Season 3. The Grants Council, once elected, will determine its own process and timeline, which will likely involve voting cycles as in the past.

The Big Picture

The Protocol Delegation Program creates a way for value-aligned protocols to actively participate in Optimism governance — without having to buy their way in through purchasing OP, which would agitate against Optimism’s anti-plutocratic stance. While the most active protocols have automatically been included in the program, the election carried out through the proposal summarized above should help to ensure that the ecosystem is developed with the needs and views of a diverse array of stakeholders in mind. Rather than allowing for the gradual consolidation and concentration of governance power that we see in so many other protocols, this proposal represents one instance of how Optimism is creating structures designed to stimulate increasing decentralization.

We’ll be tracking this proposal activity closely at Boardroom. Follow our newsletter to stay up to date. If you’re a voter in a protocol, make sure to check out Boardroom Portal.

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