TL;DR: Overnight has launched USD+ on Velodrome with the aim of bootstrapping liquidity and playing a substantial part in revolutionizing Liquidity Provisions on the chain. Being a Yield-Bearing Stablecoin, all subsequent yields from USD+ are passed on as bribes. This results in a fly-wheel effect between TVL & APRs; the more the USD+ in an LP, the more the bribes & henceforth, the more the emissions.

The DeFi protocol aiming to make Liquidity Provisions more enticing & lucrative has found a new platform to do so

DeFi Protocol Overnight has launched USD+ — a yield-bearing stablecoin — on the Optimism Chain with the aim of precluding Liquidity Pools against diluting returns owing to TVL increases.

The matter at hand: Ever-Decreasing APRs

The widespread problem pertaining to the DeFi industry is rapidly declining APRs as TVL increases. As more liquidity is deposited within a said Liquidity Pool, the returns are now being shared among a broader user base — this results in rapidly declining APRs.

As a result, the crux of the problem within DeFi is centered around mercenary liquidity rapidly diluting APRs; ever seen exorbitantly high APRs being diluted to infinity? Well, this is precisely that in fruition!

There are countless examples of such happenings. Solidly’s highly-anticipated launch brought APRs ranging as high as tens of thousands to eventually being immaterial to attract considerable TVL. As a result, Solidly’s TVL now sits at a mere $4.3M as opposed to a former high of $2.29B.

The Current Solution & the Dilemma: Limiting TVL

The solution to the problem at hand (i.e, rapid dilution of APRs) being exercised currently is limiting TVL. A smaller TVL prevents excessive dilution. It’s commonly seen to have the TVL capped at a certain figure after which no further deposits can be made.

The take of limiting TVL puts the protocol in a dilemma. For example, limiting TVL for a DEX (Decentralized Exchange) restricts amassing deep liquidity as next to zero slippages are quintessential for attracting volume. Thereby the DEX potentially loses out on the subsequent fees that it could have earned from the corresponding volume. However, concurrently, lucrative APRs are needed to attract well-established liquidity.

A new wave of Bootstrapping Liquidity: What if TVL Complimented APRs?

We’ve pondered over the problem, and the solutions and concluded that doing so puts the protocol in question in a dilemma. The solution? TVL Complimenting APRs!

The need for a TVL cap is negated by APRs being supported by the subsequent liquidity. This means that there is no dilution in place (or simply, non-dilution). TVL Complimenting APRs means that as TVL increases, the APRs aren’t suddenly shrunk as more liquidity is deposited as the TVL supports the returns on liquidity directly.

It is exactly this model that Overnight’s USD+ seeks to carry out. Being a Yield-Bearing Stablecoin, it is much more capital efficient than other prominent stablecoins — USDC, USDT, DAI, etc. The yields generated from the stablecoin in a Liquidity Pool are passed on as bribes (incentivizing emissions) to veVELO holders (locked VELO holders) therefore, supporting APRs resulting in what’s known as a “Flywheel Effect.”

Bribes & The Flywheel Effect

The Flywheel Effect is centered around Velodrome in light of a competitive bribe scenario on the DEX. This means that higher bribes are required to obtain emissions and USD+ addresses exactly this. Albeit being an experiment specific to the Optimism chain by Overnight, this is an intriguing take on self-bribing pools.

The innovation by USD+ in this regard is that as TVL grows, the yields generated by USD+ increase that are in turn, used as bribes. More Bribes equals more APRs and hence, incentivizes the current Liquidity in the said pool to stay unhindered.

The stablecoin — for the USD+/USDC Gauge Pool — has generated $770 in bribes in week 1 alone signifying the success of this model. This figure is likely to grow as further TVL enters this pool.

Benefits via Pairing to USD+

Protocols seeking to benefit from USD+ can, in turn, pair their token on Velodrome with USD+ to amplify bribes generated in favor of their pool. Compare this with USDC which yields no benefits as such — the innovation is quite considerable and remarkable.

About Overnight Finance

Overnight is a DeFi protocol behind USD+ stablecoin which is fully collateralized by secure & safe stablecoins; users earn an average of 8–12% APY through its secure and vigorously tested yield-farming strategies with profits paid out daily.

The yield comes from the collateral, and it is deployed across a set of yield-generating strategies, including collateralized lending, e.g. AAVE and stable-to-stable liquidity pools. The logic is to choose immediate liquid assets (convertible into USDC on demand), minimum risk, and then optimize for returns — it’s sure, simple, liquid, and hassle-free.

Overnight is backed by world-class investors, including the likes of the founders of Coinlist and Polygon. Overnight is led by aspiring Fin-tech leader — Maxim Ermilov — who holds a 17-year background in BCG Financial practice and is a renowned entrepreneur. Moreover, Overnight was recently accepted into two esteemed crypto accelerator programs: UC Berkeley’s Blockchain Xcelerator and Binance’s BNB MVB IV Incubation Program.