Application for Optimism Season 9 - Growth Grants

Origin Protocol

https://atlas.optimism.io/slagathor

206970

0x6E3fddab68Bf1EBaf9daCF9F7907c7Bc0951D1dc

The Origin Dollar (OUSD) was launched in 2020 and is the first stablecoin that earns a yield while sitting in your wallet. Similar to stETH yield mechanics, OUSD yield is distributed via positive rebase, daily and up only. OUSD yields are generated from deploying the backing OUSD collateral, USDC, across multiple Morpho markets and on Curve. In its current design, USDC is lent on ETH mainnet and is also bridged via CCIP to Base to take advantage of higher-yielding markets:  With the help of OP from this grant, Origin plans to expend the OUSD protocol to Optimism, upgrading the design to take advantage of Optimism Morpho markets where lending rates are difference from the ETH mainnet and Base. The upgraded design will be as follows:  USDC will be bridged via CCIP from the Ethereum mainnet over to Optimism where it will be lent to Morpho markets that fall within Yearn/Origin's risk tolerance.

The DEX pair Origin is targeting is USDC/wBTC. Origin will increase the TVL of this pair by lending bridged USDC to the USDC/wBTC Morpho market. By continuously supplying large amounts of USDC to the Optimism Morpho market, OUSD increases the available liquidity for borrowers. This influx of supply naturally drives down the borrow rate for USDC. Cheaper capital directly encourages users to increase their positions on DEXs through several mechanisms: **Yield Arbitrage (Borrowing to LP)**: If OUSD's USDC lending pushes the USDC borrow rate down, users holding wBTC can deposit it into Morpho, borrow USDC at that low rate, and then pair their borrowed USDC with more wBTC to provide liquidity in a DEX pool. If the DEX pool is paying a high APY from trading fees and token emissions, users can pocket the difference. This directly moves the borrowed USDC into the DEX, increasing the DEX's TVL and the TVL of the priority pair. **Attracting Liquidity Providers for Liquidations**: Lending markets require deep DEX liquidity to function safely. If the price of wBTC drops, liquidators need to seize the wBTC collateral and instantly sell it for USDC on a DEX to repay their Morpho loan. Because of the new borrowing capacity enabled by OUSD, sophisticated market makers will often deposit more TVL into the DEX's USDC/wBTC pools to capture the highly profitable arbitrage and liquidation flows that will inevitably occur. Origin will also consider deploying USDC to the WETH/USDC and wstETH/USDC pairs on Morpho when available liquidity in these markets improves. Both the WETH and wstETH Morpho markets have received a Yearn/Origin risk-rating of [Risk 1](https://www.originprotocol.com/blog/ousd-new-yield-engine?lang=en&category=all&page=1), so after improved market liquidity these Morpho markets on Optimism will likely receive the same risk level. Each additional Morpho vault and market deployed on Optimism in the future can also be considered for inclusion into OUSD's USDC deployment.

OUSD is currently supported on Morpho as wOUSD. wOUSD is a ERC-4626 tokenized vault designed to accrue yield in price rather than in quantity. When you wrap OUSD, you get back a fixed number of wOUSD tokens. This number will not go up - you will have the same number of wOUSD tokens tomorrow as you have today. However, the number of OUSD tokens that you can unwrap to will go up over time, as wOUSD earns yield at the same rate as standard OUSD. The wOUSD to OUSD exchange rate can be read from the wOUSD contract (function number 16), or via the OUSD dapp. Current exchange rate as of 3/09/26: 1 wOUSD = 1.27221411 OUSD wOUSD can be used as collateral to borrow USDC. Users will initiate a leverage looping strategy with this market, that is: lend wOUSD, borrow USDC, convert USDC into OUSD, wrap the OUSD into wOUSD, deposit new wOUSD into the Morpho market, and repeat. With a native OUSD yield of 5.562% and the current cost to borrow USDC from the market at 2.91%, users can achieve double-digit yields after several loops. Origin is in talks with platforms such as Contango and Defisaver to make leverage looping on this market easier.

OUSD metrics: TVL: $7,477,196 Ave 30-day trading volume: $705,714 daily Native yield: 5.562% APY

The OP received from this grant will be used to incentivize OUSD DEX liquidity, wOUSD lending, and the USDC Morpho markets. By incentivizing OUSD DEX liquidity, users will need to deposit USDC into the OUSD protocol in order to obtain OUSD to provide to the DEX for the incentives. The USDC deposited will flow from the Ethereum mainnet back to Optimism via the OUSD's CCIP crosschain bridge, into the priority pairs. Incentivizing the wOUSD lending market will have a similar effect. Incentivizing the priority pair USDC Morpho markets will generate activity on the markets - greater USDC deposits into these markets will decrease the cost to borrow, leading to increased borrower activity. Increased borrower activity leads to greater USDC supply yields, ultimately increasing the OUSD yields coming from Optimism. Increased OUSD yields benefits the OUSD DEX pools, increasing the efficiency of the flywheel, as well as those running leveraged looping strategies.

The OUSD codebase has been audited [12+ times](https://docs.originprotocol.com/security-and-risk/audits). OUSD went through a simplification [proposal](https://snapshot.org/#/s:origingov.eth/proposal/0x17b2f0e9f609297c926f004e4f5c7704a03b2123a6a2ba82cd4ee63fc82ee25c) in 2025 to change the design from being backed by a basket of assets to just USDC.

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