Optimism, one of the most popular Ethereum layer-2 scaling solutions, has grown faster in terms of total-value-locked in DeFi than any other blockchain amongst the top twelve over the course of the past month. This spike in Optimism's TVL can be attributed to the fledgling 7-month-old DeFi lending protocol - Sonne Finance.

Sonne Finance was launched on the Optimism blockchain back on September 21, 2022, followed by a Liquidity Generation Event (LGE). It was built with the goal of becoming the best liquidity market of Optimism. The protocol is built to generate revenue by varying reserve factors on its platform for different liquidity pools when users borrow from liquidity markets.

Sonne Finance, which is a modified version of Compound - another major Ethereum lending protocol - has seen a near 400% or five times growth in the user deposits on the protocol in the past two months. According to data derived from DefiLlama, user deposits touched almost $50 million on March 22, as compared to around $10 million back in the middle of January. It is now currently the 9th largest DeFi protocol running on Optimism.

Sonne Finance has been increasing in popularity, owing much of its success to Velodrome, the largest DeFi project on Optimism by TVL. The Velodrome DEX and Sonne Finance lending protocols are deeply intertwined.

Both Sonne and Velodrome are modified copies of other open-source protocols, and their integration was made possible by their composability - a notion that open-source projects can and should be stacked on top of one another to create full-suite financial services.

Velodrome is a DEX that was inspired by Solidly, a new defunct protocol that was built by DeFi developer Andre Cronje, who is currently the director of the Fantom Foundation.

Lending on Optimism

Growth of lending protocols on Optimism has been slow, especially since one of the first movers in the space on OP's platform was Aave, who offered a lending market. But since Optimism's native token is isolated, depositors can't borrow OP freely against multiple types of collateral.

To solve that, Sonne Finance provides token incentives on all its lending pools, which makes Sonne a very attractive place to lend your idle tokens, especially when compared to Aave on Optimism. Aave happens to be the largest lending protocol on Optimism by TVL but Sonne Finance seems to be catching up pretty quickly.

Sonne Finance making moves!

Earlier this month, Sonne Finance jumped into the limelight as it was selected to receive a 250k OP grant, worth about $600k!

This OP grant will be allocated entirely to lending or borrowing and staking rewards to boost trading activity within the Sonne protocol. Out of the total amount, 40% would be used for lending activities, 40% for borrowing activities and 10% for SONNE/USDC pool on Velodrome Finance, and 10% to boost staking activity amongst sSONNE stakers.

Thus, while Sonne Finance has been making huge strides in the space, there is still a long way to go for the protocol.

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