Sonne is a money market protocol that aims to be the defacto lending platform on Optimism.
Sonne is a fork of Compound (native to Optimism) that consists of a decentralized system of lending pools. Users deposit assets they want to lend into a liquidity pool and borrowers draw from the pool when they want to take out a loan. Sonne borrowers must first supply assets before they can borrow. Given the high volatility of crypto assets, borrowers must post more collateral than the value of the loan, or commonly referred to as overcollateralization. Interest rates on Sonne are driven by market supply and demand. To facilitate this activity, Sonne issues soTokens to lenders that reflect accruing interest on the underlying token.
Sonne allocates a portion of the interest paid to borrowers to its reserve, which acts as insurance and is controlled by SONNE token holders. Each supported asset has a reserve factor that determines how much goes into the reserve. Reserves (controlled by SONNE holders) help backstop the system by acting as liquidity in each market to cover any bad debt in case of borrower default and liquidation malfunction.
You earn lending fees on Sonne by depositing your idle crypto assets to be used by borrowers looking for leverage. Sonne also offers additional protocol incentives in its native SONNE token to bootstrap demand. For liquidity, Sonne will bribe Velodrome on a weekly basis to vote for Sonne/USDC liquidity pairs. The earned VELO will then be redistributed to stakers. There are two staked versions of SONNE: sSONNE and uSONNE. The sSONNE pool will take the earned rewards to market buy SONNE and distribute to stakers. The uSONNE pool uses the rewards instead to buy USDC and distribute to stakers. Stakers earn 100% of the protocol revenue, as well as 80% of VELO earned through farming.