[AIP-11] ALCX Token Loan for Market Making

allyourcat

Been reading all the back and forth in the discord group and thought maybe worth putting down some thoughts here rather than making discord even more crowded.

Bottom line: I'm on the view that more exchange listings and more liquidity is never a bad thing. This worry that market makers will dump ALCX is not only wrong, it's a dangerous notion to peddle. I've done my time on a traditional equities trading floor and you can be dead sure that even the sharks in Canary Wharf and Wall Street don't like to see names where they're MMs collapse. They make way more money on the way up - that's also why stabilisation agents post IPO are such profitable roles to take on. On that point, if the only "fees" to be paid to the MMs are the granting of options on the loaned ALCX, that's actually a very good deal - that's literally saying it's a zero management fee, performance fee only model for MMs, which in my former trading floor life would be laughed out of the room by the traders in about 5 seconds in all cases but the bluest of blue chip stocks.

On the flipside, I also completely understand the broader worry raised that if the strikes are too generous (i.e. too low) we're selling out ALCX cheap. I'm inclined (with a bit of Game Theory thinking) to believe that the dev team have all the incentive in the world to pin those strikes HIGH (why not?) and as Scoopy has highlighted multiple times the DAO does receive USD should those strikes be hit and the options are exercised.

Ultimately, as many other community members have pointed out, the bulk of ALCX liquidity remains in the Sushiswap pool and that price will continue to be the main driver of marginal market making in my opinion. Adding CEX liquidity serves to diversify that holder pool and aside from the publicity from a CEX listing, it also allows ALCX to decouple from ETH - so as we wonder wen 1 ALCX = 1 ETH, that reality is much more likely to happen with USD stable-driven liquidity/market making than when dominated by an ETH pair (just think about the incentive of whale LPs with respect to their impermanent loss, how would they benefit if 1 ALCX = 1 ETH??)

Finally, pre-empting the "but decoupling also means ALCX can dump" argument I would say - if we believe that there's a reason, in the face of a dump attempt, for us as ALCX community members to join in the dump then we have a much bigger problem than voting on all of these things. Taking my trader hat off and putting the investor hat on, I'm literally "in it for the tech", as I'd like to think the rest of us are too. If we don't believe that ALCX can stand on its own two feet when released into the wild, then we're better off having discussions on why to put those issues to bed before we start aiming for 1 ALCX = 1 ETH and higher.

Bottom line: I think this is a great proposal, small leap of faith in terms of pricing/strikes/expiries/terms but if managed properly to coincide with launches of likes of v2 or the alETH vault, it could be a win-win-win for everyone. This absolutely doesn't need to be looked at as zero sum.

KriptoHayat

These funds could have been used more efficiently.

n4n0

KriptoHayat More efficiently how?

coinmonk

We need the price oracles for growth in the defi ecosystem, and therefor we need more cexes for pricedatapoints. also a great side effect is the project gets more exposure, more liquidity and more investors. So thats the way to go trust the homo fabers behind the project, they are working to their best ability for the betterment of it and us all. Here is a good read why price oracles are so important for the security of the protocol.
https://hackernoon.com/the-strengths-and-weaknesses-of-defi-price-oracles-x7l35ui
🍀 Postpone immediate gratification for long term growth. Cheers mate 🌱

scoopy

ok, so I wanna give an update on AIP - 11 for market makers but the forums are experiencing some difficulties, and they are seemingly missing? It's likely we can recover them, but for the time being, I will just update in here with an @everyone

Previous terms were loans totalling 45,000 ALCX for 6 months split between Alameda and Amber, but we have since chosen to go with alternative market makers in place of Alameda.

Current terms are loans totaling 56,000 ALCX to three different market makers, Wintermute, Amber, and Fractal.
25k to Amber, 6 month minimum contract
25k to Fractal, 6 month minimum contract
6k to Wintermute, 12 month minimum contract

All agreements have a mixture of bullish, more bullish, extremely bullish, and full-on bulltard strikes for stablecoin repayment options in place of repaying the ALCX on loan. If somehow the DAO ends up hitting all of the strikes, then the cash options will enable the DAO to be an omega stablecoin whale, which is not a bad thing imo, some diversification of the treasury is a good thing.

All firms have agreed to not using the ALCX on loan to yield farm.

As we plan to increase our presence on CEXs, this trio of market makers will ensure deep and tight liquidity for traders and speculators across all relevant markets. And with it, we'll grow the Alchemix pie and be able to improve our infrastructure via chainlink price feeds. This will open ALCX up to lots of other exciting partnerships and integrations with other DeFi protocols.

I'd like to put this up for vote within the next 12-24 hours, as much of this has already been discussed when I first presented the AIP and the matter is kind of urgent.

yuntamoto

Sounds good overall. One question is about the loan process, and the rules around agreeing not to use the ALCX for yield farming. Does this get baked into a smart contract or is it based on an honor system?

Also, will repayment terms be shared with the community?

scoopy

[unknown] honor system, the MM need access to the funds to freely move across and between exchanges. locking in a contract would interfere with that. We will do our best to monitor the known addresses to ensure they don't do it.

ImYourHodlberry

Please make sure I can vote this time. All my ALCX is in the SushiSwap pool and I was not able to vote on the last snapshot.

ImYourHodlberry

Please make sure I can vote this time. All my ALCX is in the SushiSwap pool and I was not able to vote on the last snapshot.

Roytheboy6

[unknown] I think trust on/in the blockchain is so essential in a partnership, great idea on not “allowing” them to use it to yield farm. It’s a win win for alchemix imho 👍🏻

danylostefan

Generally I agree with the proposal from a biz perspective - but for this snapshot vote, I choose against. My main issues.

Shifting sands. Its 45k for two firms? or is it 56k for three firms? This doesn't appear to be a fully fleshed out proposal.
Trust - I do not trust these firms to do anything (no yield farming, return of funds for an uncollaterallized loan on good faith). How can the DAO verify that the firms provided "$100k market depth both sides within a couple basis points to each major exchange we get on"

I see I am in the minority, and thats ok, appreciate the space to vote and voice my opinion.

sorry if this got multiple posts, something is up with the UI

jeff_flipsidecrypto

While I am sympathetic to some of the perceived risks noted by many in Discord, I believe the benefits outweigh the cons here:

Diversification of ALCX away from a very highly concentrated pool on Sushi (e.g. more liquidity in different places; this should not be understated)
Opening ALCX to a new audience of investors/HODLers, e.g. the large swath of people who still primarily conduct business on CEXs (I think of this as "new user acquisition")
Obvious and tangible infrastructure benefits (e.g. pricing oracle)

I understand the fears around lending out such a large amount of tokens to market-makers, but as @allyourcat aptly noted above, these businesses are built on trust and credibility: they have nothing without it. The fears of them running off with the tokens, farming them out, or engaging in some other type of nefarious activity are unfounded IMO. These are credible institutions that specialize in market-making services, and diversifying across three is a pragmatic approach.

I also believe that the team is fully incentivized to put favorable strike prices in place to the benefit of the protocol (e.g. higher strikes, as opposed to low strikes, e.g. "giving away the house").

Given all of the above, we will be voting in favor of this proposal.