The Problem:
Alchemix emits approx 16k ALCX weekly towards liquidity providers across our pools. At current prices, this amounts to roughly $5.5m per week, or $20m per month. This is an astronomical figure for temporary liquidity, and presents itself as a possible bottleneck to growing Alchemix. Solving this is critical for protocol sustainability.
The Solution:
In order to address this problem, we are proposing an Alchemix bond program in partnership with Olympus. We will offer 1600 ALCX weekly available for purchase via bonds, which is roughly 10% of the current weekly farming rewards. We will initially target our three flagship liquidity pools: ALCX/ETH SLP, alUSD3CRV LP, and alETH Saddle LP.
With the accumulated LP tokens from the sales of ALCX bonds, we will also participate in farming with the protocol owned LP tokens. In addition to earning ALCX in each of these pools, we have the opportunity to earn extra governance tokens from other projects. ALCX/ETH SLP also earns SUSHI and alUSD3CRV LP also earns CRV and CVX via convex. If we start incentivising bonds for the d4 Saddle LP (alUSD, FEI, FRAX, LUSD) and the mStable alUSD feeder pool, we will also earn TRIBE, FXS, LQTY, and MTA.
We anticipate that some might say that the DAO is stealing from the farmers if it enters the farming pools. The counter to that is that many in the community have expressed that emissions are too high, and if the schedule is unchanged, it would be detrimental to the project in the long term. However, we are wary of changing the emissions schedule because when other projects tried this, it didn’t work very well, hurting the token more than helping it. This program will result in the DAO progressively diluting farmers, which would accelerate the disinflationary schedule of ALCX. This would make ALCX scarcer on the market, reduce the need for large farming budgets, and make Alchemix and its various markets much more sustainable.
The farmed ALCX would just return to the DAO balance sheet and can be used to fund other things or even be returned to the bond program. The other tokens, likewise, would be added to the DAO balance sheet. For CRV and CVX, we would accrue these tokens and use them to boost our pool in Curve and the 3CRV rewards would be added back into the alUSD3CRV pool to boost liquidity even further. For the other governance tokens, they can become a proxy for Alchemix meta-governance, collateral assets, grant money, emergency rainy-day fund, token value accrual, or deployed in DeFi to earn extra yield.
Implementation:
In essence, Olympus is offering it’s bonding program to Alchemix. This would include having the UI built for this program, helping us set everything up, and continuing to maintain the parameters for the program. In exchange for their support and expertise, Olympus would take a 3.3% fee on all ALCX bonds sold. Olympus will use the ALCX they earned from their fees as extra backing for OHM, which would help to reduce the circulating supply even further.
This chart tracks the average discount of OHM bonds relative to the market. They vary greatly but average around 6-7%. If we target 1,600 ALCX bonds weekly, 52.8 ALCX will be paid to Olympus DAO, and with a 6-7% average discount, Alchemix DAO would convert approximately 90% of the purchased ALCX bonds into LP positions, which would be added as permanent liquidity.
The Olympus bond contracts have dynamic prices for the bonds to ensure that there is constant buy-pressure. They achieve this through the discount rate. If the mean discount of ALCX bonds is relatively low (under 7%), we would likely look to increase the amount of ALCX available for bonds, and vice versa, if the mean discount is too high (over 10%), we would look to decrease the amount of available bonds. If this program proves to be successful, approximately 10% of a year's worth of emissions at current prices would purchase the protocol $15-20m in liquidity. This amount would be highly reflexive relative to the ALCX price, and could deviate significantly in either direction. In the optimistic scenario, ALCX price appreciates and two years from now, Alchemix will control over 100m of LP tokens, and earn millions annually from them.
These ALCX bonds will have a one week vesting period. This is to ensure that discount buyers can’t immediately flip their positions because they typically will be buying at a discount. The ALCX bonds will continually vest, so you will be able to do partial claims before the vesting period is over if you want to sell, farm, or LP with them.
Conclusion:
The ALCX Olympus bond program will initially take approximately 10% of the farming emissions to purchase the LP tokens essential to our protocol. This will create sustainable, permanent liquidity for the protocol. It will accelerate the disinflationary schedule of ALCX and provide additional revenue to the DAO in a variety of tokens, which can greatly enhance our ecosystem in myriad ways. While this will ultimately lower the farming rewards, we view this as beneficial for the long term sustainability of Alchemix.
