[AIP-21] ALCX Bond Program

Hource

Comparing these two scenarios, only looking at ALCX/ETH for simplicity:

As proposed, 10% of issuance is set aside to offer bonds, where the treasury purchases ALCX/ETH LP tokens with ALCX, paying a premium (which, to the buyer, is a discount).
5% of ALCX issuance is market sold for ETH, and it is deposited into the SLP with 5% of ALCX issuance with the treasury retaining the SLP tokens.

Can we enumerate all the differences between the two? Does the bonding discount help Alchemix at all, or just offer an arb that people can use to drain the treasury? Scenario 1 results in Alchemix owning existing liquidity rather than adding new liquidity to pools, which may or may not be an advantage. Also, the 3.3% Olympus fee may be a net positive in that integrations bring value.

ptp1600

As a Senior Product Manager, I've always thought ALCX and OHM were made for each other as a product market fit. Awesome to see this, I'd vote for it if I wasn't a 9,9 degen.

seanmc-eth

Such a big fan of this, seems like a galaxy brain move that provides flexibility, another revenue stream for ALCX holders, and a solution to the excessive emissions, all while not altering the original emissions schedule!

reginald-grarbs

Absolutely F'ing love this. Giggabrain long term move to boost and control liquidity for the protocol.

jamesk

"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."

Care to explain more about this part?
What is the pessimistic/conservative scenario?
Which risks were identified?

ROCKY

jamesk
From my understanding, instead of emitting ALCX to people who simply stake ALCX in the single sided staking pool, we would be providing bonds which offer discounted ALCX over a vesting period. It would be incentivized to purchase these bonds if the discount rate deems it worthy and as users pay in DAI/ETH + LP tokens, this would help the protocol permanently lock in LP tokens that earn fees + DAI/ETH which could be used in a multitude of ways (purchase alAssets.)
The pessimistic scenario + risk in this case would be if people who purchase bonds simply do so in order to dump the ALCX tokens back into the market. However, if staking ALCX had positive incentives, then this could lead to a scenario where users purchase bonds to attain ALCX at market discount then stake ALCX. This is like a (3,3) scenario in that users benefit + protocol benefits. This is a more sustainable way of emission and could really grant the protocol a strong moat of permanent liquidity. Correct me If I am wrong in my understanding but the real risk IMO is not doing something like this.

delitzer

I love the overall concept: the protocol paying to acquire permanent liquidity that it owns, rather than temporarily renting the liquidity at a very high rate.

That said, the discount rate being targeted of 10% over 5 days is waaaaay too high. A 10% discount makes sense as a target for Olympus with their OHM bonds, given single-staking OHM has had yields in the 7,000-20,000% APY range. A 1.25% discount for 5 days would already be greater than the 5-day yield on the ETH/ALCX pool (currently showing a 90% APR). When you then factor in that the ALCX purchased with the bond can be claimed as it vests over the 5 days and single-staked for 69% APR, the deal gets even better.

I recommend revising the proposal to target a much lower discount, maybe 1.5% or 2.0% at the very highest. I understand that most users will see that as being too small if it's being presented the way that Olympus does with their bonds, because they aren't doing the math to realize that's really a 109.5-146% APR. Maybe if that's explicitly spelled out in the UI, we can make it work. Heck, maybe even start with the insane 10% (or slightly less insane 5%) discount rate to start and get attention, but then quickly bring the target down to a number more in line with the existing rates the DAO is paying for liquidity.

scoopy

delitzer

The discounts aren't set in stone with olympus bonds. There is a dynamic price where there is a function of time between bond sales that determines the price. The longer the time between purchases, the lower the bond price becomes. The discount rate is purely determined by supply and demand. We can change the vesting period or try to fine tune the ALCX available to hit a certain discount %, but such fine tuning will require the program to be up and for us to have some data to go on.

xh3b4sd

Thank you for bringing up this proposal. I think it is a wonderful symbiosis between Alchemix and Olympus to foster a partnership of this kind.

A brief word about bonds and discounts. The bonding mechanism operates as a secondary market in which the discount is a function of bond capacity and bond demand, where bonders try to beat other investment strategies like staking. So in your case, the amount of ALCX used to sell bonds and the amount of liquidity you target decides how much bond capacity there is within a certain timeframe. Given a certain bond capacity, the bonders on the secondary market decide at which discount they purchase your bonds. The discount is not configured by anyone. Olympus does not dictate to you at what discount you should sell. The discount is merely a function of supply and demand, which is also why bonds work without any price oracle. If the discounts trend higher, there is less demand for the available supply aka bond capacity. If the discounts trend lower, there is more demand for the available supply. Bonders will purchase bonds at the discount they think is competitive for a given "payment" asset, which is ALCX in your case. For e.g. OHM the 5 day staking ROI is about 6% right now, which is why the bonds sell around this range at this point. For e.g. ALCX the discount will try to beat whatever staking or other investment strategy there is, considering supply and demand on the secondary market of your bond programs.

We will be super happy to help everyone figure out how bonds work and we will also be glad to help you configure capacities of your bond programs, because these things tend to be a bit tricky given dynamic market conditions. For these reasons I think it is super smart to work together with people who built the bonding mechanism and operated bond programs successfully in the past.

dummydata

100% in support of this proposal.

Gravity

Question...
Is this proposal in addition to (the good chance) ALCX being added to Tokemak?
Or as contingency, should ALCX not receive the required votes?

To say it's neither would imo, feel a little short sighted considering the implications of having a reactor would mean for the team and community. If nothing else, it would surely simplify the above proposal...

Regardless of the Tokemak reactor vote at the end of this month, ALCX will get a reactor eventually, of that I'm very confident. The reactor model, imo resolves everything this proposal is concerned with and to a degree that is far simpler to understand:

'A single ALCX pool with IL protection, that facilitates all ALCX based pools.'

Jmo, but I think this should be considered a variable within the above proposal.

0xFelix

Gravity I would say that we can definitely use a TOKE reactor + a bonding programme at the same time since they are very complimentary. Especially at the start the TOKE reactor will only be good for assets traded against ETH/USDC - so this would most certainly support the ALCX/ETH trading pair. But the beauty of this bonding proposal is not so much for trading ETH/ALCX but for the alToken/Token pools. Owning liquidity in those pools is in my opinion way more important since these pools will make or break Alchemix as a product. On top of that, I think that for alToken/Token pools we should own the liquidity and we shouldn't have to rely on a LD in Tokemak to solve this for us. (And I'm saying this as a big fan of Tokemak.)

AlJan

This is wonderful!

jerre

Absolutely love this proposal. A real Win-win-win

A win for newcomers -> they can buy ALCX at a lower price
A win for ALCX holders -> less incentives required for liquidity providers, so more value for your token
Another big win for ALCX holders -> additional stream of revenue: both liquidity farming and trading fees (eternally!)
A win for ohm and interprotocol cooperation

There is only one thing I am a bit concerned about. This bond program gives traders arbitrage opportunities. They can buy ALCX at a discount and sell it for profit leading to a downward pressure on the price. You can argument that the same counts for Ohm, but I believe that's not 100% true. The Ohm community has a very strong staking mentality (3,3), also boosted by the enormous APY's. Furthermore, although the ohm protocol sells bonds with a discount, it is till making a lot of money on every sale as it is selling something that is backed by a value of "a few dai at max" (1 Ohm) for multiple hundreds of Dai. (currently)

Since these mechanisms are not at play at ALCX, the bond program might put some downward pressure on the price of ALCX - also leading to impermanent loss in the LP positions.

Maybe good staking incentives might mitigate this downward pressure in the future? (e.g. fee sharing, boosted APY on loan payback, dao/NFT functionalities,...)

Interested in hearing your thoughts about this.

RogueItachi

I'm a big proponent of this proposal. Protocol owned liquidity is a game changer, and Olympus is the best in the business at it. I think it would make the most sense for the bonds to accept LP tokens in exchange for this discounted ALCX. Happy to see this collab happening.

Luckie21

I'm in full support of the proposal.

oxide

Would there be any benefit to adding OHM-ALCX LP bonds to the scheme as well? Would be a show of support to olympus, and help to thicken ALCX liquidity with all of OHMs liquidity in it's protocol controlled LP pairs by way of multihop swaps.
Not to mention, as OHM is aiming to be the reserve asset of DeFi, it makes sense for LP pairs to exist in the form OHM-XXX.
The downside is that holding OHM in treasury and not sOHM over long timeframes is not great while Olympus is in it's 'expansionary' phase.
Btw, I'm not certain about this, just a thought.

hekmat

(3,3)?

0xsublime

Love this. Owning the LP positions is like a company having a permanent stock buyback program, always being prepared to buy at market rate from the suckers who are selling -- while also capturing the trading fees.