By all accounts the bonding program has been a success so far, (https://dune.xyz/shadow/Alchemix-Olympus-Pro) with over 1.6 million dollars in ALCX/ETH liquidity now owned and locked by Alchemix. This should enable us to reduce the liquidity incentives for this pool over time, allowing us to better utilize ALCX emissions or perhaps reduce them. This type of bonding should and will continue in the future, and is not what this post is about. This post is about the additional upcoming bonds that are set to be introduced, and a potential upgrade to greatly increase their utility.
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Currently we have plans to bond alUSD3CRV LPs and saddle/curve alETH LPs in the near future. This would enable us to lock in liquidity to help bolster the peg, and increase the debt cap more comfortably over time. This is nice, but I believe we can improve this mechanism to better serve the protocol. The way we do that is by bonding ETH and DAI directly instead. In doing so we can create protocol owned liquidity ourselves in one of two ways depending on the needs of the protocol. Both of the following mechanisms would provide tremendous benefits to the protocol. Here's how they would work:
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Option 1: (Primary Option Used Most Often)
In most cases every week half of all of the ETH earned would go directly to the Transmuter in return for alETH, and half of the DAI earned would go directly to the transmuter in return for alUSD. This would increase boosted yield and debt repayment for borrowers almost every week through bonding. At this point, with half ETH and half alETH, and with half DAI and half alUSD, new saddle/curve alETH LPs and new alUSD3CRV LPs could be created an locked similar to the way that LP positions are locked in the current bonding program.
Option 2: (Used More Sparsely)
As a secondary option, in cases where the peg is looking weak and we can reasonably predict Transmuter usage (which is undesirable), we can create the saddle/curve alETH LPs and alUSD3CRV LPs using 100% ETH or 100% DAI. This would also allow us to create protocol owned liquidity, but would also add more total ETH or DAI to the pools to help re-balance the pool and correct the peg.
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Through these two mechanisms we can create numerous tangible benefits for Alchemix:
Most importantly we are boosting yield and rate of debt repayment nearly every week, which improves the value proposition of Alchemix for users, increases TVL, and as a result increases dividends for ALCX holders in the future. Because of the fact that all alUSD and alETH created through this mechanism are used to create LP positions that are never sold, this allows us to create boosted yield with no risk to the peg. This is extremely powerful
Bonds become more desirable and scalable. In the current mechanism, users must factor in the gas costs of creating LP positions in addition to the costs of forgoing yield for the week long vesting period when determining whether or not bonding is worth it. The result is that at the moment bonds are easier to reason for and more useful for those that already have liquidity positions. By bonding ETH and DAI directly it becomes a much more user friendly experience for potential bonders, and much easier to reason for.
We are increasing protocol owned and total protocol liquidity every week which can help us better utilize ALCX emissions in the future or perhaps reduce them. As specified above bonds may be more useful for those that already have liquidity positions, which means in many cases the protocol is buying existing liquidity. By bonding ETH or DAI directly the protocol will always be creating new liquidity positions, which increases total protocol liquidity and as a result the scalability of the debt cap. (moreso than current bonding plans)
This gives us a clever mechanism and lever for correcting the peg without having to use the Transmuter. If you've read part-3 of my series on Alchemix about the Transmuter (https://words.yunt.capital/alchemix-in-depth-cae2ae6f7b95) you'll know that usage of the Transmuter reduces boosted yield and therefore negatively impacts users of the protocol. At the same time it is sometimes needed to correct the peg. Creating LP positions with 100% ETH or DAI allows us to front run Transmuter users to correct the peg without decreasing boosted yield.
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I have spoken with @scoopy about this and he has assured me that the implementation of these types of bonding mechanisms would not be difficult. In the case of ETH bonding we already have the ability to convert ETH for alETH directly. In the case of alUSD this functionality does not yet exist, but the contract would be small and easy to create. Additionally, we are already entitled to two more bonding contracts from Olympus, so this would merely be a change on their part to accept ETH and DAI instead.
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The purpose of this post is to gauge sentiment towards accepting ETH and DAI bonds instead of LP positions and start a discussion. Should support for this be strong, an AIP will be created where a vote of "YES" will result in bonds that accept ETH and DAI, and a vote of "NO" will result in bonds that accept alUSD3CRV and alETH LP positions.
