Part of Alchemix’s liquidity strategy for alUSD and alETH is to participate in Convex governance in order to gain rewards from the Curve ecosystem for our liquidity pairs. Thus far, this has involved sending incentives to the Votium platform so CVX holders vote for our pools and the DAO acquiring CVX via Olympus Pro. These efforts have helped to make emissions more efficient for funding liquidity, but they do come with heavy costs.
Economic Analysis of the Curve/Convex Gauge system:
The Curve platform pioneered the veToken model, where users lock their tokens for governance powers and rewards. Perhaps the most coveted governance power is the ability of veCRV to direct CRV emissions to different liquidity pools. Control over this emissions gauge has ignited what many in the space call “The Curve Wars”. There is one issue with veCRV, however, is that smart contracts cannot interact with the Curve DAO contract unless they are whitelisted.
In 2021, DAO’s who are sourcing liquidity for soft-pegged assets, usually stablecoins, started to look more closely at the Curve Gauge system, and were offered a way in via Convex. Convex is a Curve liquidity enhancer, who also own approximately half of the supply of veCRV. Through their CVX token, they vote on Curve governance, giving DAOs a way to affect the Curve Gauges. Now many DAOs, Alchemix included, have been acquiring CVX and incentivising CVX voters to vote for their pools in order to get CRV and CVX rewards.
Recently, the competition around the Curve/Convex gauge has become so popular that it has allowed CVX to have a large price premium vs CRV for the purpose of voting on gauges. Convex owns 215m veCRV, with 45m CVX controlling it, meaning that every CVX controls 4.72 veCRV. At the time of this writing, CVX is $26.07, meaning the price of veCRV via CVX is $5.52, which is more than double the price of CRV. While CVX has additional benefits, since our primary objective is to gain power in CRV governance, direct acquisition of CRV makes more sense than CVX.
Luckily, Stake DAO has recently launched a new product, Liquid Lockers. StakeDAO is one of the few veCRV whitelisted protocols, which is represented by their sdCRV token. These liquid lockers allow any user to deposit their CRV into sdCRV and then use sdCRV to vote in Curve Governance. What’s more is that StakeDAO’s token, SDT, also has a veToken model, and one perk for locking is the the ability to boost your sdCRV voting power. It is possible to deposit a certain ratio of SDT and CRV into Stake DAO which would then make the acquisition of veCRV power even more efficient, effectively acquiring veCRV power at a discount.
Proposal:
It is proposed that Alchemix convert $6.15m from its non-AMO protocol owned liquidity (POL) into 2.3m CRV and 1m SDT. Alchemix DAO already used $340k from our treasury to purchase 497k SDT tokens, and will conduct a DAO to DAO token swap with StakeDAO to acquire the remaining 500k SDT in exchange for an equivalent-in-value amount of ALCX for this initiative.
The funds to execute the CRV purchase will come from the following:
alUSD3CRV: $5m
alETHCRV LP: 238ETH (approx $700k)
cvxCRV - 75,641cvxCRV (to be converted to sdCRV) ) approx $200k in value
Current Elixir Profit: 150k
TOKE - 6400 TOKE (approx $100k)
According to tooling provided to Alchemix by StakeDAO, we calculated that this would result in Alchemix acquiring approximately 3.7m veCRV voting power, or approximately 0.9% of the total gauge voting power. If we were to continue using Votium, the same amount of sustained liquidity would cost nearly 10m/year. This can help us boost our liquidity, increase the AMO profit (from greater rewards from CRV), and make our emissions more efficient. By acquiring and locking SDT along with CRV, we get boosts to our veCRV power, effectively meaning that the price per veCRV will go down to $1.86, which is 66% less expensive than by acquiring Curve Gauge power via CVX.
In addition to getting sustainable boosting power for our liquidity gauges which will drive Elixir revenue, we will also receive an estimated 11% on our sdCRV deposits in 3CRV and SDT tokens, and 10-20% APR on our veSDT deposits in sdFRAX vault tokens. These tokens will accrue to the DAO treasury and how they are spent will be decided by Alchemix DAO at a later time. Assuming things stay static, that projects out to an additional $600-700k in rewards, increasing the efficiency of this collaboration even more so.
Part of this proposal is the assumption that Stake DAO will indeed whitelist Alchemix DAO for their veSDT governance and approve a DAO-to-DAO token swap. If these happen to not pass StakeDAO governance, or if Alchemix governance rejects this proposal, then Alchemix DAO will liquidate their current holdings of SDT.
Summary
A vote “for” accepts the proposal and authorizes the following:
-$6.15m purchase of sdCRV to stake in Liquid Lockers
-500k SDT for ALCX token swap (equal value)
-maximum locking SDT into veSDT
A vote “against” rejects the proposal and authorizes the liquidation of Alchemix DAO’s SDT