Summary

This proposal aims to increase the voting power in Velodrome Finance on Optimism by purchasing $50k worth of VELO tokens to lock into veVELO, as well as moving 50% of the current treasury-owned alETH-ETH Curve LP tokens into Velodrome to farm VELO.

Details

Alchemix started its expansion to other chains by deploying on Fantom, but to date has not deployed its contracts on an Ethereum L2.
Arbitrum and Optimism have been selected as the first L2s to expand to, Optimism being the short-term target.

In order to eventually be able to launch Alchemix on Optimism, sufficient liquidity for alAssets needs to be provided on the rollup.

When Velodrome Finance, an AMM on Optimism launched, they airdropped veVELO NFTs to notable projects, including Alchemix. veVELO can be used to vote on Velodrome gauges, similar to how it works on Curve and other protocols using the “ve” concept. Alchemix currently holds 4M VELO tokens, worth ~$120,000 (update on aug 28th: $100,000) as of the time of writing.

The treasury is currently using its veVELO voting power to direct incentives to an alUSD-USDC and an alETH-WETH liquidity pool, which in essence kickstarted alAsset liquidity on Optimism.
As of writing, there are currently $5.45M (update on aug 28th: $3.51M) worth of assets in these two pools combined.

This proposal aims to increase the Alchemix treasury’s veVELO stake to be able to direct more incentives to the alAsset pools by directly purchasing and locking $50k worth of VELO tokens.
This would be done by utilizing part of the farming rewards from the Elixirs as set by [AIP-57] Temporary Elixir Harvest Framework.

By moving 50% (619 ETH) of the treasury’s alETH-ETH Curve LP tokens into the Velodrome alETH-WETH pool, through the VELO rewards, the treasury would be able to further increase its veVELO voting power.

As of the writing of this proposal, the Convex alETH-ETHCrv yield was 10.24% (update on aug 28th: 8.06%) and the alETH-WETH Velodrome LP was 12.88% (update on aug 28th: 8.11%).
By moving 619 ETH worth of the treasury’s stake, this yield would drop to 8.95% (update on aug 28th: 5.2%), but total rewards to this pool should increase through additional voting power from the VELO purchase, pushing yields back to previous levels.

Accumulating VELO sets us up for a future where we can support higher TVL on Optimism, and we believe layer 2 deployments should be prioritized ahead of a future bull run.

Important: This proposal does not green-light the Optimism deployment, but the desire to eventually launch on Optimism is required for this proposal to make sense.

Addressing Potential Security Concerns

Velodrome recently experienced a security incident where one of their team members took possession of a large part of operational funds for personal use.
The funds have since been returned by the party in question, however, the Alchemix core and bizgov teams deemed it necessary to have a conversation with the Velodrome team to assess if they have taken the required measures to make sure something like this does not happen again.
In regards to Velodrome Operations and Security:

• There are 2 team addresses: 1) treasury and 2) operations
• Security upgrades: MultiSig for treasury still exists, operational funds are now also controlled by a MultiSig instead of the previous EOA
• What can the MultiSigs change? The protocol is mostly immutable, but is able to set emissions % to team (max 5%, currently 3%) and fees for swap curves (max 0.5%)
• Governance is not live yet
• They have an emergency DAO to kill gauges/bribes. 7 signers include broader defi figures. 3 from Velodrome + 4 External people

Choices

A vote “FOR” signals approval of the purchase and locking of VELO tokens, as well as the relocation of 50% of the treasury’s alETH-ETHCrv position to Velodrome.
A vote “AGAINST” signals the desire not to increase our stake in Velodrome and to keep all of the treasury’s alETH-ETHCrv tokens untouched.