[AIP-60] ALCX Resonate Treasury Deployment

RobAnon

Category: Treasury Management and Partnerships

Scope: Approve deployment of 5,000 ALCX to Resonate yield futures protocol, with an additional 15,000 held in reserve.

Objective:

Become a launch partner with Resonate.
a. Co-market utilizing Twitter, Medium, and any other social media platform.
b. Include a link to the Resonate Dapp on the Alchemix Dapp.
Deploy idle ALCX treasury and diversify it to ALCX and ETH at a 50% ROI.
Lock-down $3MM+ of mercenary liquidity for 3 months (as a starting point)
Offer upfront yield payouts on ALCX/ETH LP token farming of up to 5% immediate returns.

Summary

What are we proposing?

Historically, the ALCX tokens in the Alchemix treasury have been used for emissions to pools that yield little return to the treasury. Resonate offers a solution that would allow Alchemix to use emissions in a more productive manner. Using a Resonate pool, Alchemix can emit ALCX tokens in a lump sum to users in exchange for locking ALCX/ETH liquidity and redirecting non-native emissions to the treasury. Specifically, the initial Resonate pool will focus on the ALCX/ETH LP on SushiSwap.

Under this proposal, ALCX will deploy 5k ALCX tokens to a Resonate pool for the purpose of incentivizing users to deposit ALCX/ETH SushiSwap LP tokens into the Resonate pool.These tokens will be locked for a 3-month term and deposited into SushiSwap to earn boosted yields.

When a user deposits into the Resonate pool they forfeit the ALCX and ETH future yields in return for an upfront payment in ALCX tokens.

What does this mean for Alchemix?

Alchemix would earn a return of ₅₀% in ALCX and ETH tokens on the 5,000 ALCX deployed. Alchemix would be focusing on emission reduction while simultaneously diversifying its treasury through a ‘Synthetic Swap’ and also earn a yield on the tokens used to incentivize.

Through this program, Alchemix incentivizes locking $3MM of mercenary liquidity into the ALCX/ETH liquidity pool for a period of 3 months.

In addition, Alchemix would also be gaining ‘Protocol Owned Liquidity’ through this program in the form of interest payments.

Learn more about Resonate here.

Overview

Resonate is a Yield Futures Protocol developed by Revest Finance and built on top of Revest’s Financial NFT (FNFT) technology.

Using Resonate, we are able to separate the principal and interest components of a position by issuing two FNFTs—one containing the principal and the other containing the rights to future interest on that principal.

Resonate facilitates the commerce of the rights to future interest by matching issuers—who want to sell off their interest rights for a one-time upfront payment—and purchasers—who want to buy the rights to future interest for a one-time upfront payment.

Risks

For an issuer (typically ‘retail investors’ and ‘smart money’) the risks are minimal. Mainly, they’re restricted to token price fluctuations.

A purchaser, on the other hand, is exposed to opportunity cost. This implicitly points to the optimal candidate to take on the role of the Purchaser: DAOs and Protocols!

Normally, Alchemix would be unable to deploy their native-token treasuries as their direct deployment to yield farms would dilute returns provided by Alchemix, and their direct sale would lead to adverse price action.

This inability to make deployments to yield farms means that as a purchaser Alchemix will not experience any form of opportunity cost. This is due to not being able to utilize these native tokens to begin with. Therefore, utilizing Resonate to perform a synthetic swap of ALCX for ALCX/ETH is, as Spock would say, ‘logical.’

Purchasers hold their principal within the Principal-FNFT and, therefore, retain a fully liquid FNFT throughout the term, allowing them to sell it on OpenSea, LooksRare or SudoSwap should the need arise.

Details

5% of the principal is paid out in ALCX upfront to incentivize ‘retail investors’ and ‘smart money’ to enter the SushiSwap ALCX/ETH LP, giving them instant yield paid in ALCX.
Their ALCX/ETH tokens are held within a Principal-FNFT for 3 months.
The FNFT remains fully liquid throughout the term, allowing them to sell it on OpenSea/LooksRare/SudoSwap should the need arise.
The ALCX/ETH LP tokens are staked into SushiSwaps ALCX/ETH LP farm.
The ALCX and ETH rewards generated by the ALCX/ETH tokens are delegated to the Interest-FNFT held by the Alchemix treasury and these rewards may be claimed at any time.

*Please note that the “per 100 tokens deposited” is a standardized value and the minimum amount of tokens required will not be this large.

Implementation

Incentivize liquidity on ALCX/ETH pair
- Utilize 5,000 ALCX to incentivize deposits for 3 month paying out 5% returns upfront to those locking their ALCX/ETH, resulting in ₇,500 worth of ALCX rewards paid to Alchemix over 3 months, a ₅₀% ROI for Alchemix
- Issuer receives a 5% ROI immediately as opposed to waiting 3 months for a 7.5% ROI (note, this is based on the forward-looking emissions schedule)
Predicted TVL Gain: $3MM
Alchemix ROI: ~ 50% return, $72,500 profit

Business and Technical Requirements

Resonate will develop an adapter for SushiSwap that will allow Alchemix to claim the interest in ALCX/ETH SLP tokens.

Glossary of Terms

FNFT - Financial Non-Fungible Token.

Yield Futures - the separation of a stake’s periodic interest payments from its principal repayment obligation to create a series of individual FNFT’s. With Yield Futures, the underlying stake becomes a principal-bearing FNFT and each interest payment can be claimed through the interest-bearing FNFT at any time.

Principal FNFT - This is the FNFT where the original sum of tokens staked is held.

Interest FNFT - This is the FNFT where the interest from the principal FNFT will be sent. You are able to withdraw the interest accrued at any time.

Synthetic Swap - When you use Resonate to trade your own token, or another token, for a completely different token to diversify your treasury.

Stablecoin Boost - When you deploy stablecoins from your treasury to receive higher than normal yields if you were to just deploy to a stablecoin farm.

Mercenary Liquidity - Liquidity that is deposited into a liquidity pool solely to reap the benefits, leaving the minute that things turn difficult. If mercenary liquidity is not locked-down, its owners will pull LPs at the first sign of market instability and sell the native token into the now more-shallow liquidity pool, pushing token prices into a downward spiral.

Vote

The vote will be to form a partnership with Resonate and deploy 5,000 ALCX, delegating rights to the Alchemix Dev Multisig to deploy an additional 15,000 ALCX to Resonate pending their evaluation of the success of the program following a period of one month. This 5,000 ALCX will be deployed to Resonate over the course of several sub-deployments, with 2500, 1500, 1000 on a weekly basis being the suggested schedule but the distribution and timing thereof left up entirely to the Alchemix team.

IMIMIM

So, here's my thing. Right now, at the current prices, the Sushi LP has almost $11 million in value (https://etherscan.io/address/0xc3f279090a47e80990fe3a9c30d24cb117ef91a8). The amount that the treasury owns is like maybe one or two million, if I remember correctly. If I'm doing my math right, at today's prices, 10,000 ALCX would potentially reward up to $6 million in LP, right, at 5%? With all due respect to Resonate, that's essentially incentivizing over half of our ALCX liquidity to deposit with an untested protocol. I don't know if I'm comfortable with that.

Maybe instead of unlocking all of the 10,000 ALCX at once, it could be done in stages, as the Resonate protocol starts to become battle-tested?

Also, assuming that this proposal (or similar) is approved and moves ahead, how about putting the ALCX into gALCX, and when depositors claim their stake, then it withdraws from the gALCX contract? That could make the initial allocation go further, no? And if not the initial allocation, you could put the reserve 10,000 ALCX into the gALCX contract while waiting it out

RobAnon

IMIMIM

So, here's my thing. Right now, at the current prices, the Sushi LP has almost $11 million in value (https://etherscan.io/address/0xc3f279090a47e80990fe3a9c30d24cb117ef91a8). The amount that the treasury owns is like maybe one or two million, if I remember correctly. If I'm doing my math right, at today's prices, 10,000 ALCX would potentially reward up to $6 million in LP, right, at 5%? With all due respect to Resonate, that's essentially incentivizing over half of our ALCX liquidity to deposit with an untested protocol. I don't know if I'm comfortable with that.

That’s a fair point. We can adjust the proposal to have the treasury deploy 5,000 ALCX initially and keep 15k ALCX in reserve to be deployed over 9 months following the initial deployment. That’s still incentivizing $3 million in TVL, but all of that liquidity is ultimately being deposited into the same Sushi farm. There's a good chance to additional LP-ers will also make up a proportion of that.

Further, we should likely make it more explicit on how this will be staged. In most uses of Resonate, we typically suggest staging deployment of value across several weeks. Could make that deployment schedule explicit, or even just specify that it will be staged over 3 separate weekly deployments rather than a single one and leave the specific distribution up to the team. Would love to discuss this more tomorrow during the Fireside Chat!

Also, assuming that this proposal (or similar) is approved and moves ahead, how about putting the ALCX into gALCX, and when depositors claim their stake, then it withdraws from the gALCX contract? That could make the initial allocation go further, no? And if not the initial allocation, you could put the reserve 10,000 ALCX into the gALCX contract while waiting it out

This isn’t currently possible with our system. The tokens that Alchemix deposits into the purchaser queue are the tokens that are paid out; we can't transform them in any way. It's something we'll encourage new Issuers to do with the ALCX they receive upfront, but we can't automatically deposit the tokens for them.

thetechnocratic

is Resonate under audit? the audit pages in the docs is currently blank https://docs.resonate.finance/resources/security-audits

We have updated the docs with our audits from BlockSec and Zellic, both of which we have passed 😀

thetechnocratic

agree with @IMIMIM on this. I think $1m is a more prudent cap, and we start at maybe 1/10th that and increase over time.

is Resonate under audit? the audit pages in the docs is currently blank https://docs.resonate.finance/resources/security-audits

I would prefer to see a completed audit from a reputable firm before moving forward with something like this.

ov3rkoalafied

Fyi I think @IMIMIM brought up a point - why do this for a small gain? Why also take the risk of being a launch partner?

I think the main reason to do this for a small gain is because 1. the effort is relatively minimal if the proposal passes (even with 1500 ALCX, if we don't go beyond that, that's still 500 ALCX - something that could be used for a grant, gitcoin donation, community tips, etc. $15k savings is not negligible.

I think there's a bit of time pressure because we may be migrating to BPT for veALCX. If we push back too far, we run the risk of having liquidity locked in the SLP. I'm waiting to hear if there's a workaround for this to get the SLP back to people early, if we migrate. (YOu don't want to force migration, as the ratios will be different between the pools)

IMIMIM

Just to add a little more context, my question wasn't just why do this for a small gain and take the risk of being a launch partner. I wasn't thinking about the risk to the protocol so much as the risk to the LP providers. It was why incentivize others to risk their capital for a comparatively small gain on our part, if that makes sense. I'm not necessarily against Resonate or anything. But even with the possibility of migrating liquidity to balancer, unless I've missed something, I don't think I've heard a compelling argument for why it's so important to be a launch partner and to incentivize the users that provide much-needed liquidity to risk it in an as-yet untested protocol in Resonate. Again, with all due respect to the Resonate team. The protocol could potentially save $15k, and yet the LP providers are potentially risking seven figures. Yes, they'd be getting that 5% payout, but the broader risk dynamic doesn't seem well-balanced to me. I mean, I don't personally have any ALCX LP, but I would personally be more comfortable waiting until their protocol is battle-tested.

And for whatever it's worth, I generally have a pretty low risk tolerance as compared to those that call themselves degens, so take whatever I have to say with that grain of salt.

IMIMIM

Also, in the current climate, I'm not sure how to feel about the fact that they're US-based. There are pluses and minuses, for themselves and for the broader public, to the fact that they're a Wyoming-based LLC. Maybe someone with a more sophisticated understanding of the evolving regulatory and political landscape, and/or someone from the Resonate team, could comment on what they see the pluses and minuses of this being?

RobAnon

With respect to the question about where we are based, our dev-shop is based in the States, but I realize now I should likely have been more in-depth about the details of that legal structure during the AMA. We have the dev-shop "Revest Finance, LLC" in the United States to facilitate payments and handle expenses here. For now, it operates as service-providers to the Revest Protocol – however, those arrangements are quite fluid. As best we can tell, nothing the protocol itself does is in any legal grey areas, as FNFTs are in most cases simple bailments. If the underlying asset in an FNFT is deemed a security, it is likely that the FNFT itself would be a security, but in that arrangement, the user creating what is legally considered a security in their jurisdiction would be responsible for individual compliance. In other words, the same sort of responsibility that something like Google Drive has if you upload a movie to it – the onus is placed on the end-user. While we don't expect this to change in the near future, we do have contingencies in place to offshore the components of the business that would need to be offshored if the situation in United States dramatically changed, delineating further service-provider agreements between those offshore corps and the onshore service providers.

The pluses of being in the states are a fantastic pipeline of high quality devs. Our administrative state is currently in the process of being dismantled by our courts (see recent SCOTUS decision on the EPA, or SEC v NASDAQ DC Circuit Court of Appeals decision), which is one of the wild cards you won't see being discussed – it is likely partially for this reason that our regulators are being as measured and "wait-and-see" as they are. A great deal of the fear that's been flying around lately is partially the result of bear-market anxiety magnified by savvy consultants making hay of what is actually a fairly isolated situation with limited impacts. Groups like TRM make a great deal of money by convincing everyone and their brother that the sky is falling – this is not likely the case, and we haven't received any panicked calls from legal concerning recent goings-on.

As to the risk for LP providers, my take is a fairly simple one: the LPs themselves should be allowed to decide. The decision being made here is whether Alchemix themselves will participate – that is only half the battle, and it will be up to us to convince others that the system is as secure as we say it is. Having hardened ourselves through trial-by-fire, we have implemented security practices that most teams wouldn't even think of prior to launch - two audits before launch aren't usual, internal bug bounties with global whitehat groups aren't common pre-launch, nor is access to state-of-the-art fuzzing for business-level logic. We think that these precautions should be more than sufficient to prevent any issues with our code, and we hope LPs will see it that way as well. However, we also think that the market should be allowed to decide its level of risk. If Alchemix offers a pool on Resonate and nobody chooses to take them up on it, that would be indicative that the market doesn't feel the risk is worth it. With packet sizes adjustable, it's entirely possible that LPs will only partially consume the first ALCX order with smaller amounts of LP tokens upfront – the 100 number on our flowchart is wholly arbitrary – only increasing their consumption as the system proves itself over the first few weeks. It's also entirely possible a single whale eats the whole thing; market participants should be allowed to decide what their risk appetite is. It’s also important to note that Issuers/LP Providers won’t necessarily be locked into their positions, despite locking down their LP tokens. Since FNFTs are transferable and tradeable, the Issuer has the option of a mid-term exit simply by selling his Issuer-FNFT to a willing buyer, possibly still at a net profit. This isn’t only a theoretical possibility. We have seen this play out before on FTM, where Revest-issued FNFTs have done over 25K FTM in volume.

Why be our launch partner? The time constraint brought up by overkoalified is certainly a part of it – we don't know what a BAL pool would look like, and it could be significantly more complex to integrate with for us; the adapters certainly don't exist for it, and we'd need to get them audited as well. The adapters we currently possess have already been audited for both MasterChef V1 and V2, which makes things significantly easier on that front. The other reason is for simple fun and experimentation; DeFi has been in goblintown for a while now, and cross-tech experimentation on new rollouts is a time-honored tradition in crypto – one has only to look at the runaway success of Uniswap to see this pattern in action. It's a little bit like throwing a party in the middle of winter; new things get tried, new ideas get proven, and the bedrock for the next bull market is laid down. We hope we can find a healthy balance between an appetite for exploration and an abundance of caution with the schedule we've suggested, and we'd love to work with the Alchemix community to ensure that it makes sense for them.

scoopy

I've been torn on this proposal since it went live. On one hand, I think the resonate product sounds promising, and on paper, it would save Alchemix some money. On the other hand, revest has had a security incident somewhat recently, and thus it makes the risk/reward calculation much murkier. When you also consider that it is highly likely that the ALCX/ETH SLP pool will transition to a Balancer pool LP (as per the most recent in DAO development), the viability of this product would be extremely short lived.

I think that in the post-launch world of Alchemix DAO, that I'd be a lot more open to voting yes on a revest/resonate proposal because Alchemix would have clarity on LP emissions and it would provide the resonate product some extra time on the market to prove its security's robustness.