This proposal is to decide on the allocation of the Alchemix Optimism grant for liquidity incentives in Velodrome.
Context
The Optimism Collective runs an ongoing grant program for protocols deployed on the Optimism network, to incentivize usage. Protocols can apply for grants based on what value they provide to the network.
Alchemix applied for such a grant and was awarded 250k OP tokens (worth $250k at the time of writing). Read the application and discussions here: https://gov.optimism.io/t/review-gf-phase-1-cycle-7-proposal-alchemix/3475
The OP tokens are to be spent over the course of 6 months split in the following way:
- 50% (125,000) will incentivize vault depositors in the form of boosted yield, for 6 months, split between alETH and alUSD.
- 50% (125,000) will incentivize Liquidity Providers on Velodrome through bribes, for 6 months, split between alETH and alUSD. Estimated $2.5m additional liquidity at 10% APR
This is split into 2 proposals, [AIP-74-A] and [AIP-74-B], with this proposal written for the allocation of the liquidity incentives.
Liquidity Incentives
There are currently two alAsset pools in Velodrome: alUSD-USDC and alETH-WETH.
We also have an option to create a paired pool with QiDao’s MAI stablecoin in the form of an alUSD-MAI pool.
QiDao is a multi-chain lending protocol, where users can deposit different assets as collateral and take out 0% interest loans in the form of the protocol’s stablecoin, MAI.
The protocol’s smart contracts have been audited by two entities, for more information refer to their docs: https://docs.mai.finance/risks/security
MAI’s price stability is ensured through debt repayments. If MAI’s price decreases, users are incentivized to buy MAI and pay back their loans, essentially making a profit.
You can learn more about QiDao in the docs linked above or on their website: https://mai.finance
Context for decision making:
- Alchemix vault TVLs on Optimism have roughly been balanced between ETH and stable vaults since deployment, with the ETH vault currently being twice the size of the stable vaults, standing at $0.33M and $0.16M, respectively.
Though please note that these are very low amounts compared to overall Alchemix deposits, so they may or may not be representative of the true demand, should the boosts already be active.
- Current liquidity for the alETH-WETH pool: $1.3M
- Current liquidity for the alUSD-USDC pool: $0.6M
- Given that QiDao would also provide their own incentives for the proposed joint pool (matching our own bribes), assuming a similar required APR for the pool as the existing alUSD pool, we would get twice as much alUSD liquidity for the same price. MAI currently has $11M of liquidity on velodrome, much larger than our own would be. MAI is also paired with other assets, so through this pool we would probably be able to capture some additional volume. Deployment of this pool would also depend on a final approval by QiDao.
It is worth noting that liquidity pool pairings do not pose a threat to protocol health, as long as there are no protocol controlled funds in the pool. Even if the paired asset in question collapses, all of the alAssets can leave the pool, with liquidity providers taking the hit. However, this is a known risk for any LP when deciding to enter any pool.
Voting
Voting is ranked choice, the option that receives the most votes will be implemented.
If QiDao governance decides against the alUSD-MAI pool, then all votes allocated to the alUSD-MAI pool will go to the alUSD-USDC pool instead.
alETH refers to the alETH-WETH pool, alUSD refers to the alUSD-USDC pool and MAI refers to the alUSD-MAI pool.
Voting options:
- 66% alETH, 17% alUSD, 17% MAI
- 66% alETH, 34% alUSD
- 50% alETH, 25% alUSD, 25% MAI
- 50% alETH, 50% alUSD
- 33% alETH, 33% alUSD, 33% MAI
- 33% alETH, 66% alUSD
- A different allocation should be used, new vote needed