Summary
- Launch alOHM as a new alAsset
- Deploy an alOHM Alchemist on Mainnet with an OHM staking strategy
- Create an alOHM/OHM Balancer pool and apply for a gauge
- Allocate up to 500 ALCX a week to support liquidity in this pool
- Deploy an alOHM Elixir AMO
The alOHM Alchemist will have the following parameters at launch:
- Accepted collateral: OHM, gOHM
- Max LTV: 50%
- Vault fee: 15%
- Deposit cap: 1,000,000 OHM
- Repayment and liquidation caps: no caps, set at infinite
- Maximum loss: 5 bps (0.05%)
- Transmuter: set flow rate at 0.00237 OHM/second and a max transmuterBuffer of 75,000 OHM
Context
Alchemix’s focus over the last months has been to expand cross-chain and to deploy new yield strategies for existing alAssets. In parallel, we’ve been exploring the creation of new - more exotic - alAssets with interested protocols. The feasibility of creating a new alAsset depends on various factors, but some of the more important ones relate to a sustainable yield source, user demand, willingness of the partner protocol to support the product, and a clear path towards profitability.
After discussions with a few different protocols and considering various new alAssets, we propose to launch alOHM as the first “exotic” alAsset. We will outline various reasons in this proposal for doing so, but in short, alOHM has a sustainable yield source, Olympus is willing to support the bootstrapping of the product, and alOHM has historically been requested by both communities.
In this proposal we will outline the suggested launch parameters, vault strategies, liquidity support and an Elixir launch.
(As a side note, a question that is likely to come up is ‘why not alBTC first?’. The short answer to that is that the lack of a proper, up-only yield source and/or partner protocol support makes the product unfeasible. Without a good yield source and/or third party support the product will not be profitable for the protocol and will present a constant drain on the treasury and the limited emissions available.)
alOHM Alchemist and launch parameters
Collateral types
Accepted collateral types for the alOHM Alchemist are: OHM, gOHM (wrapper for staked OHM).
LTV%
Maintain the same LTV% for alOHM as for alUSD and alETH and set it at 50%.
Yield strategy
Launch alOHM with a single initial yield strategy. This strategy uses the OHM staking rate (currently 7.5% APY).
Vault fee
Set the vault fee % for alOHM at 15%.
Deposit cap & Cap raises
We propose to set the initial deposit cap at 1,000,000 OHM (roughly $10m USD). For the launch it might be prudent to start off with 100,000 OHM to ensure the product functions as intended. At the core team’s discretion this can be ramped up to a maximum deposit cap of 1,000,000 OHM.
Maximum loss
This is a variable that disables certain actions such as the ability to deposit in the vault in the event that the yield source is losing money. This should ideally never come into play but serves as a safeguard in the event of a problem with an integrated yield source. While this is unlikely to happen for alOHM we propose to set this variable at 5 bps (0.05%).
Repayment & liquidation caps
Currently, repayment and liquidation caps are only set for alUSD. The repayment cap specifies the quantity of debt that can be repaid over a set duration of time, while the liquidation cap specifies the quantity of an asset that can be liquidated over a set duration of time. Since OHM is a free floating asset - similar to ETH - and not stably pegged to another asset (e.g. USD) we propose to leave the cap at infinite.
Transmuter
In order to support the alOHM peg and facilitate arbitrage, the transmuter flow will be enabled at the start. Note that any funds directed to the transmuter will not enter the Elixir AMO. This proposal suggests setting the initial flow rate to 0.00237 OHM/second with a maximum transmuterBuffer of 75,000 OHM. Anything beyond that will be directed into the Elixir. Depending on the alOHM peg in the period following the launch, a separate proposal might have to be put up to change this flow rate up or down.
Liquidity
The second key thing to outline in this launch proposal is how the liquidity will function. The majority of the costs of creating a new alAsset is the incentivization of a new pool, and so having a path towards sustainable liquidity management through third party support and an Elixir AMO is crucial.
Liquidity home
After consultation with the Olympus team we propose to create an alOHM/OHM stableswap pool on Balancer. There are a few reasons for this choice. First, the majority of OHM liquidity in the market today can be found on Balancer. This means that this new alOHM pool easily routes into the existing OHM/DAI and OHM/ETH pools, as well as other, smaller OHM pools there. Second, at the time of writing, the cost of incentivization on Balancer/Aura vs. Curve/Convex is lower - more specifically, the bribe multiplier is higher. Over time we expect this gap to equalize but for now it does make it more attractive to launch a pool on Balancer. Finally, it also gives the treasury a chance to start building a BAL/AURA position as well, which will be useful not just for the incentivization of the alOHM/OHM pool but also for the future release of veALCX.
After deploying the pool we will request a Balancer gauge so that we can use bribes to incentivize liquidity.
Liquidity incentives
Allocate up to 500 ALCX in weekly emissions to support liquidity in the pool. At the time of writing, the bribe multiplier for Aura is fluctuating between roughly 1:1.5 and 1:1.75 - meaning that every ALCX spend on incentives will have a multiplicative effect on the actual dollar incentives for the pool.
Note that these liquidity incentives are up to 500 ALCX of weekly emissions. Olympus intends to support the initial bootstrapping of the pool (pending governance vote), and so those funds can be used as well to supplement the weekly emissions.
Depending on pool APR% and TVL the ALCX spend can be lowered, or increased, up to the cap to make sure the liquidity is sufficient for the product to function.
Olympus support
As part of the launch of alOHM we have agreed with Olympus on support for the liquidity costs. There are two parts of this support: 1) Olympus will deposit 150k OHM in protocol-owned OHM into the pool which acts as a piece of guaranteed, sustainable liquidity for the protocol. 2) Olympus will help co-incentivize the incentivization of the pool for the initial bootstrapping period. More specifically, they have agreed to provide $50k per quarter in support for a total of two quarters.
The Olympus support items are pending an Olympus governance approval. The proposal has been created here. Important note: this AIP is contingent on the Olympus support proposal passing governance. Without this support the product is not feasible as outlined above.
Elixir AMO
As a final part of the liquidity set-up, this proposal would also authorize the creation of an Elixir for alOHM for Balancer and Aura. That is, the Elixir will take idle OHM in reserve and add it to the alOHM/OHM pool and stake the LP tokens on Aura in order to receive a share of the BAL and Aura rewards. The Elixir plays an important part in the overall path towards profitability of the product and the sooner we launch one, the faster it starts to accumulate funds that provide income to the protocol. For more information on how the Elixir AMO functions, see here.
This alOHM Elixir will be the first one for the Balancer ecosystem for the protocol. Assuming the gauge proposal for an alOHM/OHM pool passes, it means that - over time - this Elixir will start to earn BAL and AURA rewards. We suggest that during the initial bootstrapping period of 6 months the accumulated rewards are locked up in respective veBAL and vlAURA positions. This increases the governance power of the protocol and means that we will be able to vote for our own pools. At launch that will be the alOHM/OHM pool, but over time this voting power could also be used for veALCX (i.e. the ALCX/ETH 80/20 pool).
Please note that locking BAL as veBAL requires whitelisting on Balancer. The above is assuming Alchemix can be whitelisted to lock these rewards on Balancer. If not, the alternative would be to sell BAL for AURA to gain voting power, or to lock them on other third party platforms like StakeDAO.
After the bootstrapping period a governance vote can be created to utilize these rewards harvests differently. For example, by making them part of the Elixir harvests framework.
Voting
A vote “FOR” authorizes Alchemix to launch alOHM as a new alAsset, to deploy an alOHM Alchemist and yield strategy, to create an alOHM/OHM pool on Balancer, to allocate part of the weekly emissions to this pool, and to deploy an alOHM Elixir.
A vote “AGAINST” does not authorize Alchemix to launch alOHM with the above parameters.
Considering the holiday period this AIP will remain on the forum for an extended period of time and will be added to Snapshot in the first week of January.