Revisions Feb 12, 2023:
- Changed timing to 1 month lockup, per revest's advice that many funds operate on 1 month capital schedules (and there are multiple confirmed funds LPing or transmuting alAssets)
- added stipulation for a core team review or sherlock audit at core team's discretion, pending availability of core team, comfort level of internal review, and cost of audit.
Proposal:
The goal of this proposal is to reduce the incentivization cost/unit of alETH liquidity by making transmuter yield more accessible and predictable.
Revest Finance will build an ERC4626 alETH vault that loops alAssets through their respective transmuters (buy alAsset, transmute, withdraw underlying ETH, repeat). This vault strategy will be reviewed by the core team and/or audited by Sherlock.
Alchemix will partner with Revest to offer 1 months of optional upfront yield for users to lock their LP for 1 months. The program will run for 6 months. The up-front yield will be 0.667% (8% APR)], paid in ETH, funded by the Alchemix treasury selling assets deemed fit. The total offering will be 100 ETH or 16.67 ETH/month*
Context
The ERC4626-Strategy
It has come to the attention of the BizGov SubDAO that some transmuter users use a strategy where they purchase an alAsset at a price < 1:1, deposit that asset to the transmuter, wait to receive some quantity of underlying asset, then repeat the process. This creates a base yield on the alAsset.
Utilizing this strategy is simple, but individual gas consumption makes it less viable, and the variable rates of the transmuter make it difficult to determine expected returns.
It would be possible to create an ERC-4626 strategy that automatically harvests and compounds transmuter harvests on behalf of the depositors. Revest would build this strategy, which would be reviewed by the Alchemix core team. The framework for this strategy is as follows:
Users deposit alETH or alUSD into the strategy
Because alAssets are deposited, there is no lockup on users withdrawing funds.
Harvests will occur when users deposit or withdraw, provided underlying collateral balance available to withdraw from the transmuter exceeds a minimum.
Withdrawals will be paused / will not occur if price of alAsset > some maximum value (1:1, with a reduction to account for gas to harvest - to be determined by revest/alchemix teams)
Revest will build the ERC-4626 strategy, and the Alchemix core dev team will review it. Alchemix will host the yield strategy on the https://app.alchemix.fi/utilities page.
When looking at average transmutations over one-month periods in the last year, a user utilizing this strategy would earn anywhere from 4% to 200% APR, with the average being around 74% APR. Note that large individual outlier harvests often make up a significant chunk of this rate, but having a larger amount of baseline depositors would make it more difficult for one user to claim a significant chunk of large harvests through more advanced techniques. Separately, Alchemix has received information from a hedge fund that was using this strategy manually and estimated about 10-30% APR over time.
Given that the yield is uncertain, it may be difficult to attract depositors. Ultimately, introducing this yield strategy would be expected to reduce the yield, due to it being made more accessible. This is beneficial to Alchemix, as it means that more alETH can be supported by the same total yield (lower APR with the same resources distributed means more alETH in the transmuter).
Revest Up Front Yield
The unpredictability of the yield, as well as the expectation that the new yield strategy will reduce the effective yield, means that attracting new depositors may pose challenges, and that original users of this strategy may not wish to continue utilizing the strategy.
One way to mitigate these challenges and risk is to offer fixed-rate up-front yield through Revest. Revest lets users lock yield-bearing tokens/LP for up-front yield from a protocol/lender (paid in any token). The lender/protocol custodies the tokens, and is able to collect the yield for itself. This can be applied to the alETH transmuter yield strategy, with a few considerations:
Up-front yield should be less than the current yield (74%), or else Alchemix will be overpaying (no benefit to Alchemix)
Up-front yield could be lower than expected yield, because money today is better than money tomorrow. However, this is less applicable, since the expected yield will decrease, and will be difficult to predict.
Expected value for lockers should be greater than the curve alETH LP rate (6-8%)
Yield rate should be somewhat larger than base ETH staking yield (4-6%) in order to reflect the alETH price risk that users are taking on.
Up-front predictable yield will generally justify a lower yield rate than variable yield over a period of time, especially in current bearish market conditions.
The proposed up-front yield is 0.667% for 1 months of locking (8% APR). The intent is to create an attractive APR.
Note that if Alchemix does overspend on up-front yield and the new ERC-4626 strategy settles at some APR lower than 8%, that is still beneficial for Alchemix, as it means that the yield strategy is a significant alETH sink, thus reducing the incentivization cost per unit of liquidity.
Alchemix will sell half of the CRV/CVX received for ETH, and re-lock the rest in accordance with the current Elixir AMO operating framework.
Revest Since Launch
Section provided by revest
Revest launched the initial MVP in October 2022 - we are happy to report that there have been no major bugs that have come up surrounding the protocol outside of minor UI/UX modifications. We have been audited 2x (docs.resonate.finance), have an open Immunefi campaign, and active fuzzing technology probing Resonate.
With the bear market in full swing, we have dug into our network of Institutions, with the goal of providing TradFi capital an easy exposure to crypto via the fixed rate model that works so well with their own deployment strategies. This also allows for a way to meet the very robust demand we have from Retail/Defi Protocols that are seeking to pay fixed rates to lock and rent the earning power from LPs.
Fortunately, we were able to onboard our first official Hedge Fund onto Resonate (https://revestfinance.medium.com/resonate-onboards-first-institutional-fund-coindex-capital-management-98a39b15d10d) with more in the works. This allows us to drive further demand into attractive vaults/strategies - such as the proposed alETH transmuter.
We have 18+ confirmed partners at the DEFI protocol level - and a deal flow of $30 Million that we are curating for onboarding to Resonate Pools.
Voting Options
For - new strategy, revest option
Against - no strat or revest
Abstain
