Proposal
Change the current Elixir AMO harvest framework, where half of rewards are sold and the other half re-locked into sdCRV and CVX, into splitting the revenue in equal thirds for re-locking, treasury funding, and ALCX buyback and bribes.
Context
The AMO Elixirs for alETH and alUSD farm CRV, CVX, and 3CRV. Currently, half of the harvest is sold for stablecoins and ETH in order for the treasury to increase runway / pay for operations (approved for up to $450k per quarter). The other half is kept as CVX and CRV. These CVX and CRV are locked to increase the liquidity-directing assets that the protocol owns.
Locking CVX and CRV increases the long term baseline of incentives that the treasury can provide. It is a growth mechanism - it has very little benefit in the short term, but increases the indefinite baseline incentives that the DAO can provide. Alchemix, along with the rest of the market, is not in a growth phase. It is in a build-and-preserve phase to improve the product for if/when the next growth phase comes along. This is illustrated most clearly by the fact that TVL in Alchemix / DeFi on average has decreased and that alAsset prices have slipped below what they have historically been, due to the incentive mechanisms being less effective than what they had been in the bull market. While the effects of locking are not immediate, they significantly help the long-term sustainability of incentivising alAsset liquidity.
Proposal with Analysis
veCRV owned (sdCRV) - 4.2m
vlCVX owned (vlCVX) - 380k
% of voting power - 1.1% of total veCRV
Bribe effectiveness - usually 110-120% of bribe value in earned rewards combined with our gauge voting power
Alasset prices, alETH - 0.98 ETH, alUSD 0.984 USDC
For every dollar that we spend in ALCX bribes for the Elixir AMO LP pools, it returns approximately 15% more than we put in. For example, if we put in $100k worth of bribes, it generates $115k in earned rewards from Curve and Convex (and soon to be Frax). It has turned our greatest expense into a large driver of revenue for the protocol. Together with our bribes and voting power, rewards are produced for the LP pool well in excess of the value of the bribes, allowing the Elixirs to typically be profitable vs bribe costs despite controlling roughly 60% of the liquidity in either pool.
As stated earlier, multiple reflexive factors impact the efficacy of this program during a bear market. As such, the AMOs have required significant contraction to sustain their operations, impacting the alAsset prices and total liquidity available. However, if we were to use a third of all earned rewards in the AMOs to buy back ALCX and then add them to our existing bribes, this would confer a few benefits.
The first order effect of buybacks and bribes is that the extra bribing power will increase the pools’ APR, which should attract more LPs, helping alAsset price and liquidity. This will strengthen the AMOs, possibly allowing them to expand instead of being required to contract. Second, the increase in pool APR (and possible AMO expansion) will increase revenue earned from the AMOs. This could very well lead to a flywheel effect, wherein with each successive reward epoch, the total revenue will increase, which will allow us to bribe more in the following epoch, and so on. Lastly, the buybacks will increase aggregate buying pressure of ALCX, strengthening its position in the market.
One third of the assets will be relocked and or sold to other gauge controlling assets at the discretion of the Alchemix BizDev subDAO, such as Aura and Velo. This will help us with the long term ability to provide yields for LPs in our ecosystem. Even if we were to completely turn off ALCX emissions, we would still be able to incentivise LPs for all of our products via our voting power, giving us crucial long term support. By continuing to bolster our positions in Curve, Convex, Velodrome, and potentially others, we can increase our voting share, fending off dilution from their token emissions. Whether we simply relock the CRV and CVX or exchange for other liquidity directing assets will be at the discretion of the BizDev subDAO members.
One third will be sold to bolster the treasury in the form of ETH and stablecoins. We currently have over $1 million in stables and ~$2 million in ETH for our runway (not including the massive stack of ALCX and other treasury assets that could be liquidated if needed). Currently, our salary and infrastructure costs total to around $50 thousand per month, with periodic audits costing $100 thousand or more. In total, our annual burn is between $800k and $1.2m, depending on the amount of audits we request. Projecting an average of $300k monthly revenue from the AMOs based on the average pool APR and Elixir TVLs, a one-third slice of this should cover all expenses and leave the treasury with a moderate surplus. Currently, Alchemix has an approximately three-year runway (if all revenue stopped right now), but extending our runway as much as possible before the launch of veALCX would be optimal so that the core team would nothave to take a large share of protocol fees/income, leaving the majority to the veALCX holders.
Summary:
Going forward, the AMO harvest framework will shift from an even split between funding the treasury and re-locking, to a three-way split, with the harvest revenue going equally towards treasury funding, accruing and locking liquidity directing assets, and ALCX buyback and bribes.
A vote “for” approves this change
A vote “against” rejects this change
Abstain