Note Aug 10, 2023: proposal did not meet quorum as the Curve alETH/ETH exploit occurred on the final day of the vote. Because the exploit does not affect alUSD, this proposal is being split into two proposals - one for alUSD, and one for alETH. The vote for alUSD will be in the coming days. The alETH portion of this proposal will be pending the resolution for the exploited curve pool.
Summary of Action Steps
Withdraw 507k alUSD and 382 alETH from the mainnet AMO Elixirs and bridge it to Optimism via Connext. Pair this with additional treasury assets obtained from the dev multisig on Arbitrum and Optimism to provide a total of 1.764m of alUSD liquidity and 882 alETH liquidity on Velodrome. Eventually transition this liquidity to a Velodrome AMO and/or an AMO of a partner DEX on Arbitrum.
Context
Multichain was the bridging solution for alAssets on Arbitrum, Optimism, and FTM for alETH, alUSD, and gALCX (not all assets were deployed on all chains). On each non-mainnet chain, the Alchemix multisig deployed an upgradeable version of each asset - this is the Canonical asset on that chain. When a user bridged from mainnet to another chain, they would lock their asset within the multichain contract on mainnet, and then the multichain asset would be minted to the user on the destination chain. The user could then deposit the multichain asset to the Canonical asset contract, which would allow them to mint an equivalent amount of the canonical asset.
When multichain was compromised, the DAO disabled the ability for multichain assets to mint canonical assets. However, someone with key access at multichain was able to steal the funds the multichain contract held on mainnet. Because of this, many of the assets on Arbitrum, Optimism, and Fantom are no longer able to bridge back to mainnet, and are therefore no longer backed.
This proposal seeks to restore the backing of all ARB and OP assets affected by the multichain events, in a way that minimizes the financial impact to the DAO and increases the short-to-medium term DAO revenue.
Multichain Mainnet
Multichain holds 1.92m alUSD on mainnet, these funds are currently considered out of multichain’s control, effectively lost and are potentially in circulation: https://etherscan.io/token/0xbc6da0fe9ad5f3b0d58160288917aa56653660e9?a=0xf49818b5d7de5b0dbfccb3ddcd14e1f0aa1a6f01
Multichain holds 901.7 alETH on mainnet, these funds were moved to an EOA and considered effectively lost and are in circulation: https://etherscan.io/token/0x0100546f2cd4c9d97f798ffc9755e47865ff7ee6?a=0x6b6314f4f07c974600d872182dcde092c480e57b
Multichain holds 5845 gALCX, these funds are currently considered out of multichain’s control, effectively lost and are potentially in circulation:
https://etherscan.io/address/0x6474239b1a83ceb3789cd8ddb2218e6f5c6840dd
Optimism and Arbitrum alUSD and alETH
alUSD and alETH Optimism - DATA
When subtracting the FTM alUSD, Optimism has a supply of 1.767m alUSD backed by mainnet lost alUSD from multichain.
| Asset | Supply/Quantity/TVL | Link/Source | Notes |
|---|
| multi-alUSD OP | 1.4m | optiscan | - |
| multi-alUSD ARB | 364k | arbiscan | - |
| multi-alETH | 882 alETH | optiscan | - |
alUSD and alETH Analysis
Optimism is simpler than the FTM recovery plan because the yield strategies and paired liquidity assets are healthy and growing. Most of the loss is concentrated to Optimism alAssets, however, so the net solution has a potential higher impact on the DAO.
Note there is no gALCX on OP or ARB, and L2 gALCX is being replaced with ALCX. Only alUSD and alETH require solutions in this proposal.
Proposed alUSD and alETH technical solution outline
The lack of backing for bridged assets means that there is a large quantity of alETH and alUSD on optimism that has no backing if the system were to zero out (all loans paid off, all alAssets that originated on mainnet bridged back to mainnet). However, if there is no demand to bridge back due to liquidity incentives and growth of the chain, then there is no reason for the system to zero out or even shrink.
The DAO should NOT create a self-fulfilling prophecy - ie, if the assets are never backed, then the system will have a reason to contract. If the assets are backed, then the system has no reason to contract. Therefore, the best solution is for the DAO to commit to re-back the assets, but use those assets to earn revenue until a day comes where the backing is due and must be relinquished. This happens to be exactly what an AMO does, through protocol controlled liquidity. Therefore, the DAO should create a L2 AMO for Velodrome to hold the restored backing and earn yield, ready to withdraw alAssets and burn them if the price of Optimism alAssets begins to slip to unacceptable levels.
The funding for this backing needs to come from the treasury. The AMO Surplus, which is excess backing created when the AMO withdraws alAssets and earns positive slippage, is owned by the treasury and can be withdrawn from the AMO. As it currently stands, if the entire system were to unwind, there would be surplus collateral that would be owned by the DAO. Removing the surplus now technically reduces the backing, but only to the point that the system would truly zero-out if it were to unwind. This is the invariant (ie, “rule”) that needs to be preserved from the V2 audits (ie, if Alchemix were to withdraw more than the surplus, then the invariant would not be satisfied).
The backing for alAssets on Optimism can be restored in two ways:
- Bridge alETH and alUSD from mainnet to OP -> This directly restores the necessary liquidity for users to bridge from OP back to mainnet
- Bridge ETH and USDC from mainnet to OP, then LP it or purchase alAssets on the open market -> This allows users to swap alAssets to ETH or USDC and then bridge that asset back to mainnet.
The proposal is to do a mix of both options: First, calculate the AMO surplus (see AMO Surplus section at the end of this proposal),. For alUSD, it is 507k. For alETH, it is 382 ETH. The surplus will be withdrawn from the alUSD and alETH held naked by the AMO and bridged to Optimism. Next, a mix of alETH/ETH and alUSD/USDC will be bridged to optimism from the treasury such that the total alAssets + Underlying asset bridged add up to the loss of backing in multichain. For alUSD, this is $1.257m. For alETH, this is 500 alETH. Lastly, these assets will be paired together and LP’d and Staked in Velodrome as liquidity.
If there is a sufficient amount of funds denominated in ETH or stablecoins in the treasury on Optimism, the multisig may decide not to bridge these assets from mainnet, but use the funds already available on Optimism.
The funds will be procured from a mix of the following locations, up to 100% of each at the discretion of the multisig (note, valuations are as of end of July and may have changed):
- Mainnet Dev Multisig unstaked CRV - $237k
- Mainnet Dev Multisig unstaked FXS - $55k
- Mainnet Dev Multisig unstaked CVX - $55k
- Mainnet Dev Multisig unstaked BAL - $27k
- Mainnet Dev Multisig unstaked CVXCRV, CVXFXS, IDLE, SDT - $20k
- Mainnet Dev Multisig Staked TOKE - $71k
- Mainnet Dev Multisig Staked 3CRV - $57k
- Mainnet Dev Multisig LUSD/ETH Liquidity - $446k
- Mainnet Dev Multisig StakeDAO alUSD Liquidity - $190k
- Mainnet Dev Multisig Staked yvWETH - $57k
- Optimism Dev Multisig Velodrome alETH liquidity - $2.2m
- Optimism Dev Multisig Velodrome alUSD liquidity - $464k
- Optimism Dev Multisig Velodrome alUSD - $272,000
- Optimism Dev Multisig Velodrome alETH - $67,800
**Note, as an adjustment, once Arbitrum is more established, liquidity equivalent to the ARB multi-alUSD should be unstaked and moved to a selected DEX on arbitrum.
This POL should later be moved to a specific Velodrome AMO, in order to clearly define the restraints (is first as foremost backing - can only be used as liquidity if not needed to be withdrawn to restore price to target values).
Proposed alUSD and alETH OP/ARB Technical Solution
The initial execution of this solution requires no development or technical solutions beyond operations that the DAO already carries out on protocols noted above via the multisig (bridging, Velodrome LPing, etc).
In the future, a Velodrome and ARB-dex AMO will be necessary to ensure the assets are easily tracked and separated for their intended purpose of acting as an AMO, not as POL.
Appendix - AMO Surplus
The AMO receives a positive slippage if it withdraws alAssets from the liquidity pools when the pools are an alAsset majority (alAsset is < 1:1 with underlying collateral). This creates a surplus. Only the positive slippage earned is surplus - the additional assets that are withdrawn are never meant to re-enter circulation in order to maintain the invariants of the transmuter. Essentially, the positive slippage is excess backing that is not needed to zero out the system.
Without the AMO, the Alchemix system should always zero out. This means that the total debt in the system should be equivalent to the total backing. With the AMO surplus, there will be excess total backing in the system. This surplus is effectively owned by the DAO as a treasury asset, rather than restricted protocol controlled liquidity.
The total debt is equivalent to the supply of alUSD and alETH, minus the naked assets held by the AMO (these are considered burned).
The total backing is the debt users carry, funds held in the transmuter buffer, and the total value of liquidity held by the AMO (as all of it can be withdrawn at least 1:1 to burn alAssets).
| Asset | Quantity | Source | Note |
|---|
| Mainnet v2 alUSD debt | 6,281,344 alUSD | - | calculated with script |
| Mainnet v2 alETH debt | 9,501 alETH | - | calculated with script |
| Mainnet v1 alUSD debt | 359,840 alUSD | Etherscan | Conservatively estimated at 50% LTV |
| Mainnet v1 alETH debt | 34.4 alETH | Etherscan | Conservatively estimated at 50% LTV |
| alUSD Transmuter Buffer | 42,902 USDC, 1,838 USDT, 1,402 DAI ($46,142 total) | Etherscan | - |
| alETH Transmuter Buffer | 90.4 ETH | Etherscan | - |
| AMO 3crv Liquidity | 8,293,991 | Debank | - |
| AMO FBP Liquidity | 35,445,238 | Debank | - |
| AMO alETH Liquidity | 13,021 | Debank | - |
| AMO alUSD naked | 121,336,757 | Debank | - |
| AMO alETH naked | 26,303.8 | Debank | - |
| alUSD supply | 171,253,081 | Etherscan | - |
| alETH supply | 48,569 | Etherscan | - |
alUSD calculation:
Supply = 171,253,081 minus 121,336,757 = 49,916,324 alUSD
Backing = 6,281,344 +359,840 + 42,902 + 8,293,991 + 35,445,238 = 50,423,315 alUSD
Surplus = 507,000 alUSD
alETH calculation:
Supply = 48,569 minus 26,303.8 = 22265 alETH
Backing = 9501 + 34.4 + 90.4 + 13,021 = 22646.8 alETH
Surplus = 382 alETH
Voting Options
Voting will be For/Against:
For: Restore backing to Optimism/Arbitrum alUSD and Optimism alETH per the plan outlined in the above proposal
Against: Do not restore backing per the plan outlined in the proposal (propose another approach).
Note: The execution of this proposal will also allow the execution of AIP 94 and AIP 90 should the votes pass.
