[AIP 97] Resume alETH Alchemist, re-direct ETH backing to AMO

ov3rkoalafied

Proposal

Re-direct yield flow, self-liquidations, and repays to the AMO instead of the transmuter. (Note: The AMO will only hold this ETH. It will NOT deploy it in any liquidity pools unless directed by a future governance proposal regarding the path forward for alETH, which may include the re-establishing of the AMO)
Resume the alETH Alchemist - deposits, withdraws, and repays will once again be possible.

Note that the intent of this proposal is NOT to determine the path forward for alETH. The right answer to that is not yet known. It is however known that the wrong answer would be sending ETH to the transmuter, so the purpose of this proposal is to make that switch, which also enables the vaults to be unpaused.

Context

The alETH Alchemists are currently paused. This was done as a precautionary measure when the curve alETH/ETH pool was exploited so that the full extent of the impact could be determined. Pausing means that repays, self-liquidations, withdraw underlying, and deposits are not possible. Burns (repay loan with alETH) and withdraws (withdraw the yield token) are still possible.

The current status of the exploit is that approximately 3/4 of the funds from the exploit have been returned. It is currently undecided how these funds will be distributed to LPers, but it seems likely that the AMO, and therefore the backing of alETH, will be facing a deficit.

Assuming a pro-rata distribution of returned funds, where the AMO is just another LPer, there would be an approximate refund of 1513.637 alETH and 2279.33 ETH to the AMO plus a surplus of 382 alETH (from AIP 95a), for a total of 4174 alETH+ETH. The net loss to the AMO was 5000 alETH+ETH. That means there could be 836 unbacked alETH in circulation. If this were resolved through the transmuter, it could become a first-come first-served situation, ie a bank run.

if alETH were to fully unwind - then by holding the funds in the AMO instead of the transmuter these funds could be used for an airdrop of partial remaining backing. Per the numbers above, 5,000 alETH circulating would be reduced by 1895 returned alETH that the AMO would burn. The remaining circulating supply would be 3105 alETH, with 2279.33 ETH backing, for a baseline backing of 0.733 alETH/ETH. Note that to actually realize this worst-case backing value, every single user of Alchemix would need to close their loan by repaying with alETH. Anyone who does not close their loan, or close their loan via self-liquidates / repays with ETH, would raise the baseline backing.

Because repays, deposits, and self-liquidations all INCREASE the baseline backing, there is no reason to keep these functions disabled. Therefore, it is being proposed that these functions re-enabled, but any ETH backing gained will be sent to the AMO (where redemption is in control of the AMO, rather than automatic to alETH transmuter stakers).

Voting Options

For - unpause alETH, redirect ETH backing to AMO
Against - keep alETH paused for now
Abstain

neooficial

pls refund now, i need my alETH

ov3rkoalafied

neooficial This is unrelated to AIP 96, which is the alETH stuck bridger proposal

jamiewoo

Every participant need know：the 0.7333 backing rate is assumed by every single user of Alchemix would to close their loan by repaying with alETH. However, if they all buy alETH to repay,the price of alETH will naturally return to 1eth due to the huge buying power based on game theory and market dynamics.

So,let we look at the current situation, through observe the current overall collateralization rate,we will see the Aleth has backing of 20415.06 ETH,incorporate the recent attack losses 825.67eth into the statistics,the overalll collateralization rate should be around 0.96 now. This calculation even doesn't include the amount mentioned in AIP96 from the Stuck alETH Bridger and the Curve announce's expected compensation in future. so when we recover the aleth from the bridge, the actual overall collateralization rate will be even higher.

I think this should be clearly communicated to everyone in proposal, provide participants with all rich view from the worst-case to the best-case.After all, a comprehensive price expectation is crucial for price stability and boosting confidence.

note:

'20415.06' is calculated according all ETH backing of $ALETH：13,690+2,400+1,280+269.99+4.06+411.36+80.32+2279.33
The loss amount of 825.67 in AMO is calculated based on AIP97：3105-2279.33
0.96 is the overall rate in worst-case ,when alchemix recover the bridge ALETH in AIP96 and through the simple market making from AMO in future, the finally overall rate will be higher than 0.96

'ETH backing' TVL image:
https://ibb.co/1d3Gr7D
https://ibb.co/kS0wpp2
https://ibb.co/d5jFfCm

ov3rkoalafied

I want to add some more context here: The DAO has a ot of curve, cvx, velodrome, etc. Even if alETH is partially unbacked and there can in theory be someone left 'holding the bag", that excess 800 alETH or so would be earning the entirety of all CRV/CVX emissions, which would be pretty substantial.