• AIP

  • Alchemix Request For Comment (ARC) #1

Thanks for putting the the proposal forward!

Vault Parameters: Collateral Ratio: 400%

I'm of two minds here

  1. A longer term payoff is scary in crypto mostly because of how fast crypto can change. Locking up ETH for 15 years is hard to really wrap your mind around. (ETH isn't even that old!)

  2. But I think once the merge happens we'll see a "risk free" rate of 7% (Likely more since the tips will be going to stakers) and that would almost require other protocols to increase their yields above that threshold because otherwise it's not worth risking the ETH, that should reduce the repayment time quite a bit.

Limiting the risk initially I think is a good idea, but I think some kind of threshold for when the Collateral Ratio (Or Deposit ratio as @daveytea said) can get to parity with DIA is important. I also think that letting users see how long it's going to be until their loan is paid back would put that into their hands. Is the user ok with not having their ETH paid back until 2036? if so, that's probably ok. If not, they won't use it.

alETH Debt Cap: 2000 alETH

This is great, I think this limit will be reached very quickly, but that's ok. Better safe than rekt. Again though if there was some set (hopefully publicly available) metrics that needed to be reached to increase this cap. (Time, Volumes, liquidity, etc)

Eth to alETH direct Purchases

Would it be possible to use the spare ETH in the Transmuter to put into the yvSTETH or yvSETH vault to juice the returns some? I know you mentioned that may introduce some slippage, but I think I'd agree with @squidgle that it'd be worth the extra dev work to allow users to take advantage of the increased yield

Farms

I think I'd be in favor of reducing the single sided ALCX by 5% and adding it to the alETH/ETH Pool as suggested by SathFenrir

    I'd like to know how self-liquidating would work with a 400% ratio. The DAI/alUSD transmuter was bootstrapped by going all in, self-liquidating, and putting it all in 3crv, but now with a 400% ratio I'm not sure where the incentive would lie in adding funds to the transmuter. If I deposit 4 ETH, withdraw 1 alETH, self-liquidate (assuming I receive 3 ETH back), then it's a much slower process to increase transmuter funds. I agree 200% is a little too long though, but having the option for 200% would greatly increase the speed at which the transmuter gains funds and therefore boosts yields. Maybe for the initial period, or for people with over x ALCX (people who are no strangers to yunting) the ratio could be reduced so that yields can be boosted by a larger percentage more quickly?

      I agree with the sentiments offered by @boyeatzworld @SathFenrir, one in that a collateral ratio of 400% is undesirable, and two that percentage of emissions should be raised.

      I think we can accomplish yields high enough to reduce the repayment rate on ETH loans and apply a 200% collateralization ratio if we spend more time in an initial bootstrapping phase. Here are my suggestions:

      • Introduce a bootstrapping phase where users may purchase alETH for ETH but not take out alETH loans for some predetermined period of time.
      • Maintain a debt cap of 2000 up until V2.
      • When alETH borrowing does start, provide early access to use of alETH borrowing to those who have held ALCX for some considerable length of time. In the future when the debt cap is raised, consider prioritizing ALCX holders first then as well.
      • Target emissions of 8% for the alETH/ETH pool, taking 2% from alUSD, 3% from SLP, and 3% from ALCX

      -

      By targeting an emission rate of 8% on the alETH/ETH staking pool, we are creating what is likely the highest yield on ETH in DeFi. If we begin by not allowing alETH loans at all but allowing alETH purchases there will be plenty of incentive to purchase alETH to join the pool for high yields, and give us a nice initial pool of ETH for vault yields.

      Knocking 3% off of the SLP yield may seem like a lot, but people that are in the SLP pool are people that want ETH exposure, so I think there's some overlap in set of people that are currently staking in the ALCX/ETH pool and those that would stake in the alETH/ETH pool. I'm optimistic that the 3% reduction will be easily offset by users moving from the ALCX/ETH staking pool to the alETH/ETH pool.

      Maintaining a debt cap of 2000 alETH until V2, in addition to a white list that prioritizes ALCX holders and long term supporters has two benefits. For one, allowing less people to become borrowers of alETH in the beginning creates a larger demand for LPing in the alETH/ETH pool to earn a yield on their ETH while they wait for the debt cap to increase. Additionally, prioritizing current ALCX holders creates a precedent that ALCX holders will be considered first class citizens going forward, especially in a scenario where future debt increases also prioritize holders. I think this is super powerful because it gives us the ability to in part fufill the purpose of the ALCX staking pool (curbing sell pressure) without having to rely on emissions, and in this case should allow us the flexibility of taking 3% from single ALCX yields.

      -

      Finally, it is my belief that we should still allow a collateralization ratio of 200% for alETH borrowing. Although the repayment rate may be slow to start, If the bootstrapping phase is long enough, I'm optimistic we would see yields raise over time and debt repayment time lower to something more reasonable. If nothing else, the negative aspect of having a long repayment rate will easily be offset in the beginning, by being one of the privileged few who are able to borrow off their ETH in the first place.

        ButlerAndTheThirdStringers
        i like much of what you wrote but I vehemently disagree in regards to buying alETH for ETH to be in the pool. If I can not take alETH loans against my ETH deposits then I loose the compounding and cash flow incentives I look for and enjoy with the Alchemix‘a DAI vault. I simply think to disallow loans goes against everything I value about Alchemix. Apologies but that’s just my opinion and I’m sure many others will feel the same.

            msulc great input from msulc, i'm in agreement with both comments. For the suggestion of the reward ratios, here's the outline with 1% less to the ALCX pool and 1% more to the alETH/ETH LP.

            ALCX/ETH SLP
            Sage 60%
            Adept 58% (-2)

            ALCX
            Sage 20%
            Adept 18% (-2)

            alUSD3CRV LP
            Sage 18%
            Adept 18% (+0)

            alUSD
            Sage 2%
            Adept 0% (-2)

            alETH/ETH LP
            Adept 6% (+)

            Start here and adjust in the future as needed to increase liquidity.

              Gravity I see where you're coming from, and I'm not married to holding off on borrowing alETH.

              Really I think the most important things are just (1) bootstrapping the ETH vault for max yield, and (2) increasing emissions on the alETH/ETH pool to make LPing so attractive that it heavily facilitates (1)

                ButlerAndTheThirdStringers
                I'm definitely in favor of your proposol. Furthermore, there is one point I would like to dig a bit deeper into.

                If I'm correct the main reason for increasing the collateral ratio to 400% is the loan auto-payback time. A lower ratio would lead to payback times of quite some years.

                However, one of the big strengths of Alchemix, is the way in which it is able to boost the yield by accumulating some extra collateral in the transmuter. So actually, it is very interesting for the protocol and for its users to get more DAI, ETH (and BTC later on) in the transmuter. One of the main ways to get more collateral in the transmuter is via liquidations. And since liquidations in Alchemix are actually lossless, nobody suffers from that (AFAIK).

                I believe a lower collateral ratio (eg 200%) is therefore more interesting for the protocol and the users. Because it takes longer for a loan to repay itself, impatient borrowers will liquidate more, which in the end seems very positive. Therefore, I tend to agree with Franky

                I would be glad to hear your opinions and please let me know in case there are fallacies in my reasoning.

                      I can't say I'm a fan of the proposed Collateral Ratio of 400%. I look at the ETH vault as a way to leverage my ETH .. similar to MakerDAO or Liquity which have a collateral ratios of 150% and 110% respectively. The debt paydown feature is a bonus in my view.. and the "no liquidation" is another one for sure. It by all means justifies a higher collateral ration. 200% sure, 400% ..... not so sure.

                      I really like the proposal @ButlerAndTheThirdStringers brought forwarded of a targeted emission rate of 8% on the alETH/ETH staking pool... Having such a high APR on an ETH pool should create a splash and bring some good exposure to the protocol.

                      If the repayment timeframe is the major factor determining the collateral ratio... maybe we need to improve how the est paydown timeframe is displayed / discovered by users of the protocol. Change the Est date of maturity to a timeframe rather than date and bring in to the forefront (right below loan amount selection)?

                      I would love to see a slider added to the UI to choose the loan amount, with an estimated payoff timeframe given current APR.... It will help visualize the loan amount and est timeframe of repayment. If a 400% 5-7 year is appealing to you, go for it. Prefer a larger loan w/ longer repayment period (200% 10-15 years) -- that's your choice

                      With regards to 400% vs 200%.

                      From the perspective of my own personal greed, I would love 200%. But perhaps starting with 400% to begin with is better, but I believe it should be temporary only, with a view to eventually changing to 200% as and when possible.

                      A lot of points have been made about this already that I won't repeat.

                      But what hasn't been said, is that perhaps 400% would make the initial launch "fairer". I expect the 2000 alETH cap to be reached within minutes. I'd much rather have a better chance of being able to get a 400% loan, than miss the boat on 200% loans.

                      Because 400% is significantly worse than 200%, those first depositors are more likely to be those with a strong conviction and belief in the platform. At 200%, I fear the entire Ethereum ecosystem will be rushing to get a piece of the action. At 400% its more likely to only appeal to those already interested in the protocol, and it would be good to make sure those people are able to take out a loan. It will feel pretty bad for all those that miss the boat.

                      Just some thoughts.

                      One variable I don’t often read about with respect to Alchemix, is the debt to equity ratio. If a debt takes 10 years to pay down with deposit ‘A’, then rightly the same debt will take 5 years to pay down with a ‘2A’ deposit. (Roughly speaking and assuming a stable yield)

                      ...is crypto about babying each other into yet more nanny state antics, protecting the ape because we think we know better... or crypto is about teaching each other how to become better money managers?

                      Brave souls venturing into new lands, exploring and experimenting. My vote is to maintain consistency across vaults at 200%, then we can work on messaging re. Implications of over expending.

                      (The above said, self liquidations are supportive of the ecosystem and still valuable lessons younger managers aught to go through imo)

                      I have another question:
                      Just to be clear rolling out alETH is not Alchemix V2 correct?

                        I would not be deterred by the long maturation period. This is much less of a concern on appreciating underlying assets classes.

                        From a purely fiat perspective (which many users will have imho), I would be in favor of liquidating myself in the following circumstance:

                        Deposit 5 ETH at $4100
                        Borrow 2.5 ETH at $4100
                        2-3 years goes by and ETH is worth $10k, I'd have no worries self-liquidating to get back whatever I need at the time, minus what has been repaid.

                        The main and possibly most underrated feature of Alchemix in my opinion is the ability to self-liquidate.

                        I am largely in favor of scoopy's proposal but with the standard 200% ratio.

                        Quite some people here seem to be afraid to miss out on taking an AlETH loan because of the relatively small debt ceiling. That's definitely a valid concern imo.
                        Would it be an idea to limit the size of a loan that can be taken out? eg. in case of a collateral ratio of 400%, max 0,5 or 1 AlETH can be borrowed per address. Of course, people would be able to give more collateral than 2 or 4 ETH.

                        Nobody stops people from using multiple addresses however, that might be quite a hassle to arrange and not worth it. At least it would be much harder for a big whale to take up a big chunk of the available loans.

                        I'd back the idea of a 200% collateralisation ratio as well. Ultimately, if for Alchemix users, "Your only debt is time", then it really doesn't matter that debts take 10-15 years to pay down.

                        The debt ceiling of 2000 alETH on the other hand I would agree is necessary to maintain the initial integrity of the protocol and mitigate the risk of getting rekt.

                        At the same time, convincing the broader world about the integrity of the alETH/ETH peg is also critical. That said, alETH (like alUSD) would simply turn into a long-dated bond with notional of 1 ETH financed by interest flows if the peg goes. That in itself isn't the end of the world - it's not great marketing for a peg to break but functionally no one's going to be out of pocket since the debtor/creditor are the same person (in different times).

                        So I'd be in favour of pushing up the alETH/ETH rewards allocation too. I'm staking in the ALCX/ETH SLP pool and as rightly pointed out above, the aim is to also get some exposure to ETH. BUT the main purpose of the entire exercise is to support ALCX as a protocol and get exposure to ALCX - and as such, even if the 2000 alETH mintable ceiling gets hit and I don't get a chance to borrow alETH by staking ETH to try and get into the alETH/ETH pool, as an ALCX holder the benefits come to me anyway from the protocol's overall success.

                        Happy either way to be honest - but bottom line is I'd much rather see 200% collateralisation ratios than 400%, everything else no strong views in either direction.

                        I am an ALCX maxi since day 1.
                        But, 400% over collateralization? Who would be willing to use that....
                        "Repaying debts by itself" is attractive, but 400% is not practical at all.

                        Check the following tweet. When I saw this on Twitter, I thought it's brilliant. We may be able to issue alUSD with ETH or WBTC as collateral without having over-collateralization.

                        https://twitter.com/Ryugunsun/status/1381434928131346435?s=20

                        I DYOR WHITE before. Its underlying tech is developed by solid devs (HEGIC devs). We may need to fork it rather than using WHITE because the protection fee seems high. But, before releasing alETH with 400% collateralization (which is not attractive at all), we should think about other strategies throroughtly. Please no rush to release.

                        Alchemix team should constantly explore was to increase the yield for payingback the ETH collateral.

                        What if alchemix somehow farmed staking rewards from staked eth? Yields are expected to rise after the merge.

                        scoopy it would be good if we could chooae the best "flavour" of ETH available (meaning the highest APY). It would be very attractive to newcomers

                            I strongly prefer 200% collaterlization ratio. I love Alchemix but probably would not use the platform if we went with 400%. I would be using Alchemix to maintain long term ETH exposure but free up capital to safe ape into other positions. If I could only get 25% of the value of my ETH, it's not worth it - I can get 50% elsewhere. Since I believe in the long term appreciation of the asset, I'd rather take 50% without self-repayment vs. 25% with self-repayment.