After much spirited and thorough (very thorough) debate, Yunt Capital members have converged on our opinion for the optimal balance between the best interests of the Alchemix protocol and the best interests of the users.
We are split evenly between a 300% and 400% collateralization ratio for the alETH loans. Our difference of opinions mirrors that of much of the community and is rooted in the difficulty of balancing attractive rates for the user versus ensuring reasonable repayment times for loans. A collateralization ratio of 400% impacts aspects of the protocol in a few ways aside from the obvious repayment loan time, primarily that the debt cap effectively sets a global limit for how much outstanding debt Alchemix can issue in alASSET. Experienced users who are eager to achieve a 1:1 ratio of alETH-ETH for LPing purposes will take advantage of the 0% slippage conversion between alETH and ETH by way of self-liquidations. As liquidated debt no longer counts towards the outstanding debt cap, this ensures an abundance of ETH in the transmuter to boost yield in amounts higher than could be achieved via a lower collateralization ratio.
Another consideration is the difficulty of moving between collateralization ratios. Moving from 400% to 300% requires no input from users and would have the effect of providing users who have already deposited and borrowed funds more available funds to withdraw or borrow against. This can also be done essentially at any point post-launch, once the launch goes smoothly and the transmuter has been appropriately seeded, the ratio can be lowered. It is our opinion that going from 300% to 400% is a much more difficult problem and would require a not insignificant amount of work from the devs and possibly the need to reclaim funds from users, in the absolute worst case. We do not like that scenario.
The argument for 300% overlaps with all of the key points discussed above, but centers on the user experience and attractiveness of the protocol. The first distinction from the argument for 400% is that a collateralization ratio of 300% of course allows the user to receive more alETH for their deposited ETH, and brings the experience closer in line to the DAI -> alUSD borrowing experience. This point is self-explanatory.
The second distinction is with regards to the perception of non-native Alchemix users, and that of potential new users. We know that the DeFi world moves fast and users are drawn to the most attractive and easy to digest numbers, a low advertised APR may be the sum total of attention a potential user gives a project before passing on it in favor of a competitor with higher APR. In the competition sense, Alchemix is unique and thus safe, however the problem persists with a potential user seeing a collateralization ratio of 400% and immediately being scared off, never to return. In furthering the goal of expanding the Alchemix user base and cementing a foothold as a DeFi blue chip, this would indeed be a failure. This is a meritorious argument for the 300%, and indeed even the 200% (which we do not support), collateralization ratio.
This choice will not be easily made, and we suspect that there will be many subsequent governance votes put forth shortly after the release of alETH to lower the collateralization ratio. Perhaps a timeline can be set before the launch guaranteeing a revisit of the ratio within N days of the launch to lower the collateralization ratio, to incentivize a more conservative initial condition.
On the topic of the evolution from Sage to Adept mode, we at Yunt Capital are in firm agreement. We support an emission rate of 6% for the alETH-ETH LP. The 6% rate will make providing liquidity between alETH and ETH attractive enough that there will be sustained demand to transmute ETH in high volume. This not only benefits the protocol by way of loan repayment, but also benefits those willing to hold their alETH in-house as opposed to using it to speculate elsewhere in the DeFi space. We propose that this 6% rate should be met by taking 2% from the alUSD pool, 2% from the ALCX-ETH SLP pool, and 2% from the ALCX single stake pool.
From our perspective, the issue of collateralization ratios is complicated, and will likely be complicated for any future alASSET. This is why we, as a group, remain evenly split between 300% and 400%. Due deference should be given to the opinions of the dev team when it comes to releasing such a groundbreaking addition to the DeFi space. There are very few second chances in crypto. Let's measure twice, cut once, and avoid the mistake of under-collateralizing the loans at an initial rate of 200%. As far as the emissions are concerned, this is an issue much more easily solved by governance votes as needed. We support keeping the spirit of the initial proposal, but would like to see that extra 1% come off of the ALCX single stake pool.
We eagerly await this release and will definitely be the first in line to yunt our precious ETH into the transmuter.
Yunt hard. Yunt fast. Yunt Capital.