Alchemix Request For Comment (ARC) #1: Page 2

Alchemix Request For Comment (ARC) #1

scoopy

Pirateed the bookkeeping require for going to eth -> stethcrv LP to yvstETHCRV vault could affect users with slippage and would require a longer dev cycle to ensure it is safe. We were planning to go with stethcrv but the zaps to get in and out could make people incur losses too. Using the yvWETH vault means we can implement our current contracts with minimal changes. So if we choose to go with stethcrv LP instead of eth, it means people would have to deposit stethcrv LP instead of eth, or we'd have to delay this a few weeks at least

squidgle

scoopy i think the small effort up front to gain almost double the APY is worth it when you're talking years to get the return back.

even if that effort is put on the user to acquire the stethcrv themselves. zaps could come later?

Gravity

scoopy will v2 bring the ability to implement/deploy too multiple strategies as yearn v2 vaults do?

Re. Above discussion.
As a long term hodler of ETH (in various forms) I would not be deterred by longer maturing periods. Ie. 200% vs. 400%. I would obviously prefer 200% over 400% as my goal for many years has simply been to accumulate more ETH, which this ratio would compliment. On this same note, a 200% ratio will imo, enable greater participation in the ETH:alETH pool.

To an earlier point, an ability to borrow 50% as a meme is powerful. Simplifies UX mental models and if an eta maturity date is prominent enough, should not impact adoption negatively, especially if it is known that rates will improve over time.

jamesk

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

aLeo

scoopy

Data maxima venia

alETH v1 vault with 400% collateralization and low APY of 3-4% is a less-than-optimal product and I think we all know it.

If I deposited my ETH on any Alchemix vault today, I expect it to be on par with the best yields available on DeFi.
stETHcrv is rewarding 11,44% APY -- if we can't match that, no matter the collateralization settings debate, I don't think it's worth launching.

By Alchemix launching this iteration I don't see any angle that this would benefit the community, au contraire, I can see it only tarnishing it's pristine branding.

Consider that Alchemix is already a very hard to grasp concept for the average user.
We (I mean you guys) are working very hard to educate users and present the benefits of utilizing ALCX vaults.

Even amidst all the confusion happening in normies and no-coiners minds, in my perspective, there are certain aspects about the actual v1 DAI vault that allure as crucial concepts of Alchemix (as a service provider), in simple terms:

user deposit X (100%) -> user can borrow X/2 (50%) upfront
meanwhile, 100% of deposited amount is kept "working" in DeFi
loan pays itself as fast as DeFingly possible

I think those are more than settings. To me they are fundamental characteristics and a piece of the branding concept of Alchemix. This is already being memefied amongst the web. I don't think we should give up on them in favor of shipping a v1 ETH vault fast.

In my view the launch of alETH with low APY and higher collateralization would only contribute to further confusion and unhappy users. Or even worse, the market could dislike it at large and label us as a flop, or a one-time product company.

If we decide to launch vaults with superior collateralizations and lower than best APY's, the end user will get further confused and letdown.
This may be worth doing in certain cases, like with alBTC maybe. I don't think this is the case for alETH at all.

I would rather delay the launch and consider stETHcrv for higher APY or forget about it entirely and focus on V2 where we could chase better yields wherever they are. Last not forget that ETH has EIP-1559 and the merge are happening soon, and with this, ETH as an asset is expected to deliver much higher yields and those should be harnessed by our vaults.

Also, if the APY (on launch) of any vault is higher than 10%, I would not consider changing the collateralization ratio (would keep 200%). If the APY by any chance lowers after launch then the user can always self-liquidate to retrieve its principal.
Although I think it is prudent to keep alETH mintable ceiling low and increase it slowly (as it is already being proposed.)

TL;DR - postpone alETH vault in favor of higher APY chasing (with stETHcrv or wait for V2)

AcedaBook

I'm in favor of conservative 400%, but would suggest a higher % of ALCX weekly rewards at the start. alUSD rewards can certainly be removed, but a small reduction in the alUSD3CRV pool would be merited to for the early ETH depositors. 2-3% higher on ETH would really bootstrap the new pools

ElB

400% is not ideal, but I agree it's better to start conservative and roll down once we see usage and understand the impact of doing so. Biggest callout is on the weights, because of the 2k cap, alETH/ETH would have a more favorable APY than other pools. I recommend the below, which still incentives capital into the new pool but makes alETH/ETH LPing closer in APY to SLP:
ALCX/ETH : 60% (0)
AlCX: 18% (-2)
alUSD: 0% (-2)
alETH/ETH: 4% (+4)
3crv: 18% (0)

Pirateed

Thanks for the explanation Scoopy. Given it's an initial rollout, I'm supportive of the proposal. The cap is lower than I would have hoped for but can understand why. I see this as the product of the future to drive ALCX growth and want to ensure there's enough incentive here to pull people away from higher LTV debt projects. I'm not sure a 25% LTV + 5 year paydown schedule is enough but can recognize it's the first iteration.

rjrudolphjr

Thanks for all your work scoopy. This is such an incredible tool.

Given the ease through which someone can use leverage to obtain a desired level of ETH price exposure, it seems to me that much of the demand for ETH collateralized borrowing might be generated by tax management strategies. Since borrowing through Alchemix offers the user the ability to liquidate as they see fit, I think it might make sense to prioritize the collateralization ratio over the expected debt repayment date.

I've know quite a few people (myself included) who are excited about the alETH development and are considering the following strategy:

Deposit ETH as collateral
Borrow 50%
Convert 50% of the borrowed collateral to USD / Convert 50% of borrowed collateral to ETH2x-FLI
Cash out USD

This works at a 200% collateralization ratio but becomes increasingly less effective the higher the ratio goes.

Additionally, for those who are willing to accept a lower net ETH exposure, a higher collateralization ratio decreases the utility of borrowing through Alchemix. Since people would have to pay taxes on the income earned that is paying down their debt, the tax burden of larger and faster income (which at least in the US would be taxed at ordinary income rates, not capital gains) may get to a level where it outweighs the consequences of simply selling for USD.

My only other comment is that I can understand wanting to have less of the rewards allocated to the alUSD farm. That said, I would advocate for lowering, but not eliminating it. As people are still getting comfortable with what Alchemix has to offer, allowing newcomers or people with a lower risk tolerance to participate in the Farm with alUSD might help generate more confidence over time as well as keep more capital within the ecosystem.

Thanks again for all your effort.

Pronoia

I admire the conservative approach on more volatile asset could it become a standard for other large caps in the future? What is the concern for limiting the system’s alETH debt to not exceed 2000 alETH?
It seems some would prefer to ape into a 10 year debt, that they can forever extend, But that's so fiat.
How do we incentivize 2-5 year loans and feed the transmuter to boost yields.
Maybe giving the option for lower collateral ratio with a deposit fee of 2%.
Limited debt + boost yield = Alchemix is to me.

Gravity

Pronoia you could always suggest auto liquidations after 5 years. But I’m not sure that go down very well.

i personally see our debt positions in Alchemix as cash flow generators, not debt obligations.

Reeserj

Thanks for putting the the proposal forward!

Vault Parameters: Collateral Ratio: 400%

I'm of two minds here

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!)
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

Franky

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?

jerre

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.

ButlerAndTheThirdStringers

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.

Gravity

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.

ButlerAndTheThirdStringers

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)

feelingoodfeelingreat

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.

ButlerAndTheThirdStringers

jerre This is a great point!

ZiggyOi

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

Sku

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.

Gravity

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)

Reeserj

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

Franky

Reeserj Correct, alETH should be out soon, but v2 end of summer I believe

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