Alchemix Finance

Proposal Summary

Purchase AURA, lock it, and vote for the ALCX/ETH pool.

Context

A recent announcement from the Alchemix team outlines the plans to revamp ALCX tokenomics by turning it into a revenue generating asset through its ability to influence gauges, earn from protocol revenue, and generate FLUX. For more details see this post.

As a precursor to the functionality of veALCX, the DAO will need to transition its liquidity from the current Sushi 50/50 ALCX/ETH pool to a new Balancer 80/20 ALCX/ETH Pool. This will mark the first step on the path towards a revenue-generating ALCX. Much like how the Curve ecosystem emits CRV, Balancer emits BAL to liquidity providers of its pools. The amounts of the emissions are determined by gauge votes using locked BAL (veBAL), or locked Aura (vlAURA). After creating this 80/20 Balancer pool we will be able to apply for a Balancer gauge, and all indications seem to suggest that we should have no problem passing a request for this. To this end, this proposal is being put forward, and centers around two main ideas:

(1) Approval to create the 80/20 Balancer Pool, and to migrate both our current ALCX protocol-owned liquidity, and the incentives on that pool. (2) Approval to execute a strategic acquisition of AURA for our future gauge.

Part 2 - Execute a Strategic Acquisition of AURA for the Treasury and reduce Tokemak exposure

Being that we’re in a bear market, one concern may be that dormant liquidity may opt to leave the pool instead of migrating. Although this is possible, the Biz-Gov subDAO believes that this is not a good reason to delay this migration. It is, however, a good reason to introduce emissions from Balancer gauges as quickly as possible. This would not only augment yield for liquidity providers, but would also set us on the path towards one day removing ALCX emissions as yield, and replacing them entirely with alternative sources of yield that do not create sell pressure on the ALCX token (i.e., Balancer & Aura emissions, veALCX revenue, etc.)

In order to accomplish this, the Biz-Gov subDAO proposes that we begin to participate in the BAL wars by making an initial treasury purchase of AURA; which will be locked and used to direct yield to our future ALCX/ETH pool. AURA works very similarly to the way Convex works for Curve. As of the time of writing, Aura has accumulated ~23% of the total veBAL gauge power, and holders are able to use their AURA as a claim on that voting power. If this follows a similar trajectory of Convex, this stake as a percentage should increase over time. Due to the bear market, lower market cap, and shorter time in the market, AURA has a much smaller market cap than CVX, and a smaller cost of acquisition for securing a top spot among DAO holders. For example, a purchase of ~150k AURA would put Alchemix in the top 20 AURA holders according to this source on the AURA wars.

An initial purchase of AURA would help us on two fronts: We would be able to direct gauge power to the future ALCX/ETH pool so that LPs would earn yield from BAL & AURA emissions This would have the additional effect of helping to incentivize future alAsset pools, such as an alOHM/OHM pool. It may also serve as an income source on our protocol-owned liquidity. We would be able to use AURA as an income source for the DAO, by collecting bribe revenue with anything that we don’t use on our pools directly. In the last voting round the yield per vote-locked AURA from bribes was ~04 cents per vlAURA. This could provide a significant income to the DAO, which could be used in the future to bolster the treasury, or to create additional revenue directed towards veALCX holders.

The next questions are how much to purchase, and where to source the funds from. According to the last financial report, (see a list of our quarterly financial reports here) the treasury holds ~260k of TOKE (currently around $360k in dollar terms). This proposal suggests we convert 50% of these assets to an equivalent dollar value of AURA. At current prices that would get us ~70k AURA. Although this would not put us in the top 10 of AURA holders from the get-go, it would give us a significant start; and with the recent AMO harvest framework passing we will have another avenue with which we can grow our stake. (For justification as to why reducing our exposure makes sense, please refer to the section below on Tokemak)

Reducing our current exposure to Tokemak

Up until recently the Alchemix treasury had 138,840 tALCX, (~$2.08M of reactor staked ALCX) and as stated above, owns ~$360k worth of TOKE which was used to direct TOKE emissions to the ALCX reactor. ALCX from Tokemak was deployed in two places: an ALCX/tALCX pool on Curve, and the ALCX/ETH pool on Sushi.

Although the reactors initially had relatively high APRs, they have been consistently decreasing over time. Currently the ALCX reactor has an APR of 0.6%, and this value is not expected to change by any significant degree. This means that the Alchemix treasury was earning $12.5k annually on its tALCX in return for additional smart contract risk from using Tokemak.

The portion of all ALCX deployed in the ALCX/ETH sushi pool had the additional side effects of growing the pool by ~7%, which diluted the yield for other LPs and instead allowed Tokemak to farm ALCX rewards. Given these side effects, it is hard to argue that this is greatly beneficial to Alchemix in its current form.

This is not the only reason reducing exposure makes sense. Originally Alchemix got involved with Tokemak primarily for an alUSD reactor, in hopes that the additional liquidity would help stabilize and support the value of alUSD. Unfortunately Tokemak made the decision to “temporarily’’ deactivate the alUSD reactor, and it is currently unknown if the alUSD reactor will be re-enabled at any point in the future.

In light of these factors, tALCX was recently unstaked by the multisig. Given that our TOKE holdings currently provide no immediate support for Alchemix alAssets, the Biz-Gov subDAO believes it’s appropriate to reduce our exposure and fund the strategic acquisition of AURA using a portion of these funds.

The approval of this proposal will also retroactively approve the tALCX withdrawal.

Alternative Means of Strategic Purchase

After much discussion in the discord certain community members expressed wanting to continue to maintain current levels of exposure to Tokemak, citing their coming V2, accTOKE yield, and depressed crypto asset prices, as reasons to continue holding the same amount of TOKE. In light of this viewpoint, we are adding an additional option expressing that the DAO use stables instead of TOKE to fund the acquisition of AURA. Although this may eat into runway during the bear, this would allow us to maintain exposure to TOKE and avoid selling.

Voting

Voting is single-choice.

1. Approve purchase using TOKE
2. Approve purchase using stables
3. Do not purchase AURA
4. Abstain