This proposal is a pre-proposal by Alchemix to solicit feedback from the Balancer community and will likely need to be revised to reflect current statuses of projects after discussion and prior to going to vote.
Alchemix is requesting a grant of 25k BAL, for launching the ALCX/ETH 80/20 pool in accordance with [BIP-146] Incentivize 8020 BPT Staking (ve8020) (as well as the updates made in [BIP-225]), and requesting additional grants for subsequent milestones when eligible. As a part of this proposal, provided that Alchemix is awarded a grant, Alchemix will pair the 25k BAL with ~10 ETH (80/20 proportion) and lock this pair as veBAL and continuously vote for gauge rewards for pools beneficial to the Alchemix ecosystem (ALCX/ETH, alETH, alUSD, etc).
Alchemix will hold the veBAL from the BIP-146 grant in a veToken controller contract whitelisted by Balancer - similar to how Alchemix handles its SDT and SDL positions. Alchemix will uitilize the controller contract ideated in the veLIT discussion and released in BIP-225. If modifications are needed they will be requested in the comments of this proposal.
Additionally, Alchemix will coordinate and apply for a grant with the Balancer Community Grants Program, proposing the following milestones and associated grants:
- The launch of a generalized tool for users to migrate from 50/50 Sushiswap and Uniswap V2 liquidity positions to 80/20 Balancer positions for any ERC20 token - proposed 25k BAL
- The launch of a script that would enable other protocols to launch their own modified version of the veALCX system for their own tokenomic - proposed 25k BAL
- The first adoption/deployment of the veALCX system by another protocol - proposed 25k BAL
The entire 75k BAL will be used for long-term locking and voting purposes (either locked as veBAL or used to obtain AURA, sdBAL, or another veBAL-based protocol). Alchemix will pursue a whitelist to hold veBAL as part of this allocation.
Context - What is veALCX?
veALCX is an evolution of the veSystem first pioneered by Curve with veCRV, since adopted by Balancer, Solidly, and Velodrome, among others. “ve” stands for “vote escrowed”, which in practice typically means that users have the option to lock tokens for a period of time to gain voting power, and that voting power typically has economic value (such as directing protocol emissions). veALCX is currently undergoing audit with Chainsecurity.
veALCX retains some features of existing veSystems, while adding some entirely new ones. The featureset, with a quick summary of each feature, is below. A more detailed explanation can be found in this medium article: veALCX Update. Back in May, we shared a general… | by Alchemix Finance | Medium
- Users will need to provide liquidity to the 80/20 ALCX/ETH Balancer pool. These Balancer pool tokens will be locked to obtain veALCX.
- Users will lock their 80/20 ALCX/ETH Balancer pool tokens for up to 1 year, with a multiplier on voting power for each two-week epoch for which they lock (1 year lock = 26 epochs, so 26x voting power).
- Users may opt to maintain their voting power with no decay with a perpetual lock. They may begin their decay at any time at their discretion, at which point the 1-year unlock timer will begin.
- Alchemix will distribute revenue to veALCX holders. This revenue distribution will take the form of alAsset credit (e.g., alUSD and alETH), which can be claimed by the user or used to pay down their Alchemix debt.
- veALCX voters can vote in governance proposals, as well as on gauges that direct emissions to alAsset liquidity pools. There will be a bribe system for these gauges.
- veALCX holders also earn a secondary token called FLUX. When unclaimed, FLUX credit can be forfeited at the holders’ discretion to boost gauge voting power. Alternatively, FLUX can be claimed by a user and burned to unlock a veALCX position early, or FLUX can be sold to other veALCX holders that wish to unlock early. Claimed/purchased FLUX may NOT be used to boost gauge voting power.
Context - Why Balancer, Balancer-Specific Innovations
Alchemix initially looked to develop veALCX only to replace the single-staking ALCX pool. The idea is simple - share revenue with ALCX holders, and do it in a way that aligns those receiving rewards with the long-term health of the protocol. However, as development progressed, it became apparent that these goals were achieved in an even better way by using 80/20 Balancer Pool tokens. The reasoning for this is as follows:
- Liquidity is a major expense for protocols, and often forces farm & dump game theory. The ability to replace the current liquidity pool with an 80/20 pool means liquidity providers are more aligned with Alchemix (due to the position being largely ALCX), and far less subject to impermanent loss. Furthermore, wrapping liquidity into the veALCX system means that revenue share and liquidity incentivization can be combined and likely reduced expenses for the protocol.
- Additionally, there is a common misconception that an 80/20 pool will experience the same slippage as a 20/20 pool (A 50/50 pool with 40% of the value). This is not true; the slippage in the 80/20 pool is actually better than if one were to simply take the 20% ETH and pair equivalent ALCX with it. This means that if you take the existing ALCX single-stake liquidity and combine it with the existing Sushiswap liquidity, you get better slippage with the same TVL. (For those that want to dive deeper - the 80/20 liquidity curve equation is x^4y=k - This spreadsheet can be used by individuals that wish to verify how slippage manifests in 80/20 and 50/50 pools. )
- veALCX stakers will receive ALCX emissions. These rewards can be unlocked at the same time that the veALCX position is unlockable. Alternatively, users may claim the ALCX early for a 50% penalty. We recognize that some users may wish to compound their position into the liquidity pool - so a tool was built in to the system to allow users to claim their ALCX rewards with NO penalty, so long as they provide the required quantity of ETH to pair with the rewards and immediately LP and re-lock into their veALCX position.
- There is a regulation element to consider here: If a protocol were to simply share revenue with anyone that staked/locked the token, then they are not paying for a service - they are sharing revenue. However, by requiring liquidity tokens for veALCX, the revenue is being used to pay for a service - providing ALCX liquidity - and thus is an evolution of liquidity mining rather than direct revenue share. Note that this rationale speculation on how to best comply with future regulations and does not constitute legal advice in any form.
Context - ve8020 Incentivization Program Qualifiers and Requirements
Below is a list of the requirements and considerations for ve8020 incentivization grants, from BIP-146, with responses clarifying how Alchemix meets these considerations.
Project track record - has it been around a while, is it likely to exist going forward, does it have an active community/user base, etc.
Alchemix has existed for over 2 years, with continuous development throughout, and planned well into the future. Alchemix has multiple years of treasury runway, with the runway currently growing. Current protocol and treasury statistics can be viewed here: https://alchemix-stats.com/
Circulating market cap and trading activity - is there a reasonable likelihood for this ve8020 to contribute significant protocol revenue for Balancer?
The ALCX/ETH Sushi pool, which is being deprecated in favor of the ALCX/ETH 80/20 Balancer Pool, consistently generates $500k+ in volume per day, with the most recent week at $5m/week. Because veALCX replaces both Sushi liquidity AND gALCX (single-staking for ALCX), veALCX not only be expected to have similar volume to the Sushi pool with a similar quantity of ETH, but vastly increased TVL due to becoming a large ALCX token sink.
BAL incentives should go to ve8020 lockers only, and the lock should have a minimum duration of 16 weeks
Alchemix will lock the BAL it receives for the maximum period of time and continuously relock when expired, using the voting power for gauge rewards that are beneficial to the Alchemix ecosystem. Most immediately this would be ALCX/ETH, but could also include liquidity for current and future alAssets on mainnet and L2s, among any other voting approach that benefits the protocol.
The current balancer pool has $4m of liquidity with $1.5m of volume in the first 30 days of existence. With no further migrations, this would be an expected $200k fees in 1 year, half of which goes to Balancer. Prior to the migration, the Sushi pool held $8m of liquidity, $4m of which is ETH and $8m of ALCX between the gALCX and ALCX/ETH liquidity pool. Liquidity mining would be shifted to BAL or AURA bribes, and gALCX emissions will likely be retired when veALCX launches. Therefore, it can be assumed at least $8m of ALCX and $2m of ETH will sit in the liquidity pool, possibly more if more ALCX is attracted via additional rewards from the gauge bribe multiplier. If liquidity moves to the balancer pool proportionally, that would result in an expected $300k fees per year for Balancer. From these calculations, Alchemix is on track to hit the first milestone this year and would be on the verge of the third milestone within 1 year of launch.
- Other useful links: https://alchemix-stats.com
Context - Community Grant
To enable users to easily migrate their liquidity, Alchemix is building a tool that withdraws liquidity from existing 50/50 Sushiswap liquidity positions, swaps assets to achieve an 80/20 balance, and deposits them to the Balancer 80/20 pools. The tool would be easily deployable or usable by other protocols that wish to offer the tool for their own liquidity migration (supporting migrating from both Uniswap V2 and Sushiswap). Alchemix is also working with another protocol to offer factory-style front end widgets that can be embedded in any webpage (more details to follow if the testing is successful, otherwise Alchemix will create its own forkable front end).
Alchemix would also like to offer a way for other protocols to easily deploy modified versions of the veALCX system for their own tokenomics, with various levers/inputs to set parameters as desired. This has no direct benefit to Alchemix, and would be a public good for DeFi protocols exploring options for tokenomics. It would, however, benefit Balancer greatly for other protocols to deploy the veALCX system, as the system inherently requires significant liquidity to be provided in Balancer and then locked long-term.
Alchemix would like to request a grant of 25k BAL upon the release of the migration tool, 25k BAL upon the release of the veALCX fork factory, and 25k BAl upon the first adoption of the veALCX system by another protocol. The entire grant will be used for long-term locking and voting purposes (either locked as veBAL or used to obtain AURA, sdBAL, or another veBAL-based protocol).