[Alchemix] LTIPP Application - FINAL

SECTION 1: APPLICANT INFORMATION

Applicant Name: Ov3rkoalafied, Barree

Project Name: Alchemix

Project Description: Alchemix allows users to take a like-kind loan off of stablecoin and ETH collateral deployed in DeFi yield strategies. Because the loan is like-kind, and because the yield earned is used to repay the loan, the user experiences a non-liquidatable self-repaying loan. The set-and-forget nature of Alchemix loans creates long-term TVL and enables users to spend their loans off-chain for real-world use cases. Actual examples include buying a boat, wedding ring, timber mill, house down payments, and more!

Alchemix explainer: https://alchemix-finance.gitbook.io/user-docs/
Components of Alchemix: Components | User docs

Team Members and Roles:

  • Ov3rkoalafied - COO

  • Barree - operations, business development

  • Scrub - Solidity

  • Toyvo - Solidity

  • Scoopy Trooples - Front End

  • N4n0 - Front End

  • Metalface - Marketing

  • Gorby - Community, HR

Project Links:

Contact Information

Point of Contact: Profile - Ov3rkoalafied - Arbitrum

TG handle: @ov3rkoalafied @barreecrypto

Twitter: Ov3rkoalafied iOCharts

Email: ov3rkoalafied@gmail.com

Do you acknowledge that your team will be subject to a KYC requirement?: Yes

SECTION 2a: Team and Product Information

Provide details on your team’s past and current experience. Any details relating to past projects, recent achievements and any past experience utilizing incentives. Additionally, please provide further details on the state of your product, audience segments, and how you expect incentives to impact the product’s long-term growth and sustainability.

Alchemix v1 launched in 2021 with Yearn alUSD vaults. In 2022, Alchemix upgraded to v2, which introduced new yield strategies, including alETH vaults. Alchemix vaults have never been exploited since launch in 2021 (there was an alETH reverse-rug in 2022 which was due to a deployment misconfiguration error). Alchemix survived and built throughout the bear market, but significant time in 2023 was spent recovering from the Curve and Multichain exploits, as well as a conscious decision to focus on sustainability during 2023 instead of growth. Despite needing to weather the exploits, Alchemix has managed to emerge with a sustainable protocol and a growing runway. The Multichain and Curve exploits delayed the launch of Alchemix on Arbitrum - but now, Alchemix is ready!

Alchemix is very familiar with the incentivization of liquidity providers of alAssets through its continuous participation in ve-tokenomics - most notably the Curve, Balancer, Velodrome, and Ramses ecosystems. The list of strategic treasury holdings on https://alchemix-stats.com/ demonstrates Alchemix’s commitment to being long-term lockers in DEX ecosystems. The Alchemix team is confident in its ability to utilize the team’s collective knowledge of the proper incentive structure and communications to attract the necessary liquidity to support Alchemix on the Arbitrum.

SEE IMAGE IN COMMENTS - EDIT WILL NOT GO THRU WITH IMAGE

The current state of the product is that Alchemix is sustainable and ready once again to grow. From launch in 2021 through 2022, Alchemix was growth-focused. In 2023, Alchemix shifted focus to sustainability, as the protocol was operating largely on unsustainable ALCX emissions. Therefore the focus was not on user acquisition, but on making the existing TVL sustainable and profitable. In 2024, Alchemix has achieved sustainability and is once again looking to grow.

Alchemix’s experience in the incentivization of loans is elaborated on in the “past incentivization” section. Alchemix’s performance with the context of a focus on sustainability is elaborated on in “protocol performance”.

Despite the lack of focus on growth, Alchemix still boasts an average lifetime loan age of 387 days, including current users. Source The hope is to recreate the success of the initial launch leading to long-term users, this time on Arbitrum. The grant will be allocated partially to depositors to attract initial capital. Much of this capital is expected to remain per the 387-day figure quoted above. The rest of the grant will go to LPers to ensure that when loans are taken, there will be sufficient liquidity for users to realize maximum value/utility for their alAssets. The result is TVL in Alchemix on Arbitrum which will remain even when the ARB incentives from the grant run out.

Team experience (Any relevant experience that may be useful in evaluating ability to ship, or execution with grant incentives. Please provide references knowledgeable about past work, where relevant. If you wish to do so privately, indicate that. [Optional, but recommended]):

The Alchemix team has proven its ability to ship, including with Alchemix v2, alETH, continuously added yield strategies, expansion to Optimism and now Arbitrum, and Self-Repaying ENS. Alchemix is currently developing a tokenomics upgrade (veALCX) and Alchemix v3. Alchemix has worked with protocols throughout DeFi, with some of our strongest partnerships including Ramses DEX, Premia, Yearn, Curve/Convex, Aura/Balancer, Paladin, and StakeDAO.

What novelty or innovation does your product bring to Arbitrum?

Alchemix creates a way for users to offramp out of crypto for real-world expenses in a way that still keeps TVL on Arbitrum. The low-touch, no-liquidation, nature of the loan means users do not have to fear having to babysit their position, and can therefore spend on real-world expenses rather than keeping their loan liquid. This attracts a different type of user - the type that wants to strengthen their finances but doesn’t want to think about crypto every day. This type of user is not common onchain yet, as most protocols require/encourage constant monitoring and participation, which is not the ideal characteristic of an open financial system for everyone.

The loans are essentially an advance on future yield, which means users are generally better off routing real-world purchases through Alchemix than if they were to purchase directly. Many individuals and businesses utilize our vaults to hold ETH while paying for expenses in the real world.

The loans are made possible by the Transmuter and Elixir/AMO. Debt is denominated in the alAsset - when a user earns yield, their alAsset debt is reduced and the yield is sent to the Transmuter. The Transmuter allows users to convert alAssets back to their underlying assets, meaning 1 alAsset will always be equal to 1 underlying asset, eventually. The Transmuter can build up an excess of assets to mitigate unhelpful minor arbitrage scenarios. This excess is sent to the DAO-controlled Elixir AMO, which uses the excess to provide alAsset liquidity. This mechanism creates more liquidity for self-repaying loans, creates an additional revenue stream for the DAO, and gives the DAO another lever by which to shrink the alAsset supply (by withdrawing and burning alAssets single-sided from the AMO-owned liquidity).

More information can be found here: Components | User docs

Is your project composable with other projects on Arbitrum? If so, please explain:

Alchemix self-repaying loans are powered by yield-bearing tokens. On Arbitrum, this will include Aave to start, with stETH and (technicals dependent) Jones USDC coming in March or April. Alchemix will also explore liquid restaking yield in the future. The liquidity for alAssets is incentivized through decentralized exchanges. Currently, Alchemix incentivizes liquidity through Ramses DEX, where the DAO also owns a sizable veRAM position. Additionally, Alchemix is working with Premia to develop self-repaying options liquidity provision, per AIP 87. This project is now possible with Premia’s V3 and Alchemix launching on Arbitrum.

Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?

Savvy, a self-repaying loans protocol inspired by Alchemix, is deployed on Arbitrum. They received a 200k ARB grant via the STIP program, as a reference point for this application. Savvy is a dedicated and positive active contributor to Arbitrum governance but is also a smaller and less-established protocol than Alchemix. Otherwise, there are no comparable protocols that offer similar peace of mind for borrowers at a similar scale. Most lending protocols focus on non-like kind assets, which makes off-chain loans more risky. Like-kind lending protocols tend to focus on high-leverage farming, again attracting riskier use cases and not viable for set-and-forget strategies.

How do you measure and think about retention internally? (metrics, target KPIs)

For loans, the best measure of retention is the total TVL in Alchemix as well as the average age of that TVL. TVL is available at alchemix-stats.com. The average age of accounts is tracked here, in the results tab: Deposits Withdrawals Combined - Google Sheets

Metrics for liquidity providers are more complicated, where decisions are made based on alAsset prices, AMO size relative to total liquidity, vote incentive multipliers, and treasury positions, among other options. Alchemix releases quarterly reports that deep dive into these metrics: Financial reports | User docs

Liquidity provider metrics are ultimately used to try to push alAssets towards the best possible sustainable price, to generate more loans. Ie, all metrics trace back to sustainably maximizing self-repaying loan users and TVL.

Alchemix is a slow-moving protocol, therefore the metrics and KPIs do not need to be complex.

Relevant usage metrics - Please refer to the OBL relevant metrics chart. For your category (DEX, lending, gaming, etc) please provide a list of all respective metrics as well as all metrics in the general section:

Relevant General Metrics: Daily Active Users, Daily User Growth, Daily Transaction Count, Protocol Fee, ARB Expenditure for Depositors (= user claims), ARB Expenditure for LPers (= user claims), Incentivized Users and their current deposit in Alchemix

Relevant CDP Metrics: TVL, Borrowed Amount, Trading Volume (alAssets on Dexes), Daily Borrowing Volume, Total Circulating Debt Asset, List of Depositors, List of Borrowers, Usage Breakdown (where do alAssets go?), alAsset Price relative to Underlying (NOT A HARD PEG!)

Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan: [Yes/No]

Yes - in effect this will mean that no team member will be permitted to provide liquidity for alAssets or use Alchemix vaults on Arbitrum.

Note that this rule would need to exclude the Arbitrum Elixir AMO (defined above). The Elixir AMO is protocol-controlled liquidity that mimics the effect of the Transmuter (can remove alAssets from circulation), earns revenue, and provides additional liquidity by which loans can be taken. The Arbitrum AMO holds liquidity in Ramses. Excluding the Arbitrum AMO would require Ramses to manually exclude the AMO from staking rewards.

The AMO not being blacklisted would be beneficial for the grant, with the proper restraints. This is because the AMO creates baseline liquidity. Having baseline AMO liquidity prevents a situation where the first external LP to the pool gets outsized rewards, which ensures the grant is effective and not wasteful.

The downside is that the AMO would receive staking rewards generated by this ARB. To counteract this, Alchemix would use this ARB in some combination to extend the rewards program or increase the rewards in future epochs. Ie, it will never be sold or used for any purpose other than the original purpose of the grant. Lastly, the AMO-owned liquidity will be subtracted from all relevant metrics.

Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal? If so, please disclose the details of that arrangement here, including conflicts of interest (Note: this does NOT disqualify an applicant):

No. The grant has been written by Alchemix contributors exclusively.

SECTION 2b: PROTOCOL DETAILS

Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.

Is the protocol native to Arbitrum?: [Yes/No, and provide explanation]

No. Alchemix launched on Mainnet in 2021 and has recently expanded to L2s. However, users cannot interact with Alchemix loans and alAssets without simultaneously interacting with other Arbitrum native protocols. Examples include JonesDAO jUSDC as a planned yield strategy,Ramses Exchange for all alAsset liquidity (partially supported by Alchemix’s significant veRAM position) and Premia for alAsset options markets.

On what other networks is the protocol deployed?: [Yes/No, and provide chains]

Ethereum Mainnet and Optimism. The Fantom deployment was sunset after the Multichain exploit.

What date did you deploy on Arbitrum mainnet?: [Date + transaction ID. If not yet live on mainnet, explain why.]

Alchemix on Arbitrum began accepting deposits on March 14th, with the official launch announcement shared on March 15th Initially, stETH and aaveUSDC strategies are available. jUSDC will come at a later date, pending coordination with the JonesDAO team on their protocol upgrade. Liquid restaking will be evaluated once the yield evolves beyond points.

Alchemix alAsset contracts have been live since May 2022. Alchemix has incentivized liquidity on Ramses DEX since May 2023, aligning with the original intent of a Summer 2023 launch. Alchemix-related pools on Ramses currently hold over $1.1m of liquidity.

Alchemix Alchemist contracts (the contracts that enable self-repaying loans) have been live since July 2023, but have not accepted. However, these contracts did not allow users to deposit assets until this week, as the July 2023 Curve exploit put the deployment on pause until the present day.

alUSD token: https://arbiscan.io/address/0xcb8fa9a76b8e203d8c3797bf438d8fb81ea3326a
Deployed May 6th, 2022: Arbitrum Transaction Hash (Txhash) Details | Arbiscan

alUSD Alchemist: https://arbiscan.io/address/0xb46ee2e4165f629b4abce04b7eb4237f951ac66f#code
Deployed July 2nd 2023: Arbitrum Transaction Hash (Txhash) Details | Arbiscan

alETH similar, contracts are listed here: Contracts | User docs

Alchemix alAsset contracts have been live on Arbitrum since as early as 2022, with Alchemists first deployed summer of 2023. The Arbitrum launch was intended to be in mid-2023 but was delayed by the Multichain and Curve exploits. The Multichain incident disabled bridging in 2023, which has since been resolved and significantly improved by adopting Connext’s xERC20 standard. The Curve incident resulted in lost backing for alETH, which has since been rebacked. Alchemix spent much of 2023 making the system sustainable while handling the Multichain and Curve events. Now that these issues have been addressed, Alchemix is ready to scale up on Arbitrum.

Do you have a native token?: [Yes/No/Planned, link tokenomics docs]

The native token is ALCX. More information on the planned tokenomics upgrade, veALCX, can be found here as well as described in the roadmap below: veALCX Update. Back in May, we shared a general… | by Alchemix Finance | Medium

Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run? Please share results and dashboards, as applicable?

When Alchemix v1 launched, protocol revenue (from the Transmuter surplus described earlier in the grant) was used to boost yield for depositors. This strategy was a large contributor in attracting close to $1 billion in TVL by the end of 2021 (launch was February 2021).

The best way to measure effectiveness is the TVL chart of Alchemix compared to other DeFi over a similar timeframe. The boosted yield program ran from shortly after launch (Summer 2021) until the launch of the Elixir AMO in April 2022. From DefiLlama it can be seen Alchemix TVL dropped from 800m to 500m over this time, or a 38% loss. After the program ended, the TVL dropped from 500m to 60m, an 80% drop, from March 2022 to Sep 2022, and has gone flat since (aligned with the aforementioned focus on sustainability). As a point of comparison, the most popular lending protocol (AAVE) experienced a drop from 20b to 13b over the first period (35%) and a drop from 13b to 5b (61%) in the second period. This supports the theory that boosted yield was able to keep Alchemix in line with the rest of DeFi, but the loss of TVL became more significant once the program ended. Therefore incentivizing the depositor side is effective in bringing a new wave of users to Alchemix.

Alchemix is also somewhat of a beneficiary and victim of timing, due to launching near the peak of the DeFi bull market. The protocol quickly shot to 1b TVL upon launch but was supporting that TVL unsustainably. The system has been able to gracefully shrink throughout the bear market, down to a baseline level of sustainable liquidity by which it can once again grow, this time in a healthy manner. Ultimately, however, the data does indicate that incentives on the depositor side will attract TVL and that there is still demand to hold the loans even without incentives or a crypto bull market (as evidenced by the flat TVL throughout 2023).

Alchemix has multiple years of experience utilizing and experimenting with various forms of liquidity incentivization. The operations and business development team have experience with direct incentives, vote incentives (on multiple platforms including Votium, Warden, Hidden Hand, Votemarket), OTC deals, and matched incentives with multiple forms of liquidity including concentrated, correlated, standard (Uni v2 style), and automated management. Alchemix is frequently running smaller trial pools with new dexes and liquidity pool types, and scaling up the ones that work best. Significant successes include the Curve, Velodrome, and Ramses ecosystems. For these reasons, Alchemix is well-positioned to evaluate and partner with Arbitrum native protocols offering new and innovative forms of incentivizing and managing liquidity. The primary example of this is the ongoing partnership with Ramses DEX.

Below is a highlight of some of the major and relevant liquidity pools that Alchemix currently incentivizes, to demonstrate the current and past experience.

Current Incentivization: How are you currently incentivizing your protocol?

On Mainnet, the depositor side of the protocol (the loans) is not incentivized. Users receive the base yield of the strategy, minus a 10% fee on yield.

On Optimism, Alchemix will be rolling out OP incentives to boost yield on depositor positions to attract users (deployment of this grant was delayed by the Multichain and Curve exploits). On all chains, the lender side of the protocol (alETH and alUSD LPers) is incentivized through the mechanisms of the native DEXes (including vote incentive platforms such as Votium, Paladin quest, etc) primarily using ALCX as the incentive token. Alchemix also votes for incentives towards alAsset pools with the DAO treasury positions using assets like sdCRV, veRAM, etc.

At the time of this writing, Alchemix’s veRAM position sits at 6.3 million locked RAM, which, as noted above, is used to vote for alAsset pools on Ramses. Of this position, 3.9m RAM was purchased or farmed by Alchemix - demonstrating long-term commitment to the ecosystem. Examples of specific pools that Alchemix incentivizes are provided in the above “past incentives” section.

Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program? [yes/no, please provide any details around how the funds were allocated and any relevant results/learnings(Note: this does NOT disqualify an applicant)]

No

Protocol Performance: [Detail the past performance of the protocol and relevance, including any key metrics or achievements, dashboards, etc.]

Protocol Performance: [Detail the past performance of the protocol and relevance, including any key metrics or achievements, dashboards, etc.]

Information is available at alchemix-stats.com and in the quarterly reports found at Financial reports | User docs

One highlight of the protocol is the proven product-market fit of self-repaying loans with yield from liquid staking tokens. Alchemix limits the amount of assets that can be deposited to stabilize the price of the alAsset. The wstETH, rETH, and yvWeth vault caps have been raised 4 times since inception. The table below shows the amount of time it took for each vault to fill up with each cap raise. The LST vaults specifically generally filled up in less than 24 hours after their cap raises.

As elaborated on in the “past incentivization” section, Alchemix lost significant TVL in the bear market, but was able to sustain TVL throughout 2023. It should be noted that 2023 was difficult due to the bear market, Curve exploit, and Multichain exploit. The team made a conscious decision not to focus on user growth in 2023 but instead on sustainability and runway through more efficient operations, budgeting, spending, and allocation of emissions/treasury assets. Despite this focus, Alchemix was still largely able to maintain the same TVL throughout 2023 (between 40 and 60m), indicating a potential healthy foundation off which to grow. Alchemix is looking towards 2024 as a year to use the growth mechanisms of 2021 and 2022 in tandem with the sustainable practices of 2023, and once again bring self-repaying loans to the spotlight of DeFi in 2024.

The table below highlights the success of the sustainability measures in 2023, showing the revenue and expenses for each quarter. These expenses include ALCX emissions, on top of any other protocol-related expenses such as payroll, operations, service providers, etc. Alchemix managed to maintain revenue and decrease expenses to be on track to be sustainable in 2024, without significant revenue growth.

source

Protocol Roadmap: [Describe relevant roadmap details for your protocol or relevant products to your grant application. Include tangible milestones over the next 12 months.]

Alchemix is nearing the launch of veALCX, a tokenomics upgrade that pays users to provide Balancer 80/20 ALCX/ETH liquidity and lock it in the veALCX contract. veALCX holders will be gradually granted governance over the protocol, starting with the governance of the veALCX contracts themselves. Alchemix is working to re-launch self-repaying ENS, which was initially launched before the Curve exploit. Alchemix is scaling up vaults on Arbitrum, Optimism, and Mainnet with a focus on alETH vaults as they have demonstrated the most product-market fit. Alchemix v3 is currently in development, with no estimated completion date. Alchemix has also launched its own grants program to expand the ecosystem.

Audit History & Security Vendors: [Provide historic audits and audit results. Do you have a bug bounty program? Please provide details around your security implementation including any advisors and vendors.]

Alchemix v2 was audited by Runtime Verification and Code4rena. veALCX is nearing the end of its audit with Chainsecurity. Alchemix maintains a bug bounty program via Immunefi, which has a strong track record of paying out rewards for valid bug reports.

Security Incidents: [Has your protocol ever been exploited? If so, please describe what, when and how for ALL incidents as well as the remedies to solve and mitigate for future incidents]

The Alchemix core contracts have never been exploited, however, when alETH was launched (in 2022) a misconfiguration in the deployment allowed users to mint unbacked alETH. A majority of this alETH was returned to the DAO, with the difference covered by the treasury.

Alchemix does have a dependency on Curve Finance, Velodrome, and Ramses due to the respective AMOs on each chain. Curve was exploited in July, which resulted in alETH losing a portion of its backing. After a long series of events, alETH was successfully rebacked in early 2024. Additionally, Alchemix used to have a dependency on Multichain for bridging needs. The early 2023 Multichain exploit led to a loss of backing of Optimism and Arbitrum alAssets. The backing was restored by the Alchemix treasury, and bridging services were changed to Connext via xERC20 due to their focus on security and the ability of the DAO to maintain control over the bridging contracts and service providers.

SECTION 3: GRANT INFORMATION

Detail the requested grant size, provide an overview of the budget breakdown, specify the funding and contract addresses, and describe any matching funds if relevant.

Requested Grant Size:

150,000 ARB

Justification for the size of the grant :

The intent of LTIPP is to start small to prove the concept, with intent to grow into a fully-fledged program. Alchemix aims to increase the reach and retention of the protocol for both depositors and alAsset liquidity providers. If successful, an inflow of users on both sides will also increase the revenue of the protocol. Primarily, RRR (Reach, Retention, Revenue) for Alchemix is grown specifically by increasing the liquidity related to the protocol - deposits in Alchemix (loan-takers), and alAsset liquidity. Reach is also grown by onboarding new users - a goal that is especially achievable with Arbitrum enabling low gas transactions.

Long term, if Alchemix is successful and able to run a longer term program, th goal is to onboard $20m of TVL to Alchemix vaults on Arbitrum, with at least 250 users. This TVL will be from a mix of new users, past users that return to Alchemix, and users that migrate from Mainnet. A goal of $20m is derived from the following projections:

Firstly, On Mainnet, Alchemix is the 83rd-ranked protocol by TVL out of 467 protocols with > 100k TVL (an arbitrary minimum to filter data), per Defillama. On Arbitrum, there are 235 protocols with > 100k TVL. Projecting the ranking to Arbitrum, this would place Alchemix near rank 42, in the range of $10-20m of TVL. However, this projection assumes that like Mainnet, Arbitrum Alchemix has no depositor incentives, while many of the protocols in the top 50 have received ARB airdrops or STIP grants. Therefore, it stands to reason that a grant would bring TVL above $20m.

Secondly, it is also possible to look at the expected sources of deposits. In January 2024, 91 unique addresses interacted with Alchemix on Mainnet while 28 addresses interacted with Alchemix on Optimism. (source is an unreleased in-progress report - can be shared as requested). It can be assumed a similar ratio of addresses interacts with Alchemix on Arbitrum - about 1/3rd of that of Mainnet. In general, TVL will come from new users, past users returning to Alchemix, and existing users migrating from Mainnet. The latter two user types will likely have larger positions than the former. Therefore, applying a 1/3rd factor to TVL is accurate as while it overestimates the value per user, it also underestimates the number of users due to being derived from unincentivized positions. Assuming Arbitrum achieves a TVL of 1/3rd of present-day mainnet, that amounts to $20m of deposits to Alchemix.

As a final sanity check, 20m would only be a small fraction of the total TVL on Arbitrum, 3.5b at the time of writing.

Yield on ETH in DeFi is currently large due to restaking speculation. Typically, 10% APR on ETH would be attractive, but in the current landscape a self-repaying loan of 15% APR is more reasonable. alETH loans are used as a basis due to being the most popular product Alchemix offers, but stablecoins could be estimated to be in a similar situation. The base strategy of stETH will already provide 4% APR, so the grant would need to provide 11% APR. To incentivize $20m TVL over 12 weeks at 11% APR, the total incentive required is $507k.

Attracting alAsset LPers is more difficult, as they bear more risk, and must also be familiar with the DEX on top of being familiar with Alchemix. Additionally, alAsset liquidity is most necessary immediately when new loans are originated (this is the period when the supply is growing the most), but can be reduced over time as the alAsset supply shrinks naturally due to the Transmuter, AMO, and fewer new loans are being minted. Lastly, a better alAsset price also helps depositors, as it makes the self-repaying loan more effective. This is because a less immediate discount is realized when selling the alAsset.

To support $20M of fresh TVL, $10m of new alAssets must be supported. Typically, a higher APR is demanded for alAsset LPing. At an assumed 20% APR, this would require $462k of incentives.

There are a few more considerations to justify the estimates and calculations above as achievable:

  1. As ETH goes higher, the value proposition of Alchemix as a cash-out tool greatly increases. This could bring in TVL beyond the projected $20m.
  2. Alchemix incentives are not included in these calculations - this is accounted for by the fact that on its own, the DAO can support the demand for un-incentivized loans with its own incentives for alAsset LPers.
  3. Restaking airdrops are speculated to be occurring in the spring, which would reduce the prevalence of high ETH yield in DeFi.
  4. The Alchemix AMO will claw back a portion of this ARB, which will be used to extend the program. Thus, the benefits to liquidity providers will extend beyond the grant period.

Adding the two numbers above up, approximately $970k of ARB (500k ARB) would be required. However, the purpose of the LTIPP is to prove that the above estimations are approximately accurate and viable by starting with a smaller-scale program. Therefore, the goal of the initial 12-week program is to achieve a fraction of these results: $5m TVL and 100 new users. To achieve these goals, a grant of $300k of ARB (150k ARB) is requested. This is slightly higher than 1/4 of the total size of 500k, to reflect that early users on new deployments are typically seeking higher yields to take more risk for being early users.

Grant Matching:

Alchemix actively incentivizes voters for LPs of the alAsset pools on Ramses Exchange. This will continue with or without ARB incentives to continue growing TVL in the pool. Alchemix is growing liquidity as Ramses grows, and can seek other liquidity deployments in addition to Ramses should Ramses not be able to handle the additional inflow of the ARB grant.

Additionally, because of the xERC20 bridging standard, all liquidity incentives that Alchemix provides on Optimism and Mainnet will directly benefit Arbitrum (as users can freely bridge between Arbitrum and Optimism, as well as back to Mainnet to the extent that assets have been bridged from Mainnet). Current incentives for liquidity on all chains add up to approximately $220k/week ($2.6m over the 12-week life of the grant).

Grant Breakdown:

At least 33% and up to 50% of the grant will be used to incentivize depositors to Alchemix. This will create more attractive yields, drawing more users to Alchemix on Arbitrum. The remainder of the grant will be used to directly incentivize liquidity for alUSD and alETH LPers (NOT vote incentives). The exact breakdown may vary each week based on system balance.

Incentivizing liquidity for alAssets benefits LPers, but also benefits depositors who will have deeper liquidity and an alAsset price closer to 1:1 for their self-repaying loans. When the incentives end, it is anticipated some LPers will leave and the alAsset supply will need to shrink due to reduced incentives - but this will not affect users with existing loans. Therefore, it is expected that much of the TVL gained from the grant will remain after the grant ends.

Funding Address:

Alchemix Arbitrum Treasury Multi-sig - 0x7e108711771dfdb10743f016d46d75a9379ca043

Funding Address Characteristics:

The Arbitrum Treasury Multi-sig is a 3/6 Safe contract, which is used to manage all of Alchemix’s treasury and grant funds on Arbitrum. Each signer is a unique contributor from Alchemix, with signers being located all over the world. All private keys are securely stored by the relevant team member.

Treasury Address:

Alchemix Arbitrum Treasury Multi-sig - 0x7e108711771dfdb10743f016d46d75a9379ca043

Contract Address:

Arbitrum alUSD Alchemist: 0xb46eE2E4165F629b4aBCE04B7Eb4237f951AC66F
Arbitrum alUSD: 0xb46eE2E4165F629b4aBCE04B7Eb4237f951AC66F
Arbitrum Transmuter alUSD: 0xe7ec71B894583E9C1b07873fA86A7e81f3940eA8

More here: deployments/arbitrum at master · alchemix-finance/deployments · GitHub

SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES

Clearly outline the primary objectives of the program and the Key Performance Indicators (KPIs), execution strategy, and milestones used to measure success. This helps reviewers understand what the program aims to achieve and how progress will be assessed.

Objectives: [Clearly state the primary objectives of the grant and what you intend to achieve]

This grant intends to achieve $5m TVL of deposits in Alchemix on Arbitrum, with at least 100 addresses with open positions on Alchemix (Roughly based on the ratio of Mainnet users to TVL).

Execution Strategy: [Describe the plan for executing including token distribution method (e.g. farming, staking, bonds, referral program, etc), what you are incentivizing, resources, products, use of funds, and risk management. This includes allocations for specific pools, eligible assets, products, etc.]

ARB on the LPer side will be distributed through direct incentivization (precedent set by Ramses STIP), through Ramses DEX. Other DEXes may also be added in the future. LPers will be able to claim ARB directly from the staking contracts on Ramses.

On the depositor side, ARB will be melted down into the underlying asset to repay debt for the following reasons:

  1. Alchemix does not give users receipt tokens for their positions, therefore creating a staking contract for ARB rewards is not possible
  2. A Merkle drop could be executed for all depositors, but this is dev/operations intensive and also makes it much harder for users to quantify the benefit they are getting.
  3. Alchemix has already developed a contract capable of melting rewards, which will be audited by Sherlock.
  4. Melting the ARB will be the best demonstration of the power of the self-repaying loan product.

It is understood that selling the ARB is not preferred, but selling ARB is only being suggested where it truly makes the product more usable and makes the grant more effective.

Solidity and UI resources will be used to ensure the contracts are functional and accessible. The majority of resources will be from the Operations, Biz Dev, and Marketing teams. Operations will ensure vote incentives are properly allocated each epoch. Biz Dev will seek out liquidity partners that wish to match incentives, bringing more efficiency to the liquidity. Current examples of liquidity partners are Gravita, Frax, and Qi Dao.

The focus of the marketing team over the LTIPP period will be to promote Alchemix on Arbitrum. Alchemix believes there is a significant crop of new DeFi users on Arbitrum who have not heard of Alchemix. For this reason, Alchemix aims to repeat the marketing that first put Alchemix on the map in 2021 (memes, podcasts, and Twitter spaces) and adopt new strategies. As an example, there is already a quest prepared where users will undergo various Alchemix-related actions on Arbitrum to earn Alchemix NFTs with Arbitrum-inspired art.

What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric? [Provide relevant design and implementation details]

By nature, Alchemix TVL is sticky. Firstly, the average lifetime of an Alchemix self-repaying loan position (including present-day users) is 387 days - over 1 year! This is in the face of the Curve and Multichain exploits, and in a bear market with shrinking TVL. It is believed much of this stickiness is due to the low-touch nature of Alchemix. Source Another proof of this concept is that after Alchemix v2 was launched, much of the Alchemix v1 TVL had to be force-migrated to v2 to migrate inactive users, despite better yield offerings on Alchemix v2. Users truly set and forget with Alchemix, happy to make purchases with their loan then let it self-repay over time.

In most of DeFi, liquidity providers are not very sticky. The best way to maintain liquidity is to provide effective incentives, education, and marketing around liquidity. Alchemix plans to continue to incentivize Ramses liquidity with ALCX, as well as pursue expansions of existing partnerships with Gravita and Frax, and new partnerships to create more rewards for LPers. Alchemix has grown its veRAM stack since inception, indicating a commitment to long-term liquidity incentives.

From an education/awareness perspective, Alchemix plans to launch at least one quest campaign (one option being Layer 3 through the Alchemix grants program!) to encourage users to explore self-repaying loans and alAsset liquidity. Alchemix also plans to draft comms to help educate users on the risks/rewards of liquidity provision, and the user docs have a section on Layer 2 Alchemix that helps users understand the risks in the context of the rewards. Alchemix has multiple paid community members who assist with questions in the discord server. Lastly, Alchemix contributors are planning to join Twitter spaces and podcasts of various partners to spread awareness of Alchemix on Arbitrum. This effort aims to help onchain users make educated decisions around taking self-repaying loans and providing liquidity on Ramses.

Specify the KPIs that will be used to measure success in achieving the grant objectives and designate a source of truth for governance to use to verify accuracy. [Please also justify why these specific KPIs will indicate that the grant has met its objective. Distribution of the grant itself should not be one of the KPIs.]

This grant has two simple KPIs:

  1. TVL - TVL in Alchemix will be measured throughout the grant. TVL is expected to see a sustained increase between the deployment of the grant and the completion.

  2. The target is $5m per the above sections

  3. The source of truth will be alchemix-stats.com, which will read yield-token balances in the alUSD and alETH Arbitrum Alchemist contracts, listed in the contracts section.

  4. Number of Users with Active Loans - The number of users with active loans is expected to see a sustained increase between the deployment of the grant and the completion.

  5. The target is 100 per the above sections

  6. The source of truth will be alchemix-stats.com, which will read all existing depositors in the alUSD and alETH Arbitrum Alchemist contracts (with an off-chain script as required).

Note that LPer-related KPIs are not tracked, as ultimately the ability to achieve self-repaying loan users is also very correlated to attracting LPers (no liquidity means no loans). Therefore the two KPIs above are sufficient. These KPIs represent retention as well as revenue (TVL) and reach (users).

Grant Timeline and Milestones: [Describe the timeline for the grant, including ideal milestones with respective KPIs. Include at least one milestone that shows progress en route to a final outcome. Please justify the feasibility of these milestones.]

Milestone 1: 2.5m of TVL 2/3rd of the way into grant distribution
Milestone 2: 5m of TVL at completion of grant distribution
Milestone 3: 50 addresses with open positions 2/3rd of the way into grant distribution
Milestone 4: 100 addresses with open positions at completion of grant distribution.

5m TVL is achievable as it represents a small fraction of Arbitrum TVL, and could be entirely achieved by a portion of Mainnet users moving to Arbitrum. This is also only ~1% of the current wstETH supply on Arbitrum, new bridging and alUSD TVL notwithstanding.

100 addresses are achievable as it roughly scales with the amount of Mainnet TVL that would need to migrate. The number of users could end up much higher, however, due to the quests mentioned above run by Alchemix, and low transaction fees facilitating smaller positions. It is not possible nor necessary to limit deposits to small positions, however, so the quantity accounts for potential whale positions.

How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem? [Clearly explain how the inputs of your program justify the expected benefits to the DAO. Be very clear and tangible, and you must back up your claims with data]

Receiving a grant will give Alchemix a very strong opportunity to introduce Alchemix to the next generation of DeFi users. Within Arbitrum, it allows Alchemix to bring a real-world use case to crypto - the ability to take loans that can be taken off-chain without fear of liquidation. Real-world low-touch use cases are needed for crypto to grow and be useful to society beyond crypto natives. In our opinion, Alchemix enables a type of user that is not yet common onchain, but needs to be for DeFi to enter the mainstream.

Within the ecosystem, Alchemix creates benefits for multiple other protocols:

  1. Alchemix creates more use cases, utility, marketing, and adoption for integrated yield strategies. This includes AAVE aUSDC and Lido stETH at launch, with Jones jUSDC likely to follow. Alchemix will also explore liquid restaking token yield in the future.
  2. Alchemix is heavily dependent on dexes to facilitate alAsset liquidity for loan takers. Alchemix has made a commitment to Ramses, an Arbitrum native dex, that will benefit from the alAsset volume and TVL that is incentivized by this grant.
  3. Alchemix has been in discussions with Premia for some time, on the idea of higher-LTV self-repaying loans that can only be utilized to provide liquidity for alAsset call and put options. Alchemix on Arbitrum plus Premia’s recent v3 launch makes this use case possible.
  4. Alchemix has ongoing discussions with unstoppable.ooo, an Arbitrum native dex/margin trading protocol, about potential integrations. Unstoppable also developed a fair-funding tool, with a Sherlock audit funded by Alchemix, that uses Alchemix to launch self-repaying token sales. This code could be deployed and used on Arbitrum now that Alchemix is live (and there is a grant for just that.)
  5. Alchemix has a strong history of adopting strong operational products in their early stages and providing feedback/feature requests to strengthen these products. With Alchemix scaling up and focusing on Arbitrum, many of these requests will shift towards the Arbitrum ecosystem. Key tools that Alchemix uses and helps improve include Hypernative, Onchainden, and Octav.

Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? [Yes/No]

Yes

SECTION 5: Data and Reporting

Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO?

Yes

Are there any special requests/considerations that should be considered?

No

Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?

Yes

Please describe your strategy and capabilities for data/reporting

Alchemix already runs several internal scripts (daily and weekly) to monitor system health and data. When Alchemix launches on Arbitrum, this will be expanded to include the Arbitrum deployments and a dashboard will be built either standalone or on alchemix-stats.com where the metrics will be updated continuously.

Shared earlier in this proposal is an example of an internal document for tracking average user age, the alchemix-stats website, and the quarterly reports. These resources all demonstrate Alchemix’s capability to report the necessary data.

Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program?

Yes

Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?

Yes

1 Like

Hello,
I just want to note that this is an extremely rough draft. A majority of Alchemix contributors will be attending ETH Denver, so we wanted to get an initial version out ASAP so we could begin to work with an adviser.

In tandem, our data team is evaluating and starting to work on more specific KPIs to provide data to back some of the claims made in the rough draft. We will be able to fill in more information regarding data, KPI, reporting, etc, after ETH Denver.

Thank you for the opportunity to apply!

Hello @Ov3rkoalafied,

Thank you for your application! Your advisor will be Castle Capital @Atomist.

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

Screenshot 2024-03-13 235802

^ This is the image intended to be shared under the “past experience” section, but the forum will not accept the edit (likely at some sort of hard cap on images in a post).

@cliffton.eth please edit post from “draft” to “final”, thanks!

Hey there I’ve amended the title post to reflect that this proposal is FINAL. All the best!

As the ITU Blockchain Delegation Team, we have decided to abstain from voting on Alchemix’s grant proposal to the Arbitrum DAO.

While we acknowledge the positive aspects of the project, such as its proven track record on Ethereum, a clear implementation strategy, and fair success metrics, we believe that areas for improvement in the incentive design and transition strategy should be identified. Despite our concerns, we believe that if Alchemix sets more ambitious goals, the grant could address these issues and contribute significantly to the Arbitrum ecosystem. This abstention vote reflects our belief in the potential of the project while also reflecting our desire not to ignore opportunities for improvement. Improvement in these areas is critical to Alchemix’s future success.