Allow me to begin by expressing my utmost appreciation for @ri_ri and all the individuals involved in getting this proposal to the community. The fact that Alchemist is publishing this proposal is a great sign and I look forward to seeing the final result.
I believe this proposal does a great job at addressing many of the problems our current tokenomics has faced since our inception. However, I believe that there are some problems that are still left unaddressed with this proposal. The largest problem left unaddressed is the liquidity pairing of MIST with WETH. I would argue most, if not all, of our price action is so determined by two factors: MIST liquidity being tied to WETH and LPs being rewarded in MIST. This proposal changes the rewards for LPs to other coins and addresses that issue. However, if we continue to use WETH as the liquidity backing of MIST we will continue allow our coin to be susceptible to the extreme volatility associated with ETH. A rising tide lifts all boats and falling tide lowers them as well. This volatility is unnecessary for us to be exposed to at this point in the evolution of crypto, as there are a variety of stable asset solutions that MIST could be paired with to mitigate our exposure to the volatility of ETH. That is why I would like to amend this proposal with the following changes:
1. MIST liquidity be paired with the stable asset RAI.
2. MIST liquidity be provisioned via a Balancer 80/20 pool.
3. Increase MIST inflation rewards for Alchechad LPs to 22.5%
4. Increase MIST inflation rewards for Alchechad stakers to 7.5%
These proposed amendments share the same goal: increasing the stability and resiliency of the Alchemist Ecosystem by significantly reducing the volatility of MIST.
RAI is an un-pegged overcollateralized stable coin that is only backed by ETH. Over the course of the last year the difference between the highest and lowest price of RAI was roughly 5 percent. The difference between the highest and lowest price of ETH during the same period was roughly 80 percent. Obviously, that is a significant difference in price action over the last year. Stables assets all have their own risks, however of all the stable assets available on Ethereum, RAI is arguably the least risky. RAI is a fork of SAI (MakerDAO’s precursor to DAI) and only has a couple of changes to the code-base. RAI was made to forever be backed solely by ETH and is overcollateralized. RAI shares a similar ethos as Alchemist, and I believe that there could be a strategic partnership between RAI and Alchemist. I will elaborate on that possibility later, but for now here is a good article if you wish to learn more about RAI: A Money God RAIses — RAI is live on Ethereum Mainnet! | by Ameen Soleimani | Medium
A Balancer 80/20 pool reduces impermanent loss and more closely tracks the price of the 80% weighted asset when compared to a Uniswap 50/50 pool. However, these benefits come at the cost of increased slippage compared to a 50/50 pool. Despite increased slippage, I believe an 80/20 pool be more beneficial to the Alchemist ecosystem over the long run than a 50/50 pool. This is because I believe we should prioritize the stability of MIST and the organic price action of the coin rather than the efficiency of trades. Since Alchemist’s incubation efforts hinge on the ability to use MIST to fund those being incubated, it is critical that MIST prioritizes stability and liquidity over anything else. If you would like to learn more about Balancer’s 80/20 pool check out this article: 80/20 Balancer Pools. One of the main motivations behind… | by Fernando Martinelli | Balancer Protocol | Medium
Liquidity is what allows for the Alchemist experiment to preserver during times of low revenue generation. The MIST-WETH pool has been a backbone of the Alchemist ecosystem since our experiment’s beginning. That is why I believe that Alchechad LPs should receive 22.5% of MIST inflation. Alchechad LPs will be locking up their LP for a full year to help provide a stable source of liquidity for the Alchemist Ecosystem to draw upon. As such, I believe that these individuals deserve to have a significant increase in the rewards they earn over that period when compared to Alchechad stakers and the normal Chad LPs/stakers.
Currently, LPs receive 50% of inflation and 50% of ecosystem revenue. This proposal would drastically reduce the amount of inflation loyal MIST LPs have been receiving from 50% to 2.5%, and it may also reduce the ecosystem revenue received from 50% to 25% if over 69.420% of the free-floating MIST supply is successfully staked. I understand that if this proposal were to be implemented in its current form that it would likely drastically reduce the sell pressure of the MIST token which would benefit everyone. Nevertheless, this proposal would drastically hurt the loyal LPs who have never withdrawn their LP or sold their MIST tokens. These are precisely the type of ecosystem participants that Alchemist desperately needs more of. These individuals would likely participate in the Alchechad rewards programs. That is why I believe increasing the inflation received for Alchechad LPs and Alchechad stakers from 2.5% to 22.5% and 2.5% to 7.5%, respectively would work to further increase the stability of MIST and reward our most loyal participants.
The largest risk associated with what I have proposed revolves around the changes I have suggested around LPs. They would have to break up their 50/50 LP, buy or mint RAI, and provide liquidity in the Balancer 80/20 pool. During this process some LP may decide that they wish to stop providing LP and/or sell their MIST. We could end up with a lower MIST price and a smaller liquidity pool. However, these same individuals may decide to do this because they will not be receiving MIST any longer and may end up getting a smaller cut to Alchemist’s revenue sharing. I think that if there is a time to make these huge changes to our LP program it is now. If LPs have lost faith in Alchemist or no longer wish to hold MIST or provide liquidity it is better to have them exit now. They should recognize that they are exiting at all-time lows and that it would be better to go through with the proposal to stabilize MIST. The moment our liquidity is no longer tied to the price action of ETH we will be in a better place even if we have less liquidity. At the end of the day, most of the previous price action of MIST has been because of the volatility of ETH. We need to get off the ETH liquidity train so that we can start stop worrying about MIST price action.
If we enact my proposed amendments, we will shift the price action of MIST from being a derivative of the ETH price action to purely MIST entrants and exits. We may have some exits and a lower liquidity pool size but in the longer run I believe it will benefit the health of the Alchemist dramatically.
Partnership Possibilities
There are a fair amount of 80/20 pools that are earning BAL rewards from Balancer. Considering Copper is one of, if not the, most successfully application built on Balancer technology, I would imagine it may be possible to get some BAL rewards from Balancer for transitioning our liquidity to an 80/20 pool.
I believe there could be a possibility to form a strategic long-term partnership with the Reflexer DAO, Reflexer Labs, and the overarching RAI community. Here are the steps Alchemist could incrementally take in a partnership with RAI:
- Transition our liquidity pool to being paired with RAI
- Napkin math:
- Apx. 1100 WETH in current 50/50 MIST liquidity pool
- 1 WETH = apx. 380 RAI
- 1100 * 380 = 418,000 RAI
- 418,000 RAI makes Alchemist LP the 3rd largest holder of RAI
- We take our revenue coins and convert them to RAI and then distribute them to our CHADs.
- Our revenue coins have been historically WETH, ETH, and USDC.
- All of which, would run through RAI pools which they incentivize community participants to provide liquidity for.
- We are essentially giving these pools, which are mostly owned by RAI community members, a small cut of our revenue.
- If CHADs sell RAI they likely will once again be giving a small fee to the RAI LP community.
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We hold RAI as a portion of the stable asset reserves in the Alchemist Treasury and/or Mulitsig.
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We allow for Copper LBPs to use RAI as a base asset.
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We perform a token swap between the Reflexer DAO and Alchemist. Swap MIST and FLX.
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We reward FLX/ETH LPs with some MIST
What would be the benefits of Alchemist partnering with RAI?
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Reflexer DAO could reward the MIST-RAI pool with FLX via a Crucible rewards program.
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RAI could transition their custodial staking rewards program to Crucible’s non-custodial rewards program.
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The Alchemist community could expand and benefit from becoming strategically intertwined with the RAI community.
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Perform a token swap of FLX for MIST between entities.
Alchemist would simply want to partner with RAI to accumulate their ungovernance token FLX in a passive manner. RAI charges around a 2% annual fee to mint RAI which is then auctioned off and can only be purchased using FLX. The FLX is then burned. The longer that RAI can remain reasonably stable and become less and less influenced by outside forces the great its legitimacy of being the one and only truly decentralized stable coin will become. As this narrative grows stronger, more RAI will be minted which leads to more revenue and an increased demand for FLX while also decreasing the supply via the burn mechanism.
I am keen to hear everyone’s feedback on my proposed changes to the tokenomics proposal put forth by the Council. Once again, thank you to @ri_ri and everyone who contributed to this proposal as I believe it is a step in the right direction.
<3 Santa