A Prelude to AlchemixDAO

Alchemix Finance
5 min readMar 31, 2021

Webster’s dictionary defines a DAO as… sike! It turns out Webster doesn’t have a definition for DAOs, but we all have a kind of nebulous idea or expectation of what DAOs are. While some just imagine each DAO as a different group of NEETs larping as a company from the comfort of their mother’s basement, others envision DAOs as the future of organisations. Currently, they are somewhere in between. DAOs up to this point have been used as ways to coordinate capital, signal community sentiment, and to build consensus on how to improve existing protocols. The Alchemix team believes we can innovate and improve upon the currently available DAO frameworks, and in doing so, provide value to ALCX holders while solving voter apathy and the freeloader problem.

Alchemix is a platform that empowers users to get advances on their yield by minting a synthetic version of their collateral up front (currently only DAI), using various mechanisms to peg the synthetic token to the deposited asset. We do this by putting collateral to work earning yield in yearn.finance, with the harvested yield going towards paying off your own debt in the system — essentially we are paying you to borrow. When we harvest the yield, we take a 10% cut which goes to the treasury, and yearn pays us affiliate fees for adding TVL to their protocol. When Alchemix v2 is released later this year, we will add multiple collateral types for alUSD, including USDC and USDT. We will also add more al-Assets, such as alETH and alBTC. Each of these vaults will have the same 10% fee applied to harvests. Well, instead of that money going to fill our coffers, what if that money went to filling the bags of ALCX stakers?

Ok, time to pick your jaw up off the floor. Is it back on your face? Ok, good.

When a user stakes ALCX into AlchemixDAO, they will get an unrivalled cash flow with a diverse set of stablecoins, ETH, wBTC, and potentially even more tokens (details on that are still a closely guarded secret). The token will move beyond simply being the memetic “valueless governance token” and will actually become a claim on protocol revenue. ALCX will be unique in that just by staking it, you can earn a diversified portfolio. The more TVL in Alchemix, the better this becomes. This also aligns ALCX token holders with the goal of the platform, which is to increase the utility of your assets in a low-risk fashion.

You might be thinking that getting a cash flow on your ALCX is too good to be true. Well, yes and no. If you want to earn a cash flow, you will have to participate in the governance of the AlchemixDAO.

From the moment a user stakes ALCX into the DAO, they will begin accruing Voting Points (VP), which are a non-transferable value held in the contract’s state. The longer a user stakes, and the more ALCX they have staked, the more VP they will accrue. When there is a vote, users can choose to use any amount of their voting points that they desire. So when there is a vote where they truly care about the outcome, they can use as many of their VP as they would like, and if there is a vote that they only care a little about, they can choose to use fewer. This is our interpretation of conviction voting, where you get to put more weight into the things you care about. The catch here is that when users engage in using their VP, they will begin earning a cash flow. The more VP a user uses, the more their cash flow reward weight is boosted in the system, much like how the Curve protocol boosts rewards for veCRV stakers. It pays more to participate.

Some of the shrimp reading this are probably thinking, “oh gee, I can’t afford to vote with these gas fees”. Don’t worry little guy, we hear you and we understand your pain. For AlchemixDAO to work the way we envision, it must be built on layer 2. We don’t know which layer 2 we will develop this on just yet. While layer 2 solutions come in several shapes, we can’t arbitrarily pick any layer 2 because we have zero knowledge about which solution will emerge as the winner, but we’re optimistic that dapps will converge on one during the development of AlchemixDAO. By harnessing the throughput of layer 2 solutions, AlchemixDAO will be inclusive of all Ethereans — without sacrificing our ethos of decentralisation first.

The last problem the AlchemixDAO will solve is the dreaded freeloader problem. You know, you can’t hold down a job and get rewarded just for showing up. If you have a stake in the protocol, then that means you must have skin in the game. Inspired by the AAVE security module, ALCX stakers in the AlchemixDAO will become defenders of the protocol. In the extremely unlikely scenario of Alchemix or one of its underlying yield strategies being exploited, ALCX stakers will have to do their part to make the protocol whole again. ALCX stakers will have up to a (to be decided) percentage of their ALCX slashed in the event of a protocol loss. This slashed ALCX will be auctioned off in order to raise funds to make depositors whole again. There are two sides to every coin, and in order to get a claim to that cash flow, you must be the last line of defence to the protocol should it come to that. Brave defenders will be rewarded. But don’t worry, the core team will do everything in our power to make sure it never does. The only good bug is a dead bug.

There are some additional details we have deliberately omitted from this article. It wouldn’t be any fun if I couldn’t tease you ‘Hayden Adam’s style’ over the next handful of months about what other surprises we have in store, but this is the core vision for AlchemixDAO, where we aim to not only be the future of France, but also the future of DAOs.