NEW Alchemix Tokenomics and DAO

Alchemix Finance
5 min readMay 20, 2022

Last week we shared our vision for the Alchemix DAO and updated tokenomics to great reception among our community. Now, we would like to share the general outline of our vision with the rest of the DeFi community. Please keep in mind that this is a high-level overview and that some aspects will be subject to change in the development process. We plan to give frequent updates on the design and progress and invite the Alchemix community to provide feedback and make suggestions over the course of its development.

Why are we upgrading our tokenomics?

For anyone who’s familiar with the Alchemix protocol, you’re likely to appreciate the level of innovation it brings to the DeFi space. The capital efficiency that advanced yield brought to our users was our primary focus during the genesis phase in the era of Alchemix v1. Our intention for the ALCX token was purely intended for governance. Now, over 1 year since the launch of v1, the reality of our need to build a sustainable and scalable product is evident. We need to drive value through the ALCX token to fund development, support protocol revenue and incentivize liquidity for our growing portfolio of alAssets.

What’s in it for ALCX holders?

There are a multitude of benefits discussed below which are financially oriented towards holders who choose to participate in the multi-layered opportunities on offer. Below we’ll discuss the new benefits that add to the existing governance and auto-compounding features currently available to ALCX holders.

  1. Boosted yield
  2. veALCX Balancer pool token
  3. veALCX Pool reward gauges
  4. veALCX Meta-gauge

Introducing veALCX

Alchemix will adopt a vested escrow (ve) token model as the foundation for our new tokenomics. The ve token model was pioneered by Curve DAO, and has been adapted and iterated on by numerous protocols, most notably Frax, Ribbon, Solidly and Balancer.

To summarize this system simply; essentially token holders lock their tokens in a vesting escrow contract for a duration of their choosing, and depending on the length of this lock, the user is granted ve governance power in the DAO. For example, veCRV power bestows upon the user the ability to create and vote on proposals, vote on reward distributions, boost LP rewards, and receive protocol income.

Above shows our initial thoughts relating to the amount of veALCX locking reward received by ALCX lockers
Above shows how veALCX locking power diminishes over the locking period

Alchemix has studied the various veToken implementations and will implement a combination of the best features from the various implementations as well as some additional features customized for our needs.

veALCX Rage Quit

veALCX lockers can choose to lock their tokens for any duration between two weeks and two years. Just like veCRV, the longer the lock, the greater the powers and reward will be for them. Additionally, there will be a “rage quit” function, that will allow and veALCX locker to exit from their locked position. In doing so, they will have a penalty that will slash an amount of their original deposit and burn those BPT tokens, converting it to permanent liquidity.

Above shows how the early unlocking (rage quit) penalty may be calculated

1. veALCX Boosted Yield

The first major feature is that users who choose to lock ALCX will be eligible for boosted yield. Boosted yield will be reserved only for ALCX lockers who choose to participate in the vested escrow (ve) locking mechanism which will align the protocol with the ALCX token.

2. veALCX Balancer pool token

When locking ALCX for veALCX, users will actually lock an 80% ALCX / 20% ETH Balancer Pool Tokens (BPT). Lockers will not only earn LP fees but also benefit from some impermanent loss protection. The rationale for using a liquidity pool token over ALCX is that veALCX lockers can contribute long term liquidity to the ALCX token and keep its supply liquid for trading. Other veToken models tend to suffer from a lack of liquidity, which results in high slippage for traders, and using BPT as the foundation for veALCX will solve this problem while also alleviating the need to heavily incentivise liquidity for ALCX.

3. veALCX Pool Reward Gauges

veALCX gauges allow veALCX lockers to determine the reward weights for various liquidity pool positions. This includes our current liquidity pools, but also, with the launch of Alchemix DAO, we will invite other protocols to apply for an alAsset liquidity pool to pair with their token. For example, Yearn could apply for a hypothetical alETH/YFI pool, and if accepted, receive ALCX rewards for the LP tokens. This system would work similarly to Curve’s gauges, but would be agnostic to which DEX the liquidity is on as long as it is paired with alUSD, alETH, or any other future alTokens. Additionally, the users’ veALCX power can boost the ALCX rewards for farming these LP positions.

4. veALCX Meta-Gauge

Alchemix has acquired a fair amount of CRV and CVX tokens, which allow us to direct CRV and CVX emissions for liquidity provisioning. Meta-Gauges will allow veALCX lockers to determine how we use our liquidity directing governance powers. This way, the DAO participants can adjust the rewards much more fluidly to respond to the demands of our users and the market.

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All together, the Alchemix team believes this is a powerful feature set that iterates on the proven and popular veToken model. We invite everyone to discuss our plans and make suggestions for improvement. The Alchemix team will make Alchemix DAO development its top priority going forward, and we are excited to share our development progress with you all.

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