Background
At Alluo, our mission is to bring DeFi to everyone and to do that, we want to make earning in DeFi incredibly simple.
To make this possible, funds from the mobile app and web-dapp are directed by the $ALLUO token lockers.
$ALLUO token lockers also vote on what the APY should be for each of the different asset categories, both stablecoins and crypto assets.
At the moment, all the protocol revenue, which is equal to the spread between the advertised APY for each asset and the realised APY, and the yield that is generated by the treasury funds are used directly to add ETH in the ALLUO-ETH balancer pool.
Whilst that has some impact on the token price, this effectively means that both users who lock their $ALLUO tokens and those who do not have the same incentive.
Of course, $ALLUO lockers also have the right to vote on all the proposals and receive some additional $ALLUO emissions but in terms of protocol revenue, one can argue that both lockers and non-lockers get the same benefit which is not ideal.
Proposal
The proposed evolution of the tokenomics is as follows:
- Convert all the protocol revenue to CVX
- Send this CVX to a rewards vault that the $ALLUO lockers will be able to earn a share of
- Add this CVX to the CVX/ETH Curve pool (which gives CVX/ETH Curve LPs in return)
- Stake these CVX/ETH Curve LPs on Convex for more CRV and CVX rewards (currently 26.55%)
- At regular intervals (initially every 2 weeks), convert the CRV rewards above for more CVX and send all the CVX earned to the rewards vault as described in step 2 above (this creates a boosting loop)
In numbers
Today, we generate about $5,000 of protocol revenue each cycle of 2 weeks.
Assuming a pool value of $350,000 which is where the pool is approximately now, the APR that one would receive before boosting would be equal to:
26 * $5,000 / $350,000 = 37.1%
Now, because we will be staking the CVX/ETH Curve LPs on Convex, we will also benefit from a 26.5% APR boost on this pool, with the CVX and CRV rewards converted for more CVX/ETH and staked back into the pool.
Putting it all together, the APY of an $Alluo locker would be equal to:
37.1% * (1+26.5%) = 46.9% in CVX/ETH
Another benefit of these changes would be to eliminate the `vampire effect` $ALLUO has on protocol Convex. Today because our yield farming rewards are all sold, Convex really does not benefit from our protocol liquidity to be on their platform. The Core team really believes in composability and therefore being good partners to all the protocols we interact with, redistributing the CVX/ETH token would go a long way in this direction.
In practice
Every 2 weeks, we will add more CVX/ETH to the rewards vault which will be claimable by the $ALLUO lockers which had locked their tokens during the previous cycle.
If a cycle starts on the 1st of Jan at 00:00 and ends on the 15th of Jan at 00:00 (exactly 14 days later), then later on the 15th of Jan, the protocol will add all the CVX/ETH that was generated in the 1-15/Jan cycle and all the $ALLUO lockers of that cycle will be able to claim their share of the CVX/ETH rewards pool.
To qualify, users will need to make sure:
- They have locked their tokens before the beginning of the cycle
- Keep all their tokens locked up until the end of the cycle
Disqualifying events:
- Withdrawing any tokens from the locker during the cycle
- Requesting the unlock of any tokens during the cycle
Note that users locking more tokens during a cycle will not be disqualified but they will receive their share pro-rata of the number of tokens they had locked at the beginning of the cycle. Of course, their increased total of the locked tokens will contribute to them having a bigger share in the next cycle.
Future
As we expand to other protocols like Frax or Aura finance, we would expect to replicate the same mechanisms to boost the value by $ALLUO lockers.
For instance, in the case of Aura finance, we would expect to convert all the protocol revenue generated from Aura finance to be converted to Bal and staked on Aura finance for more rewards (currently 62.6% APR)
With this new mechanism, we are also hoping to slowly shift the $ALLUO token issuance to be a reward for participation in the governance rather than a blanket reward for all lockers.
This means that by locking you will get passive income in CVX/ETH and by voting you will get a boost on your rewards in $ALLUO. The aim here is really to increase the participation in our 2 weeks governance cycles of liquidity direction at the core of the protocol.
These few future improvements are however NOT part of this proposal, but just a glimpse of what is to come. When you vote in this governance round, please focus your decision on the Proposal highlighted above.
Vote
We have also put this proposal for a vote on https://vote.alluo.com/. The proposal will become active in 24hrs from the publishing time of this blog, giving enough time to $ALLUO holders to lock their token in https://app.alluo.finance/stake if they wish to participate.
This is a simple yes or no vote, with yes meaning that the vote should be implemented as suggested above, no would simply mean carrying on as things are today.
Addresses with vote-locked Alluo tokens (vlAlluo) as of the activation of the proposal will be allowed to vote. The vote will remain active for a period of one week.
Implementation
Assuming that the proposal is approved, we expect to implement this change by the middle of October following a period of testing.
There shouldn’t be anything for $ALLUO lockers to do, all the changes should happen automatically behind the scenes and $ALLUO lockers should then be able to claim their share of the CVX/ETH rewards vault as described above after the end of the first cycle.
