Proposal

This proposal seeks to enter a market-making agreement for ALCX. The primary focus will be Binance and Coinbase, with small quotes supporting tight spreads on OKX, Kraken, and Crypto.com. The terms are as follows:

1. Alchemix will loan 30k ALCX to the market maker, who will use the funds to make ALCX markets a. Note: the market maker has asked that Alchemix not share the name of the firm. It is a reputable firm with experience and name recognition.
2. The initial term will be 3 months, with a fixed strike price in USDC at some % higher than the price of ALCX at the start of the term. a. Note: the market maker has asked that Alchemix not share the agreed-upon strike price. b. Note: the strike price is based on the 5-day average price of ALCX at the time of renewal.
3. If the strike price is not hit, Alchemix will seek another 3-month term, with a new fixed strike price based on the price of ALCX at the start of the new term.
4. If the strike price is hit, Alchemix will intend to seek another 3-month term. USDC obtained from the strike will be used to buy back ALCX to the treasury, and the treasury will renew the loan with 30k ALCX.
5. At the end of any term, should the net result be that Alchemix has sold more than 30k ALCX to the market maker (ie, total ALCX sent over all terms minus total ALCX or ALCX value of USDC received at end of term < 30k), Alchemix will re-evaluate the agreement and put forth a DAO proposal to either continue with the agreement, propose a new market maker and/or terms, or terminate market-making loans altogether.

Context

Alchemix enlisted a market maker at launch and did not renew the agreement when it expired in late 2022. Alchemix has been fortunate to be listed on major exchanges without needing to pay for listings or broker any form of deal. However, lower volumes during the bear market without an active market maker mean there is a risk of ALCX pairs being delisted. Being relisted without paying fees is difficult after a delisting.

Market makers are desirable as they create deeper liquidity on exchanges, which can allow larger swaps and bring more attention to the token. Neither of these is intrinsically necessary for the success of the protocol, but they do attract more people to learn about Alchemix. Additionally, being delisted from a centralized exchange significantly reduces the potential reach of the protocol. Given the current potentially early/mid-stage bull market, this could be a sizable amount of missed opportunity for attention.

The downside of market makers is that incentives can diverge from the best interest of the community and project. To counteract this risk, market makers align their incentive by asking for no other financial incentive other than a right to buy the token at a higher price at a specific future date, where they can repay the loan in ALCX or USDC. One issue with some crypto market makers (generalized, across all of DeFi) is that makers often sell a majority of the token for USDC on the first major price pump and then make with those funds as the token bleeds out during the rest of the term. In that situation, the maker makes a significant profit and the DAO ends up selling ALCX at a low price relative to what it reached. To counter this risk, Alchemix sought to adjust the model (as described below) and we decided to work with a reputable market maker (as recommended by partners) that is working with local regulators (relative to the jurisdiction of the makers’ company) to validate its practices.

The BizDev SubDAO discussed market-making models with multiple market makers and other experienced teams in DeFi. Ultimately, it was determined the best way to improve the model was to break the deal down into shorter, 3-month terms. This has a few key benefits:

1. The expected price change of ALCX is more limited, which caps the amount of ALCX that could be effectively sold at a discount in a period.
2. Strike prices are adjusted each term based on current market conditions
3. There are more points at which the DAO can evaluate and monitor the spending of ALCX.
4. The market maker is still able to hedge their risk through strike prices.
5. The market maker has an incentive to minimize the number of tokens sold and create a more positive outcome for the DAO as there are more frequent renewal periods.

Voting

For, Against, or Abstain the above framework