Bankless - 89 - A New Era for DeFi | Scoopy Truples of Alchemix

Episode Date: October 21, 2021

Scoopy Truples from Alchemix returns to Bankless to update us on what lies ahead for the protocol, and more broadly, the DeFi ecosystem. Alchemix v2 is on the horizon, which will allow for much more composability and integration with the rest of DeFi, as well as introducing new means of collateral such as LUSD and MIM. Scoopy also details plans for Layer 2 and Cross-Chain launches. The second half of the conversation turns to DeFi 2.0, which Scoopy outlined in this epic twitter thread. This new generation of DeFi projects introduce a new primitive for bootstrapping liquidity and capital to a protocol, which traditionally has been achieved via incentivized liquidity pools. This new model allows protocols to purchase LP positions and accrue value more sustainably, discouraging mercenary capital that leaves when rewards taper off. Scoopy brings big ideas and digestible explanations to this complicated topic, contextualizing what may become a new era for DeFi. ***** 📣 POOLTOGETHER | DEFI LOTTERY https://bankless.cc/PoolTogether  ***** 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha  🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger  🧙‍♀️ ALCHEMIX | SELF-PAYING LOANS http://bankless.cc/Alchemix  ------ Topics Covered: 0:00 Intro 3:30 Scoopy Truples & Alchemix v2 8:02 Optimizing Yield 13:03 Community & alETH Vault 21:23 Layer 2 & Cross-Chain 29:58 Governance & Participation 37:00 DeFi 2.0 and Olympus DAO 49:16 How it Works 54:39 Flushing out Toxic Liquidity 58:24 Adopting this Primitive 1:01:23 Tokemak 1:03:54 Closing & Disclaimers ------ Resources: Scoopy on Twitter: https://twitter.com/scupytrooples?s=20  Scoopy’s DeFi 2.0 Thread https://twitter.com/scupytrooples/status/1447398430574141445?s=20  Alchemix Links: - Twitter: https://twitter.com/AlchemixFi?s=20  - Discord: https://discord.com/invite/alchemix  - Website: https://alchemix.fi/  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Hey, Bankless Nation, welcome to this special edition of the Bankless podcast. Today, I'm talking with Scoopy Trooples of the Alchemics Protocol. We had Scoopy on a while ago on the state of the nation to talk all about Alchemics V1 and also the new Eath vaults that were coming online shortly thereafter. And today we are getting an update as to the state of the Alchemics ecosystem, the story of the Al-Eath vaults and what happened with that. And also the story of the coming V2 of Alchemics as well. as their layer two plans.

And then I also pick Scoopi's brain with what he is calling a new era for Defy, which is using Olympus Dow's primitive to replace the traditional yield farming mechanism where you just deposit your liquidity into a contract, and then you receive the governance tokens as a reward for depositing your liquidity. Scoopy thinks that the time of that model for yield farming has come to an end and is going to be replaced by something much more sustainable, much more long-term aligned. And so we go into the details of that as well.

So I hope you enjoy this update as to the state of Alchemics V2, as well as Goopi's brain with regards to what's going on in Defi. And so we're going to go ahead and get right into that conversation. But first, a moment to talk about some of these fantastic sponsors that make the show possible. Macha, everyone's favorite deck aggregator, has just launched an open beta for gasless trading. So if you're trading more than $5,000 in CommonEath and Mache and wrapped Bitcoin pairs, then your gas fees on Macha are free. And that's why you should be using Macha.

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your defy trades and they will go through automatically while you're away. So when you're making a trade, head over to Macha.xyz slash bankless, connect your wallet, and start getting some of the best prices and most liquidity when you trade your crypto assets. Alchemix is one of the coolest new defy apps on the scene. It introduces self-paying loans, allowing you to spend and save at the same time. Deposit the die stable coin into the Alchemics vault in order to get an advance on the interest it generates. Borrow up to 50% of the total amount of your deposited die in the form of Al-USD stablecoin. Here's the craziest part. The loan pays itself back and you cannot be liquidated. Unlock your assets potential in the ultimate defy savings account. And brand new to Alchemics is the

ETH fault where you can deposit ETH into the application, borrow Al-Eth against your deposits, while having your advance gradually paid back over time. V-2 is rapidly approaching, which will allow for even more collateral types, plus a variety of yield strategies to choose from. Harness the power of Alchemics at Alchemics.fI. That's A-L-C-H-E-M-I-X.com. FI. Follow Alchemics on Twitter at Alchemix FI and join the Discord to keep up to date with Alchemix V2 and to get involved in governance. All right, Bankless Nation, today we are here with Scoopy Trooples of the Alchemics protocol. Scoopy Trooples, in addition to having one of the coolest and most fun names to say in all of crypto Twitter, it has been with Alchemics since day one and has co-founded it and Alchemics has really just planted its flag with one of the cool new DFI primitives.

that the rest of Defi hooks into. So Scooby Triples, welcome back to Bankless. Yeah, it's great to be back, man. I'm really pumped to be here and, you know, talk about alchemics and sort of like, you know, just Defi in general, man. Thanks for having me on. Yeah, so the last time we had you on,

it was during Alchemics's V1 days and not yet getting into the world of V2, but yet now Alchemics is in its V2. So, Scroopy, can you tell us, the upgrade from V1 to V2 and where AlkMix is now. Oh, let me issue a little correction. We're not done with V2 just yet. It just entered Code Fries and it's going to go into its audit at the end of the month.

And, you know, hopefully we will be able to get that out by the end of the year. If not then, you know, very early next year, we'll be having V2 out. Fantastic. So where are the big upgrades that V2 is bringing along? So in V1, we only have one collateral type, and that's dye, and that means LUSD. And same thing with ETH, that means Al-Eath. And we only have one strategy that's yearn for both of those. In version two of alchemics, we are just going to blow open the doors for what we're going to be able to do.

Multi-collateral ALUSD, so lots of new stable coin collaterals are going to be collateral for ALUSD. So you could think of like, you know, sort of like the big ones. So dye, USC, tether. But also like a lot of the new decentralized stable coins. In this past year, a bunch of really a new, like really high quality decentralized stable coins have come out. I'd say most notably LUSD and magic internet money. And I think adding those to the mix and also some of the other like kind of up and coming decentralized stable coins is going to really, you know, you know, bring it, like make alchemics a big tent for lots of different assets in the space. Very cool. That is, we like it in the world of defy where things open up. So are, is each one of these stable coins going to have their own vault? Or is it going to be all collapsed into one or a few vaults? Are collateral is going to be mixed together? Are they going to be siloed? So the collaterals are all going to kind of work together to be a big composite position for you. And then, so,

So like let's say you just have, you know, it's split between three different collateral types and let's say, you know, you have a thousand bucks in there. You'll be able to borrow 500 LUSD off of that regardless of, you know, how much you have in either one of them. It'll work all seamlessly together. And I think one of the cooler things about this is that not only are we having multi-collateral LUSD and, you know, Al-Eath as well, but also multi-strategy. So inside of each collateral type, we'll be offering an ever-growing selection of strategies.

you know, think about all the different yield aggregators. So right now it's just yearn, but we're going to be adding AVE. We're going to be adding compound. We're going to be adding like pickle, harvest, steakdow, and more to come. Because I know there's going to be some more innovations in the yield aggregator space as well. And the cool thing is you can, you don't have to like go all in in one strategy. You can mix it up however you want to. So if you want to go like half in yearn, half in steak down, you can.

do that. You can make it whatever composition you want. So it ends up being kind of like a meta yield aggregator that you can sort of build to your own risk tolerances. And let's say like, you know, one of the underlying strategies, like, you know, suffers a black swan event. Your collateral and other strategies are fine. You're only going to take that loss in that one strategy. So it's really going to be you kind of parameterizing your own risk tolerance in addition. to your yield preferences and stuff like that. So it's going to be really, really powerful. Okay, so this isn't, I don't, correct me if I'm wrong, but because of V2,

you're not going to be getting more yield than you previously would have. The big unlock, the big innovation is being able to more finely tune what you are exposed to, the risks that you're exposed to. Is that correct? Yes, but also since you're going to have different yield providers to choose from, could end up having higher yields than, you know, what urine is presently offering. Okay. Yeah, because different yield aggregators use different strategies.

You know, so there are going to be some differences in that. We're also really looking into taking sort of like curve LPs, like the ones that are made up of stable coin positions. And, you know, like going into convex, which is like a really awesome, you know, platform for Curve LPs is going to also, like, increase the amount of yield that our users are going to be able to have in alchemics v2. So we're expecting yield to go up, you know, choice to go up and, you know, people being able to sort of choose their own spectrum of, you know, risk involved in alchemics. Okay. So one of the questions I had when you talked about having like multi-collateral

LUSD where you can have like die or LUSD as the deposit. My mind went to, well, what about having a stable coin curve LP position, where you're LPing a bunch of stable coins into curve and using that as the deposit? Like, can you do that? Or is that nonsense? Yeah, that's what I just said. So those curve LP positions, they're really cool because they work as a composite of all of the tokens that are underlying.

But they also have a sort of thing about like number go up about them because the trading fees from curve, end up going to the LP token. So LP tokens underlying value, you know, tends to go up and to the right gradually over time. So, you know, of course, not all the LP tokens are made equal. We have to do a lot of risk parameterization to see which ones are acceptable as collateral. But I think that, you know, they are going to be a very good addition to alchemics, and we can accept, you know, a lot of them for sure.

I would imagine as a yield optimization protocol, having your collateral be curve, LP positions and then also being able to borrow more stable coins to go yield farm even more, that seems to be just like an insane amount of yield. Yeah, it's just going to be yield, you know, all day and all night. Yeah. We're excited for it. Okay, so Alchemics has now integrated into more yield-bearing strategies and is also integrated into more stable coins.

But what about protocols that have integrated more into Alchemics? Alchemics. Can you talk about how you guys have been becoming adopted in the greater DFI ecosystem? So in version one, there is no real greater adoption for other protocols going into alchemics. We as a security measure, because, you know, we really wanted to make sure everything was as safe as possible. We did not allow for smart contracts to interact with alchemics. And that would prevent flash loans and other, you know, experts associated with them. But our version two is being audited by one of the best firms in the business, a runtime verification. and we were designing V2 with them all summer long with security in mind,

and it's going into audit with them. It's going to pass through like formal verification and, you know, lots and lots and lots of testing. And so we're going to be able to make version two a lot more composable where any, you know, person, any application, any Dow can plug into alchemics and use it for themselves. So this really seems to be Alchemics is, stepping into the wild moment where you are fully unleashing, allowing the powers of defy to get integrated, which is like a double-edged sword, right? Like, well, if you become more

and more permissionless, well, you get more and more used. But also if you become more and more permissionless, you increase your service area for exploits. So this seems like alchemics is, we're ready for the wild. We're ready for the risks moment. We think we've got this and with this protocol is locked down and we're ready for the integrations. Is that the right vibe? Yeah, totally. I think like when new protocols launched, V1 is always sort of like, like really like glorified beta where we have to cut features and you have to sort of like do things in order to just

ship and get your product out. And then V2 is really like kind of the vision that you had originally for your V1. And then I think it was a T11S from Twitter. and he's like, so then what's, you know, V3? And then V3 is actually the true V2, right? So I don't know when V3 is coming out. Don't ask me, please, for the love of God. But I am super excited for a V2.

Yes. Well, congratulations for making it all this way. And I think one of the biggest strengths that Alchemics has is its community, which I think is evidenced by what happened when there was the accidental exploit of the Eath faults, which is why I thought. you guys were at V2 because I thought the ETH Faults we were V2 at the very beginning. That's how I got that mixed up. So, Scroopi, can you tell us the story of the Eith Faults and the resulting rallying of the community behind it?

Yeah. So when, like, we launched our ALEE Fault, like, you know, we were really confident that it was secure. It was passing all of our internal tests and everything like that. But there was a weird thing that happened in the deploy sequence where one of the vault adapters that handles, you know, moving your ETH collateral to yearn. It failed its deployment two times, but there was no error message involved. And so the vault that finally got deployed was at the wrong index number than we anticipated. But it was at the same address. And we didn't have a sanity check because we didn't think that could happen. And so when we called pool ID zero to

harvest the yield from it, it read that there was a balance of nothing supposed to be in there, but then it saw there was all this ETH in there thinking that this was profit. And then it used all of that ETH to then repay everyone's debt erroneously. And so then people were free to just like withdraw their collateral and have this free out of Eath at that time. And a lot of people like, you know, obviously we were like really distraught that this had happened. And and we're kind of scrambling, what are we going to do? And then a lot of people in our Discord spoke up as like, hey, I got free stuff. Can I give it back?

Where should I send it? And then it dawned on us, hey, what if we just ask nicely? And it ended up being really successful. A lot of people in the community gave it back. I think it was over 200 wallets gave ETH back. And a lot more people donated. We finally made good on our promise. And we made a patron NFT that has metadata for how much ETH.

people donated back to alchemics. And that will have some functionality in some future apps that we have. Very neat. Do you know how much total ETH was lost and then what percentage of that ETH was recovered? Yeah, there was around 2,300 ETH that was lost. And we got a little bit over 50% back. Some of that was our team members kind of rallying together and making donations of our own as well in addition to the community.

So I'd say like minus that we were under half, but, you know, still even then, it was, you know, a very awesome thing to see our community come together. Right. It's kind of even weird to think that like you got anything back at all. Like people got free ETH. Why would they give it back to you? And so like what lessons or what takeaways do you have by the fact that so many people gave anything back at all?

Like what are your big takeaways? about what this tells you about maybe the Alchemics community or maybe Defi at large? Well, I mean, I think it speaks to the larger Ethereum community. You know, when if you, you know, foster a good community and, you know, people think you're a good actor in the community, then they want to do good by you. And I think we see that a lot in Ethereum, not with everybody in the space, but, you know, probably more than any other blockchain in the space. You see a lot of good actors and good people in Ethereum in general.

Another thing is that, you know, we asked nicely. You know, we took calls with our community. We spent time all that time before launching Allie. It's really trying to grow and foster our community and have it be a nice, friendly, welcoming place for people. So we got the right people into the application. So I think that's part of it. You really, you know, in crypto, you know, you can fork any project out there. You know, even if the code isn't public on GitHub, you can pull it off the blockchain, reverse engineer, and deploy it yourself.

It's, you know, anybody, you know, who's a decent coder can do that. But you can't fork a community. And that's something that we really, really learned with Ali. And we love our community and, you know, and are so grateful that, you know, we were able to recover so much of the funds in that incident. How much do you think the NFT had to do with that recovery? That's a really hard one to say. I think we ended up getting around like,

a couple hundred eth returned or just donated to us because people felt bad for us. And, you know, small donations and stuff like that. And that's including, you know, some of our team members, you know, giving back and just trying to support our protocol as well. But, yeah, like, it was really big, you know. And I think when you kind of offer somebody a little carrot, it's a lot better than a stick for sure. Like if we went out, you know, and, you know, we're threatening people.

people to give it back, I think we would have gotten almost nothing. So that brings me to my next question. Not too long ago, a kind of similar-ish thing happened to compound where a comp token was issued way faster than it should have been. And then Robert Leshner famously tweets out, anyone that got comp tokens that they shouldn't have either return it or basically threatened to docks people that got these token to the IRS. saying like, hey, we will report your tokens as income. When you saw that tweet out of Robert, what did you think?

Well, I disagree with the fact that he was threatening to dox people personally. I think he was more stating the fact that, you know, if you're trading on Coinbase, then they know who you are, you know, and therefore Coinbase will dox you to the IRS. Not him personally. Yeah, correct. And I mean, I think when he said that he was probably under a lot of duress, a lot of pressure, you know, have probably people, you know, trolling him, fudding him, probably up for 24 hours straight, because I was there at the same time, you know, and I wanted to pull my hair out.

And when we're tired and we're stressed, we don't make the best decision sometimes. So I'm really willing to give Robert a pass on that one because I know the guy and he's a great guy. And, you know, I want to stick together with my defy brethren and founders because, you know, being on the other side, you know, people who are not involved in projects, they don't know how tough it can be sometimes, you know, and the pressures and, you know, like, in trying to work with it in this 24-7 industry. I mean, I kind of understand why bankers, you know, and Wall Street keep the hours that they do, you know, it helps them keep their own sanity. And, you know, and that's something that I think, you know, all the builders in Defi, you know, we try our best,

to do good by the community to build and, you know, to do the best that we can. But, you know, we're all people at the end of the day, too. So we're going to slip up. We're going to mess up, you know, at times. Yeah, yeah, no, I totally agree with that take. And even Robert, like, followed up that in that tweet. It's like, oh, yeah, guys, that was a boneheaded tweet. Sorry about that.

But, yeah, everyone's just trying to do the right thing. The thing they feel is right. It's just an interesting little dynamic in DeFi that some of these things happen and then people go to crypto Twitter to see the drama. Go ahead. I remember before I was a founder and when like, you know, a hack happened or something spice happened, I'd weigh in with my hot take, you know, and, you know, fud something and, you know, get all the engagement from it and it felt good to get that engagement.

But then like I started realizing that that kind of stuff like, while it is like a little like, you know, growth hack for your Twitter account, like, you know, it kind of just makes you a dick. Yeah. Like, and like, especially being on the other side, like, I don't want to do that. I want to be, you know, you know, of course that there's a really bad actor in this space, call them out. But for the people who are out there and they just messed up or something like that,

you know, I have no interest in, you know, going after those people anymore. Totally, totally. So, Scoopie, we are hopefully at the cusp of a massive migration to layer two. Does Alchemics have any layer two plans? Yeah, so we now have had five forks of alchemics at this point in time. And we realize that, you know, if we don't go and cross the chasm to layer twos and other chains and other people will do it and fork our protocol over there. So definitely we are looking to go to Arbitrum and Polygon. They're the most Ethereum aligned, you know, layer twos and side chains out there.

But we're also open to what the community wants in alchemics. And if that is avalanche, if that is Phantom, if that is BSC or Solana or one of these other, you know, kind of like new and I would say viable side chains, then I think that it's worth considering for us to do so. have you noticed any desire out of the and first off am i pronouncing it incorrectly when i say alchemics and because you're saying alchemics is it is one of those correct um i like to say alchemics i i did come up with the term but um if you say that's fine too we have you know people from like all over the world on our team and everyone on the team says it differently so it doesn't bother me i didn't notice you were saying it differently than i was so okay in that case i'll stick with that with alchemics then So, yeah, is there any alignment or community coherence about having alchemics being deployed on a non-etherium layer one?

Yeah, there's been some debate in our Discord. Somebody just was talking about the recent podcast that you did with Rune from MakerDAO and a lot of the points that he made. And I've given it, I've almost listened to the whole thing. And I think Rune makes a lot of good points, especially with the fact that, you know, like bridges are what they are right now, which is sort of a glorified multi-sig. But I also see that there's a lot of, like, innovations being made in the bridging space. And I'm really, really excited about Connects. And for full disclosure, as a part of E-Girl Capital, we did do a round with Connected.

So I also am in that round. So full disclosure there as well. Yes. And I think that's going to bring, you know, a lot more. security and trustlessness to, you know, bridging from, you know, one chain to another. Because, you know, they have really awesome technology that lets you just send it from, you know, any EVM chain to any other EVM chain. Right.

What about Roon's argument that, like, his argument is that, like, a lot of Defi apps will have this incentive to deploy on everything that they can ever, all the L-1s, regardless of the EVM compatibility or not? But then he says that, well, if you have an alchemics on Ethereum and then you have an alchemics on Solana, you actually, because you are doing the whole multi-chain strategy, you actually might generate sufficient network effects outside of your home base, which is Ethereum, that you actually might force a core migration of like your energies to a different chain. And so Rune's argument is that, well, that's messy. And so he's just going to stick to Ethereum and Ethereum only because he doesn't actually want to contribute energies to building on an Ethereum competitor because if that Ethereum competitor wins, then Maker has to do this messy migration to this new chain. Do you align with that argument at all or do you think that it's not entirely accurate? I could see that happening, you know, but I think as far as alchemics goes, you know, the way that we're envisioning, the way to deploy on other.

chains is that we would, instead of like giving minting keys for, you know, our al assets on other chains, we would do is kind of mint them on layer one, Ethereum, and then bridge them over to other chains. And then just instead of like, you know, when you go to borrow Al-EASD, minting from the, you know, zero address, it would just, you know, be, you know, taken from the actual contract itself would have a balance of the out assets there. And I think by doing that, you know, that we can still have the security guarantees and ensure that Ethereum L1 is our hub. It's our main base. And if somebody wants to go from Polygon over to Avalanche or something like that, then

they would have to go to Ethereum Mainnet, then over to the other, you know, to the other chain. So, you know, definitely Ethereum is, you know, the most secure. It's the chain that I have the most philosophical alignment with by far, because they never sacrificed on decentralization, whereas other ones, you know, even if they have a really cool consensus mechanism, a lot of times it's kind of just like deposs at the end of the day. And I think Ethereum, you know, managed to, you know, maintain, you know, their security and decentralization while also finding a way for scaling, whether that's through sharding and too, but also roll-ups.

And I actually think that if ZK Sync and or StarCware really delivers with their EVM-compatible ZK roll-ups, then it's game over for all these other chains anyway, honestly. Like, why would you go there when you can have lightning fast, super cheap transactions with the full security of Ethereum? So, but, you know, that technology is still a little far away out. And if there's opportunities, if there's demand on other chains, I think, you know, it should be, you know, at least considered to go and expand over there. So, um, Rune's argument, you talked about how, like, if you guys don't deploy Alchemics contracts on a layer two, then somebody else will.

And Rune's argument is kind of similar, the similar, but with other layer ones, right? And so you talked about how you actually don't need your minting contracts on a competitor, layer one. You could just report the assets over there and that would be good enough. But then Roon's argument was like, okay, well, you can bridge your assets over, but then you just leave the opportunity for someone to just fork your code and add the minting contracts to that alternative layer one. And now you have a competitor there that's native towards that ecosystem where your assets are just bridged over there and are non-native. But what you're saying is you think that the Connects protocol, the ITXP or ICTP protocol, the interchained communication protocol, you think that that is sufficiently secure where that won't the non-nativity of alchmic's assets on other layer ones, doesn't matter. Is that correct? I haven't done like a super, super deep technical dive. So I can't say without a shadow of a doubt if it's like as secure, you know, 100% secure or not.

but I know that the Connects team has been working on this for years, and they have an awesome team. So I think if anybody can deliver a sufficiently trustless bridge, it's them. And yeah, that's where I feel on that. And I think, like, to kind of counter Roon's opinion on this is that, you know, even if you are on L1, there are going to be other people who try to take your lunch anyway, even on that chain. I mean, look at LUSD. They're kind of going back to like the single collateral die purity of just only ETH collateral. Then you have MIM with their ultra aggressive strategy for expansion going across chains and using yield bearing collaterals.

And you also have like USDP, you know, you have, you know, there's lots of competition even on L1. I think that's probably the place where the competition is the fiercest. And so, like, I think a lot of, you know, you know, protocols that have a name for themselves on L1, when they go over to L2 or to a side chain, it's like a really big deal over there because they don't have sort of the legitimacy of some of these big names. And so when they go over there, you know, people are excited because, you know, it kind of brings legitimacy to their chain as well. That's a really good take. As we finish off the aspects of alchemics, I want to ask about governance and community with regards to, because you talked about alchemics v2 and all the technical updates that are coming along there. But there's always the issue of the community participation in governance and the state of the discord. So how has the community rallied around alchemic's governments and what are those dynamics like?

How have you guys tackled the governance problem? I mean, I think we have a governance channel in our Discord and people like come up with ideas a lot. And we also have a governance forum. And before like I was kind of like the sole officer of the Dow making proposals and, you know, trying to get them through. But then recently I'm just like, hey, you know, this is a great idea. Why don't you write a proposal and telling that to people? And I think it's like of the last six proposals, only two of them were written. by me and the rest were written by other community members.

So it's really good to see the people in the community coming into the fold and writing proposals, you know, and getting active in governance. And like going forward in V2, since it's going to be a lot more composable and people are going to be able to build apps on top of it, we want to get the community involved even more in like community development as well. Right now, you know, Alchemics v1 doesn't have any extensibility to, you can't compose apps with it. So it kind of cuts people off, but V2 is not like that at all.

And people have been expressing interest. So we're actually using or like kind of beta testing some coordination tools internally. One is called coordinate. It's made by the yearn team. Yep. And basically the gist of this one is that you get a bunch of people together in an instance. And then you set like a time period, like maybe a month, maybe two months, and then you fund it saying, okay, let's say there's 50,

thousand dollars worth of rewards for here. Everybody in the instance gets a token called give. And then based on the amount of give tokens that they receive from others in the instance, it determines their payout. You know, so people will be posting up their Git commits, you know, their other contributions, whether that's through education or marketing and things like that. People will see like what others are doing and then give those tokens to them accordingly. And in order, I think they have a really cool tool.

that helps you visualize it too. It's like sort of like this graph that you can see who is giving tokens to who. So that way like some bad actors get in there and like trying to make a cartel and game the system. You know, the admins in the system can just be like, yo, you're out of here. Nice. Nice. Yeah. So yeah.

Community, community incentivization, I think, is is how DOWs ultimately win. Sorry. So where are you in the process of implementing that? Have you already had your first course? and ape round finish? We're just beta testing, just like really small. It's not formal yet, but like we're trying to get the structures in place. Our team is crunching super hard right now on our V2 code.

We're like, yeah, we're having code freeze either today or tomorrow. And then we are, you know, finishing up our testing and documentation suite for the remainder of the month. And then once we have a little breather there, we are going to go full steam ahead and, you know, and really get the organization ready for. more and more contributors to come in and work with us. Right. Yeah. Smart contracts are hard and also so is governance, right? So it makes sense to take those things one at a time. How big is the Alchemics team? And are you guys a formal,

like, registered company or is it more of a loosely defined set of internet contributors? We are a loosely defined set of internet contributors, frog army, you know? And, you And our team is, let me count now, we've added somebody recently. So we have. So what does it mean to add someone? How does that work if you're not a company? So we have sort of like an internal core team without like a company. And so instead of like, you know, pre-mining a bunch of alchemics tokens and then giving

them to like, you know, the founders or core team members, what we did is we made like a special pool in our, in our farming contract and then made us token for it. that only the core members have. And then, you know, we all get the same amount of this token. So it's very egalitarian and flat. And then we put it in this staking contract and we get ALCX kind of linearly vested towards us that way. Very cool. Yes. So when, like when we onboard somebody, usually what happens is we give them a couple month trial to see if they're a good fit with us.

You know, to get a, you know, see if they're a good worker and they, you know, gel with a team. and then we do a unanimous vote to bring somebody in. So everyone's in agreement. So-and-so let's make them core. Then they become core. Neat. Neat. Okay, so that's very much decentralized from day one, ethos.

Is that right? Yes. I mean, the team is like a core team. So it has some like centralization aspect to it. And we do have some managerial roles, you know, because we have a multi-sig and time lock. Right. For our governance at the moment. And so, you know, you know, like it's like that.

So we're on our way towards decentralization. Right. Well, as opposed to like employment contracts and stuff like that, it seems to be your dog fooding defy in order to create your organization. Yes. We pay, you know, like, yeah, and you die to our, you know, people who come in, you know. And then once they become part of core and they get the time token to stake into the, you know, staking pools contract that we have, then they become, you know, ALCX lifers at that point. So ALCXXAX.

And so you talked about coordinate and also you have in your roadmap to really double down on governance. But any last comments about how you have incentivized the community to self-actualize and, you know, write the proposals themselves? It's fantastic to see that you only wrote two out of the six proposals. Do you have any like tips or tricks to help incentivize the? community to actually go from just like a discord stray thought idea to an actual proposal. Anything we can learn there?

Yeah. Whenever anybody writes a proposal, so like, so four of the last six, we've had a lot more than six total. But like we have a really awesome, like we have the tip CC bot and we have that hooked up with Al USD, Al-Eth, and ALCX. And whenever anybody writes a proposal, we always make sure to give them a generous tip, whether it passes or not. I know that synthetics did that in their discord

when anybody would write a synthetics improvement proposal. And I noticed that, and I saw how that got people, you know, actively writing proposals. And I thought, yeah, why don't we do the same? Very cool. Hey, guys, I hope you're enjoying the conversation with Scoopy thus far. And the second half of the show is when we get into this new DFI primitive with regards to liquidity mining and governance token yield farm.

Scoupie thinks that if this is adopted across all protocols that have yield farming mechanisms, that we might actually be able to see a resurgence of the eth defy ratio, the ether to DPI token, because he thinks that a lot of tokens have not seen the price appreciation that they could have because of this now broken yield farming mechanism that we is not up to date with the current state of defy. So Scoopy walks us through this new primitive that he thinks can change the tide of Defi. And so we're going to go ahead and get right into that. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Arbitrum is an Ethereum scaling solution that's going to completely change how we use Defi and NFTs.

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And if you don't have a ledger hardware wallet, what are you even waiting for? Go to ledger.com, grab a ledger, download ledger live, and get all of your defy apps all in one space. So, Scoopy, you recently put out a tweet thread about Defi 2.0, which talked about a new generation of defy apps that are coming online into the ecosystem. Could you like summarize your thoughts that you put into your thread for the listeners? Yeah. So I think, like, if you take a top-down approach to it, it's sort of the difference between yield farming and protocol controlled value. Right. So when you're doing yield farming, essentially, you know, you put in a token into a staking contract and then you get the governance token back out from it, you know, as a reward for doing.

It's a renting of liquidity. And then what happens in that since, you know, a lot of times there might be like a stable asset pair, like for alchemics. We have the Al-USD-3 curb pool and then the Al-Eath pool and the Al-Eath saddle and kerf pools, right? So those are all like very, very low risk for people to supply liquidity. And so they kind of just treat it as like, you know, a place where they can get ALCX and then dump it, you know. And that's the kind of same across everywhere in D-Fi. Anyone that offers, you know, a pool two or pool ones or more of like these kind of stable asset pools, you know, people just sort of see that. the governance token as their yield and they'll cash it out to ether stable coins.

And, you know, this, this then kind of like migrates over to the pool two. Normally pool two are people who are very aligned with the project. You know, they feel good enough in order to take that risk and the impermanent loss in hoping that the rewards that they get will more than make up for the impermanent loss. But like when other people are dumping and that toxic liquidity comes in, you know, and that toxic liquidity is in there because they think they can dump on the believers and profit off of them. And in that dynamic, even the believers will be like, man, because, you know, such and such this giant VC whale or whoever is dumping on me, the only good strategy for me left over now is to do the same.

Also dump. Right. Yes. And so it turns what should be a community, you know, coordination tool into a PVP game. And people are trying to out. outsmart and be more cunning than each other and, you know, play off of each other. So it, you know, kind of gets rid of that cooperation, you know, that you really, really actually need in a Dow and a decentralized protocol. And, you know, I think deep down, I knew this, you know,

like probably back in May or even like June. And I was scrambling thinking, what can we do to fix it? What can we do to fix it? How can we turn this tide? round. You know, I'd done like, you know, a lot of analysis of other, you know, protocols I had yield farming, especially as like kind of like defy and the defy pulse index was like really kind of lagging against ETH. It dawned on me that the, even with all these great revenues, these DeFi protocols are pulling in and they're skyrocketing TVLs. Like their token prices weren't matching with them, you know, and they were bleeding against ETH so terribly. And, you know, like, yeah, why is this? And that's where I had that realization about like these liquidity flows and,

you know, this kind of PVP, like kind of dynamic that's going there. And there was one protocol that that stood out, you know, compared to all the other ones, one that I initially brushed off. And that's Olympus Dell. And instead of just having people yield farm, you know, and, you know, get the token that way. What they did is they offered, you know, their community discounted prices to get their, the, the, um, token by essentially purchasing their LP tokens. So what was once a rent to own is now a kind of bond to own, or pay to rent is now a bond to own model for, for protocols. And what happens is like the protocol starts getting more and more of its own liquidity. And the protocol is not going to dump on itself.

Right. Ah, okay. Right. And as, you know, the protocol gets more and more and more of its share of like the liquidity on the markets, then it gives everybody involved, all the investors involved a lot of confidence that the bottom is not going to fall out. And then traders know that, hey, you know, there's all this liquidity. I know I can trade and, you know, the markets are still going to be there.

So traders like to trade and volume goes up. And then people's like, you know, investors come in and they're like, wow, you know, the market makers are not dumping and manipulating the price. I'm going to get in. I think this is a good investment, you know. And sort of all this stuff like kind of dawned on me that it kind of flipped the dynamic on its head. You know, because liquidity is super important, but how you get it really matters. And seeing how the Olympus Dow community was really cooperative with each other and, you know,

everyone was really, you know, vibe being over there for lack of a better word, you know, it made me like, yeah, really think about it. And so over the summer, I reached out to Olympus Dow and I asked them about, you know, possibly offering their tech for, you know, I'll call. chemics because I wanted to do something about this. And I was kind of hesitant to add things like token vesting and, you know, other lockup mechanisms and, you know, or even like really dramatically altering the emission schedule because, especially the last one, dramatically altering the emission schedules. I've seen other projects do this and it kind of backfired. You know,

people were expecting there would be a pump once the inflation went down, but then nothing happened. And then the protocol didn't have as much incentivization for liquidity. And then the, you know, the TVL dropped. And then it kind of went down as like, you know, spiral. And I also, as somebody who, you know, has been yield farming since 2018, yeah, I guess it was 2018. No, no, it wasn't 2018. It was early 2019 when synthetics sort of had their kind of ad hoc. S-Eth-Eth pool on uniswap that they incentivized. I was in there in the early days. And then obviously compound Wi-Fi and the rest.

And I really like yield farming, but I don't like yield farming contracts where it's like they make you lock up, like where you try to go claim and you can't get all the tokens and you have to vest them. I never like that. And I was like, meh, not my cup of tea. So when I personally about Olympus Dow, you know, and using.

their bonding services and they were like, yes, we actually started thinking about this ourselves and offering this to other protocols because we've had the same realizations as you. And that was kind of the seeds of Olympus Pro, which is their newly launched app that we, you know, we were one of the launch partners with them. And so essentially, you know, somebody, what they can do is they can kind of trade LP tokens for, you know, a governance token at a discount. Okay. And the way that it works is really genius. Basically, there's no oracles involved. It's all just market dynamics. So it's just you initialize the bond program, set initial price, how much tokens that you want to sell weekly and things like that. And the Olympus Dell team actually helps you set this all up. And they're there to support you. So if you are not thinking about going there, there is a lot of support. And then, you know, the more time there is between bond sales, the great the discount will be.

And then when somebody finally does buy the bond, the price goes up. So the discount then goes away, right? So there's always kinds of finds, it always tries to find what the value, like how much the market wants to discount the, you know, the token at the time. And so there's always, you know, constant buy pressure for the bond. So the protocol is always going to be, you know, increasing its liquidity this way. It's not as fast. It's not like a shortcut to getting liquidity like a, you know,

pull two would be or liquidity mining is. It's more of a gradual process. It's more sustainable at the same time, right? Because there's always trade-offs. Yes. Yes, it's a lot more sustainable. You're not going to inflate your token away by doing this. Okay, so let's go through the dynamics of this just one more time

just because I haven't totally wrapped my head around this. The currency that you're using to buy the token, Is that defined or is that up to any protocol that wants to use this method? It's completely up to any other protocol for what they want to do. If like right now a common token, it's LP shares. LP shares. So Sucidot, Uniswap, etc. Those LP shares are used to, you know, you basically trade those LP shares for the native governance token.

And so it's the LP shares. share of the governance token. So like if it's alchomics, it's alchemics, ETH is the LP share and you're selling ALCACMICS ETH LP share for more alchemics, correct?

Yes, that's correct. But it doesn't have to be limited to that. Alchemics, we have other pools that are really important to us, like the ALOSD3 curve pool and then Al-Eth pools. Pretty soon we're going to be offering the bonding service for them as well

so people can trade in those tokens for ALCX as well. And that's going to be really important for the long-term sustainability of alchemics because we definitely need liquid markets for our protocol to work the best it can work. Okay. So you take the preferred LP token for whatever protocol. Sounds like for Alchemics, there's multiple LP tokens. So multiple, multiple work.

And then you put it, you bond it in the sense that like you put it into a contract for a period of time. And then by doing that, you get to the ability to purchase the governance token in Alchemics's, in the Alchemics world, it's the ALCX token. And then you are put it in the contracts and you get to purchase this token at a discount. And then time passes. And then over time somebody else comes and buys the bond. Is that right? It's a little bit different than that. Sorry, I might not have explained it very well or got you tripped up there.

So basically when you go to the Olympus Dowside or Olympus Pro and you go to purchase a bond, you'll see that there's like a certain like discount that you can get on it on it. So but the current that you that you buy the bond with is the LP share, right? Right. Yep. So when that happens, you like the protocol immediately gets that LP share. Right. And then you have, there's like a seven day vesting contract for. the governance token that you just bought.

Okay. That's also privatized. You sell it, so you sell like $90 of an LP share for a $100 worth of tokens, but you're not going to get those $100 for seven days or so. Yeah, they linearly vest over the period of the vesting. And the vesting period can be configured however you want to. If you want it to be a week, that's fine. If you want to be a month, that's fine.

It's just one parameter that you set in the, when you're initializing the bonds. And you can also alter it, you know, even while it's, live. So, okay. Mm-hmm. Yes. Okay. Then what happens next?

So after you buy the bond, you wait, you know, for divest. If you want to do a partial claim halfway through, you can do that as well or any time. And then you have that token. And, you know, some people who are long-term aligned with the protocol will just hold it and add it to their portfolio. Other people they might want to do is try to play the spread, you know, like, hey, I just got a 9% discount on this ALCX tokens. And if I sell now, that's, you know, that's a, you know, 9% profit I got after this week,

you know, assuming that the token doesn't budge in price during that time. And in theory, they could just go do this again, right? If they got a 9% spread, 9% arbitrage, they have, in theory, 9% more capital than they did if prices didn't stay, if prices stayed the same. So they could just keep on doing this over and over and over and keep marketing the spread over and over and over again? They could potentially, but there's also risk involved. Like if the price of ALCX goes down in the meantime, then they wouldn't have profited.

Right. Right. So that seven-day vesting schedule is what keeps people that are less aligned away because people that are more aligned are more willing to take that price risk because they believe in the protocol regardless. Is that correct? Yes. And it's also one of those things that like the ALCX-E-S-I-S-I-E-S-I.

LP token, it's very deep and very liquid. And, you know, especially with like, you know, our V2 coming up, we got on Olympus Pro. We were selected as one of the reactors in Tokomac. So, like, kind of like, you know, things are on the up and up. I think for alchemics. And if somebody is going to be in that SLP pool for eth alchemics, they might experience a lot of impermanent loss on the way up for, you know, alchemics, assuming it does go up. you know, this is not financial advice. So, like, that's also another layer of strategy for people to consider while they are, you know,

you know, you know, you know, thinking about doing bonding through Olympus Pro. Okay. So explain, again, to me, the differences between, like, you know, yield farming, you put your ether or your pool two tokens, your LP tokens into a contract, and then you receive governance tokens distribution. In this model, you put your LP tokens. you sell your LP tokens to the protocol to receive the governance tokens. But if you are just receiving the governance tokens, which I pretty sure are newly minted,

and you are selling them to do that again and again and again, how is that different than just dumping the yield farms from the original method? Where does that difference come in? So if people are only playing the strategy where they are, you know, like recycling the, you know, the ALCX they get from the bonds back into SLP to buy more, bonds. You know, that's essentially exactly what's going on with yield farming, especially like the yield aggregators who take, you know, the LP tokens and stuff like that. It's essentially the exact same thing. Except that the protocol is now getting more and more and more of that

liquidity share. And it's rooting out the toxic liquidity that's a part of that pool. It's the selling mechanism that forces that one-way function of liquidity into the protocol. Yes, it's a one way thing. Like the, you know, the people in Olympus Pro and Olympus Dow, like, they're not going to be selling their own LP shares. They're not going to be like cashing them out and dumping on you and stuff like that. Right, because it's much more capital intensive, right? Because you are selling your LP shares. You don't get to recycle that capital because you already sold it.

Well, the thing is, let's say, like you can do that. So if you trade $10,000 worth of an LP share and you have a 10% discount, right? right, then you get $11,000 with the LCX, which then gives you more ammo to then go in and then sell half of it, you know, and then get more LP shares and then repeat the process. You could do that. And I'm sure that, you know, there are people who use that strategy. But even if they do that, the protocol is earning that. It's not like the protocol is accumulating more and more of that LP.

And eventually, you know, it'll start to outnumber or like be the majority holder. of liquidity in the, you know, for the protocol itself. And then when that happens, like it kind of, you know, flushes out all of the toxic liquidity, right? Neat. So I like to think of like LP farming or like liquidity farming or yield farming rather as kind of like a drug, right? Like it's like really awesome at first, right?

It makes your protocol grow. It puts you on the mat. Stereux. Yeah. Yeah, steroids like, or it's like, you know, even heroin for that matter. And you're in euphoria when you first launch, you know, the float is low. And, you know, the only way people can get that APY is to buy your token. But eventually that, you know, that drug that, you know, becomes a problem and you become addicted to it and you rely on it.

But it also just like a drug turns into a very toxic thing in your life or for the protocol in this case. And I like to think of like Olympus Pro. I know I've been like shilling them so hard this today. But I like to think of them as like tokenomic rehab. Mm-hmm. Yeah, you flush out that toxicity and you get on your road to recovery and being, you know, make sure that the, you know, the liquidity in the pool is aligned with the interest of the protocol. Right.

It's like pesticides for the liquidity locusts out there. Yes, exactly. That's a good analogy. Yeah, no, I like ending these more technical conversations on analogies because they keep allow the listeners to latch on to something. Scoopy, where does this go? If everyone start, do you think everyone should adopt this new, like, primitive? And does this, what does this really unlock?

I think that if you are a DFI protocol with, you know, a robust yield farming program, especially one that's finite, I think that you should definitely do this. Because, yeah, you might bootstrap your liquidity, but what happens when the rewards run out? most of that mercenary capital, especially if it's this toxic liquidity flow, they're just going to drop you, dump your token and then move on to the next one to, you know, harvest. So I definitely recommend other builders in the space, other protocols to consider, you know,

Olympus Dow. And I think, you know, if more and more people in protocols do this, then it's kind of turn the tide for defy, which has kind of been suffering over the past, you know, number of months against EAT in the broader market. And I think it's going to be a part of the resurgence of DFI, a big part of it. Do you think that if that this new mechanism, new primitive gets adopted, that like it ultimately might show up in the ETH DPI pair? I mean, alchemics or Ome or what, like, no, I mean, like, if you talk about it's a resurgence to defy is like, do you actually think like DPI as in just like a, um, um, um, um, um, um, um, um, a, um, um, you think,

indicator of defy at large, do you think that this might actually turn the tide on the DPI versus ETH ratio? I mean, if the protocols that are listed on DPI adopt this, then I think, yeah, I think it would help turn the tide. Hmm. Interesting. I also think that, you know, kind of a transition away from, you know, quote unquote, worthless governance tokens to, you know,

like tokens that do revenue share and, you know, dividends or, you know, however they, whatever mechanism they decide is also going to, you know, help turn the tide as well. Because when people see that, they see it's an investable asset. And then DPI, they could actually, you know, participate in like the staking of, you know, these tokens in their networks and then, you know, use that to even compound the gains as well. So I definitely think that, you know, it's going to help rehab defy. Nice.

You know, we saw our TVL, you go up 100. X over the past year for Defi. And the tokens have not 100xed along with it. Right. Interesting. That's a really good point. That's definitely a really good point. Even though it should have, by all metrics, it should have.

Right. Yeah, no, total value locked in defy is about to hit all-time highs. And tokens are not anywhere near all their all-time highs. Even the juggernauts are, you know, not doing well. They've been flat, especially down against Eath. Yep. you know, and those are ones even with like really, really, really impressive revenues as well. Well, Scoopy, you have definitely given me something to talk about.

So maybe I need to go over to the Olympus Dow and pull them into a podcast, get them to talk about this. Yeah, for sure. I can intro you to people on their team. Yeah, no problem. Oh, there's one other cool protocol that's like, you know, imminently launching a token Mac. Yeah, yeah, yeah, we did to meet the nation with them. Yeah, yeah. they're really cool.

And I think they're also going to be part of this like Defi 2.0 wave of finding more healthy sources of liquidity for, you know, participants in Defi. Awesome. Yeah. So we're really excited to be on top of them. They have a, yeah, awesome team. I'm sure, you know, because you talk to them and stuff like that. So I'm excited to be working with them. And, yeah, we just did a Dow to Dow token swap with them.

Oh, really? Oh, that's fantastic. Yeah, they are a large. I think they're now, I think, our fifth or six largest stakeholder, you know, outside of like some of our investors and some of the bigger whales. And, you know, we now have a lot of token ourselves. So we will be directing liquidity over at Alchemics in the token Mac protocol. That is kind of like the bullish case for token mac is that everybody wants their token because all the defy apps want the power to direct the liquidity towards the ways that align with them. So token max seems like a perfect protocol to do a token swap with.

Yeah, we're excited. I think there's a lot of alignment. And I think, like, yeah, there's going to be a lot of DOWs kind of scrambling to get their hands on Toka, you know, especially as they get reactors in the system and stuff like that. So, yeah. It even saw it in the core event. Like, they're, like, as people were vying to get selected as their reactor, like, you know, protocols and supporters of protocols were scrambling to buy Toka so they could, you know, influence the vote and stuff like that. And it was just like the coolest governance experiment I've ever seen in my life. And like I was just glued to the page.

I know I had a horse in the race, you know, so to speak. You know, but even then, like it was just fascinating to see, you know, like the leaderboard always constantly shifting, you know, and then seeing people lobby on Twitter. You know, I kind of activated a cheat code. And I said, yeah, we'll give you an NFT if you vote for. And I was looking at the. data and I see like a bunch of ones that are like you know like 0.001 to vote for us. I'm like oh you guys just want the NFT obviously but well that's pretty funny it's pretty funny dynamics going on in this new era of what is kind of like defy 2.0 right a new era of

defy protocols coming and building on on a theorem that look a lot different from the legacy protocols. Wow, do I use that word, like MakerDAO compound? Like definitely a new cohort of protocols coming into the ecosystem right now. We call them the Generation 1 protocol. Generation 1. I think that's a little bit nicer of a term. Yeah, because we use legacy to knock the legacy financial system. Yes, yes, Gen 1, you know, I mean, huge shout out to all of those protocols.

Like, we're standing on shoulders of giants over here. You know, like it was originally me listening to Epicenter podcast. in 2018 with like all the interviews with Roon and him talking about, you know, Makerdown and me listening to the like podcast like 10 times in a row just to get my mind around the idea. And now these ideas are mundane. Right. I think how far we've come. It's, it's amazing. And I think like when Gen 3 Defi comes out, we're all going to have our minds blown by, you know, what all those, you know, 16 year olds at Rary Caput are going going to be doing, you know, and stuff. I'm very, very ready to just sit back.

and become a crypto boomer while, like innovation just goes and outpaces my ability to keep up with it. We'll be semi-retired farmers in a few years together, man. Awesome, Scoopy. Well, thank you for coming on and sharing some thoughts, which are also synonymous with Alpha these days on the bankless podcast. If people want to learn more about what you're up to over at Alchemics and anything else that you have to share, where should they go? Yeah, so you can head over to our Twitter, Alchemics FI. You can go to our website alchemics.fi. And yeah, please join our discord. We have a welcoming community. Ask us anything. There's always tons of people there to help you and help you get started in alchemics and learn more about it. And we will have all of those links in the show notes, whether you're listening

on YouTube or on the podcast. So Scoopy, thank you for coming and joining with me on the bankless podcast. Yeah, thanks for having me, David. It was a blast. Cheers. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a bankless premium subscriber to get the most out of your bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content,

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