AladdinDAO by the A-Team #3

June 23rd, 2023

Intro

Welcome genies to this new, freshly released newsletter! As you’ve seen we changed of Media Support & embraced the Decentralization using Mirror decentralize application. This decision was made after Substack decided to limit our publishing activities as we, apparently, violate some of their terms of use (we have no idea what we did…we are positively delightful!). Another proof of censorship. But the A-Team doesn’t let it go so easily, so let’s continue in a fully decentralized way.

What’s great as well on Mirror, is that you can subscribe to this account by inserting your email, and receive notifications on your mailbox for every new release.

Kmets & Subli have prepared for you the hottest topics for this month… hard to pick only the most exciting to prevent you from a 2-hour long read!!

📈 Protocols Metrics

🏛 Governance Updates

🧠 f(x) Protocol: IDO round-1 & Testnet feedback

🕵️‍♂️ f(x) V2: Lucy in the Sky with Diamonds

🧞 DeFi Nuts and Bolts: BTC on Ethereum…how does that work?!?

🎤 Podcasts of the month

Nothing said in this newsletter is financial advice. Please do your own research and only invest what you’re ready to lose. Good luck in your defi adventures!

📈 Protocol Metrics

🏛 Governance / Product Updates

Aladdin DAO

Gov update:

✅AladdinDAO Halve Staking Rewards: This proposal suggests cutting the xALD rewards in half, from 10% to 5%, and creating an Aladdin fund to allocate the remaining 5%.

✅AladdinDAO Introduce VE Token Model: This will introduce a VE token model for xALD, locked up to 4 years. Lockers will be able to participate to Aladdin DAO governance, benefit from revenue sharing of Aladdin DAO projects, and possible Airdrop from future airdrops launched by Aladdin DAO

💡Curve Gauge for ALD/ETH: Bullish!

Concentrator

Gov update: Nothing to report
Product update:

1️⃣New harvesters opened to farm the new stablecoin from Curve Finance: $crvUSD

2️⃣Harvest bounty has been increased from 1% to 2% to increase frequency of harvesting. Remember that harvested rewards go then into the compounder Vault aCRV, aFXS, etc…

3️⃣Two new harvester vaults for the brand new New Generation (or NG) pools from Curve:

And if you want to know why these New Generation pools are a Game changer, we recommend to read this report shared by Curve Cap:

4️⃣Aladdin DAO keeps listening to its community and screening performance of the compounders. So, asdCRV is already offering the greatest yield on CRV in defi, but why stopping there if you can do more? In that spirit, Aladdin DAO decided to increase veSDT boost fee from 10% -> 15%, which should result in a higher yield.

Clever

Gov update:

🪂Clever Booster Tranches 7 & 8 are going live this week.

Product update:

1️⃣ Debt ceiling increase:

ClevUSD: From 3m$ → 4m$ (Current utilization at 3.55m)

clevCVX: From 1.5m clevCVX → 2m clevCVX (Current utilization at 1.65m)

Fx Protocol

Gov update:

✅**[FIP-240] Partnership between Frax <> FX Protocol:** Allocate 60,000 $vlCVX votes for fETH/FRAXBP for 6 months. In exchange, f(x) will offer Frax 4,000 FX tokens (0.2% of supply) vested linearly over 12 months from the first vote.
Product update:

FX Protocol is now accessible on Testnet since 07-June, and this for couple of weeks before Mainnet launch.

Audit done by SECbit has been also released:

🕵️‍♂️ f(x) V2: Lucy in the Sky with Diamonds

As we mentioned in our article last month, Aladdin is releasing a new protocol called f(x) Protocol. The whitepaper was released last month to great interest, and the basic mechanics enabled native ETH holders to mint two new tokens: a low volatility token that had price movement s at 1/10th that of ETH: fETH, and a token that absorbed the remaining volatility of ETH price movements: xETH.**
**

The reception to the protocol has been overwhelmingly positive, and the team has been taking in all kinds of feedback from everyone’s comments on the whitepaper and from the Sepolia testnet release. The biggest question that the team received was “Why not use ETH LSDs in the reserve?” Well the team really chewed on that and finally came up with an answer: WE SHOULD TOTALLY USE ETH LSDs IN THE RESERVE!**
**

And so, with the revelation that LSDs in the reserve would improve the protocol significantly, the Aladdin Team amended the whitepaper and decided to tweak the protocol in a couple ways to make it significantly stronger and safer. Let’s dive into the ways that f(x) is improved with the use of Ethereum LSDs!

V1: Vanilla ETH. Lots of Risk Modules.

So V1 has been on Sepolia testnet for a couple weeks and by all accounts has worked as planned. As you may recall, the basic premise of the protocol in terms of minting fETH and xETH are fairly simply: put in plain ETH, get out a corresponding NAV (net asset value) amount of fETH or xETH.

And in order to make sure that fETH would always be shielded from the price volatility of ETH, V1 also had a series of 3 risk modules as well: Stability Mode, User Rebalance Mode and Protocol Stability Mode.

V2: Yields of Dreams

John Kinsella learns about ETH staking yield for fETH holders

Thanks to the use of ETH LSDs in the reserve, we can throw User and Protocol rebalance modes out the window! Why? Because the LSD yields allow for us to create what’s called a “Rebalancing Pool”. This rebalancing pool is where fETH stakers can lock their tokens for a period of time (in the magnitude of a couple weeks) and in exchange receive a portion of the yields of the LSDs in the reserve! So what does the rebalancing pool do to mitigate risk? Well let’s look at the diagram below to get a better sense of how the new and improved f(x) protocol works as a whole.

As you can see in the above diagram, the entire protocol is simplified without having to resort to a mixture of minting/redeeming/stability fee changes and depending upon outside sources to rebalance the protocol’s ratio of fETH to xETH. The fETH in the rebalancing pool is always at the ready to be redeemed back into the reserve and get the protocol’s collateral ratio back above 130. Because of this, the protocol can respond faster to destabilizing price movements and keep everyone’s fETH comfortably safe from dangerous CR levels. Additionally, because of the LSD yields that will be channeled to the rebalancing pool, fETH holders will have an opportunity to get “real yield” in the form of ETH staking rewards…a source of yield for the protocol that is not dependent upon token emissions! Additionally, a portion of the ETH LSD yields will also be sent to veFX token holders…pretty nice bonus in addition to the minting fees. Speaking of minting fees they have also been lowered for this iteration of f(x) Protocol:

Because the protocol now relies upon the managing of the assets in the reserve for the majority of revenue, the minting fees can be decreased to be the among the most competitive fees for minting stablecoins in all of defi! This also has the added benefit of making it cheaper for arbitrageurs to take advantage of LP pool imbalances, which means the LPs will now reflect the NAV of the tokens more accurately.

Expect a few more weeks of code changes and then and audit and internal testing before the new protocol modifications are launched on Sepolia. After that, we will then do a mainnet beta testing (no liquidity pools) and then the TGE and full launch! We at the A-Team are really excited about these changes and hope you find them to be a positive improvement to the f(x) Protocol as well. Can’t wait to mint tokens with all of you…see you in the Rebalancing Pool!

🧠 f(x) Protocol: IDO round-1, Testnet feedback & Booster Program

In the last newsletter, we covered the new Aladdin DAO project, f(x) protocol. Since then, a lot occurred and we get you covered in case you were hiking the Himalaya during the past month. What you missed?

Initial Token Offering: Sold out in 70seconds
Testnet launch on Sepolia on June-8: 1,300 transactions after 1 week only

Initial Token Offering - Round 1:

Total allocation for IDO Round-1: 60,000 $FX
IDO price: 0.005 $ETH

Round 1 was split in 2 phases. 1st phase was for lockers/stakers of CTR, CLEV & ALD. 2nd phase was public. The first phase was sold out in 43 seconds, while the public phase sold out in 27s.

As the total circulation of $FX was elastic & depending on the IDO phase, if, and we could expect, round 2 is sold out as well, the total supply of $FX will be 2millions tokens, resulting in a Fully Diluted Value of FX Protocol @ 10,000 $ETH or 16,5m$ at the time of writing.

So as explained, a 2nd IDO Round is planned after mainnet launch at a price to be set by the DAO. So get your notification on, and don’t know… maybe using testnet could be useful.

Testnet Feedback

First of all, here is a pic of the current status of the protocol:

As we can see, fETH colleralized ratio is 162.59%, above the Stability Mode that triggers at CR < 130%. At the time of writing, 254$ETH was deposited, 61.5% minted in fETH (floating stablecoin indexed to $ETH), and 38.5% in xETH (Zero-Cost leveraged long position on $ETH).

As you can see, fETH has decreased by 1,06%, while xETH has decreased by 23%. And the UI shows you also the ETH Cumulative Return, being ETH price variation from Genesis till today.

So what were the feedback of the first users? A questionnaire, as linked above, is available for anyone who would like to share its feedback. So far 86% of people didn’t find any bug in the UI, UX. The UI has been found very simple, smooth & straightforward. There are always some margin for improvements, so the team is all ear opened to listen to your suggestions.

Pie Chart on FX Protocol testnet feedback

Since the audit has been released, you could expect mainnet to be launched in the coming weeks.

Booster Program

As announced in the Tokenomics article, 3% of the total supply will be allocated to contributors aka Booster. If you’re familiar with the Booster Program from Concentrator & Clever, then it’s the same principle for FX, except that rewards will be vested linearly during 12 months instead of 3 months as for Concentator & Clever.

In order to participate, you just have to create content on twitter, and post this in the dedicated FX Contribution channel on Aladdin DAO Discord:

So what are you waiting for Anon?

🧞 DeFi Nuts and Bolts: BTC on Ethereum…how does that work?!?

Bitcoin is the indisputable king of the cryptocurrency world, but it has a problem: you can’t do anything with it. It’s a pet rock. You can’t use defi to borrow BTC. You can’t use defi to lend BTC. You can’t earn any yield with it on an AMM. The only way to get any of those benefits is to do the very thing Satoshi Nakamoto was trying to guide us away from: use a centralized crypto bank/exchange. Yuck! Fortunately some very smart folks came up with an alternative way to use Bitcoin in defi, and it’s a stablecoin that’s a “wrapped” version of Bitcoin: wBTC! A great tool for defi (as noted here by the Curve dudes), but where does it come from…and can it be improved? Let’s dig in!

wBTC: The Granddaddy of BTC ERC-20 Tokens

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**wBTC is an ERC-20 token, which means it adheres to the technical standards of Ethereum's token implementation. It was created to enable Bitcoin holders to participate in decentralized finance (DeFi) applications and leverage the capabilities of the Ethereum network while still maintaining exposure to the value of Bitcoin. The process of wrapping Bitcoin involves depositing Bitcoin into a custodian and receiving an equivalent amount of wBTC in return. This custodian holds the Bitcoin in reserve and mints the corresponding amount of wBTC on the Ethereum blockchain. These custodians are known as "Merchant DAOs" and are reputable entities that are audited for transparency and security.

The process of wrapping Bitcoin is not performed by individual users directly. Instead, users interact with authorized merchants who handle the conversion process. These merchants are responsible for the custody and management of the underlying Bitcoin assets and ensure that the supply of wBTC corresponds to the amount of Bitcoin held in reserve. This arrangement ensures transparency and trust in the WBTC ecosystem.

When a user wants to obtain wBTC, they initiate a process with an authorized merchant. The user sends Bitcoin to the merchant's custody address, which verifies the transaction and the amount deposited. Once the verification is complete, the merchant mints the equivalent amount of wBTC on the Ethereum blockchain and transfers it to the user's Ethereum wallet address. This process is reversible, allowing users to redeem wBTC for Bitcoin by sending wBTC tokens to the merchant and receiving the equivalent amount of Bitcoin back.

The custodian's role is crucial in maintaining the peg between wBTC and Bitcoin. The custodian is responsible for securing the Bitcoin holdings and ensuring they are not subject to loss or theft. Additionally, regular audits are conducted to verify that the number of WBTC tokens in circulation matches the Bitcoin reserves held by the custodian.

The advantage of wBTC is that it combines the liquidity and familiarity of Bitcoin with the flexibility and programmability of Ethereum. It allows users to access the benefits of the Ethereum ecosystem without having to sell or convert their Bitcoin holdings.

One of the major drawbacks of wBTC is that it does introduce a level of trust as users must rely on the authorized merchants to handle the conversion process and maintain the proper reserves. However, the wBTC ecosystem has implemented various measures to ensure transparency, including regular audits, on-chain attestations, and collateralization ratios to mitigate risk.

But now the billion dollar question: Can those centralized, trusted chokepoints be avoided? Fortunately, yes! How? Let’s talk about a couple ways below.

renBTC: Gone but not Forgotten

Perhaps the most famous incarnation of permissionless bridging of BTC to Ethereum was with the Ren Protocol and their Ren VM smart contracts. RenVM was a virtual machine designed to be the core of the Ren protocol, facilitating interoperability between different blockchains. It enabled operations in Ren that affected multiple blockchains simultaneously by utilizing smart contracts. With RenVM, users could interact with Ethereum and Bitcoin using their BTC, for instance, by creating a smart contract that moves their BTC between Ethereum and Bitcoin under specific conditions.

This process was almost native, without intermediaries, and offered low fees and fast transaction speeds compared to atomic swaps. The main objective of RenVM was to establish a network of nodes that could execute a virtual machine, enabling seamless cross-chain operations. This functionality was particularly beneficial in defi, without requiring intermediate conversions. Sadly, Ren shutdown their protocol a couple of months ago, and a successor has not shown up...or have they???

Frax BTC?!?!

It appears that there are some rumblings from the Frax telegram chat that there is going to be a Frax stablecoin that will be minted by native BTC:

And apparently development is far enough along with frxBTC that the Frax team put this out this week:

Keep Network

Additionally, there is also Keep Network, an offshoot of Threshold network, that offers a relatively new way to mint a wrapped version of a BTC ERC-20 called “tBTC” on Ethereum.

Keep Network recently rolled out a V2 of their Bitcoin-Ethereum bridge in Q1 this year, and it looks promising so far! At the moment, it appears that minting tBTC takes about 1-3 hours after you interact with their app before it is available for transactions on Ethereum. Minimum minting amount is 0.01 BTC, so it is not just for whales! Currently it’s a one way bridging mechanism (from BTC to tBTC), but it looks like they are making developments to reverse the process back to the Bitcoin network in the future as well.

There’s even fairly deep liquidity for tBTC on Curve as well, however the pool seems a little imbalance currently…keep an eye on this pool and watch to see if it gets incentivized…tBTC seems like a winner at the moment in terms of decentralized BTC to ETH conversions!

As you can see, BTC on ETH is in demand and it looks like its future as a collateral asset in defi is well assured. We are hopeful that with the advent of more trustless bridging solutions it will bring about more competition to offer liquidity for wrapped BTC ERC-20 tokens to Ethereum and make Bitcoin a useful asset for yield farmers, lenders, and borrowers! Put on your wrapped BTC Maxi hat and point your laser eyes towards the moon…the BTC to Ethereum train is leaving the station!