Alto Liquidity Program
Curve Pool Deployment and Frax Finance Partnership
Introduction
Alto is strengthening its liquidity position within the Curve ecosystem in partnership with Frax Finance. Curve and Frax are two of the most reputable and bulletproof protocols in the space. This partnership will allow Alto to grow in a scalable and self-sustaining manner long-term.
Frax Finance Partnership
Frax Finance is one of the blue-chip protocols of DeFi. Its flagship product, frxUSD, is fully backed by tokenized U.S. Treasury funds, managed by financial leaders such as BlackRock, allowing holders to earn risk adjusted and predictable yield on their stables. At the time of the writing, frxUSD is yielding around 4%. frxUSD is fully redeemable 1:1 by USD.
Frax Finance has a transparency portal where you can check its balance sheet.
Balance Sheet: https://frax.com/transparency
Alto has whitelisted frxUSD to mint DUSD thru its permissioned PSM (Peg Stability Module). This strategic partnership allows Alto to access predictable low-risk yield from tokenized US Treasury bills.
Looking to the mid-term, this integration paves the way for an upgrade to our public PSM allowing users to continuously mint DUSD by supplying frxUSD, unlocking additional yield on DUSD.
The Curve Wars
The "Curve Wars" describes the economic competition between DeFi protocols to acquire governance rights over Curve Finance, aiming to secure cost-effective liquidity.
Here is how it works:
- The Curve Emission System
Curve Finance is a decentralized exchange optimized for trading stablecoins. To attract liquidity providers (LPs), Curve distributes its native token, CRV, as a yield reward. The allocation of these CRV emissions across different liquidity pools is not fixed; it is determined on an ongoing basis by governance voting.
- The Voting Mechanism: veCRV
To participate in governance, users must lock their CRV tokens up to four years. In exchange, they receive vote-escrowed CRV (veCRV). The primary utility of veCRV is the ability to vote on gauge weights, deciding which specific liquidity pools receive the highest share of the CRV reward emissions.
- The Protocol Strategy
For a protocol deep liquidity is essential to keep their stablecoin permanently pegged with low trading slippage.
Traditionally, protocols pay out their own treasury funds or governance tokens to incentivize LPs. However, utilizing Curve offers a highly capital-efficient alternative: by acquiring veCRV, a protocol can vote to direct Curve’s daily CRV emissions toward its own stablecoin pool.
- The Aggregator Layer: Convex & Vote Incentivization
As protocols sought more voting power, secondary platforms emerged to optimize the process, creating a layered governance system: Enter Convex Finance.
Instead of protocols locking CRV themselves for four years, Convex Finance built a system that aggregates CRV from retail users. Convex issues its own token, CVX. By locking CVX into vlCVX, users or protocols gain proxy voting control over Convex's massive treasury of veCRV. Convex controls over 50% of Curve voting power (amongst other governance tokens such as FXS).
Convex Finance uses two main mechanisms to continuously accumulate CRV. Once Convex acquires CRV, it permanently locks it into veCRV to increase its governance control.
- Swap CRV for cvxCRV
Convex allows users to deposit their standard CRV into the platform in exchange for a liquid, yield-bearing token called cvxCRV. When a user does this, Convex takes the CRV and permanently locks it. This allows cvxCRV holders to get yield from (i) Curve trading fees, (ii) Convex bribing fees and (iii) Convex token emissions (CVX) on a liquid asset instead of locking CRV.
- Performance Fee
Users stake their Curve Liquidity Provider (LP) tokens on Convex because it offers higher yields. Convex charges a performance fee in CRV, accumulating more.
5. Decentralized Vote Markets: Protocols eventually realized they did not need to buy and lock tokens permanently; they could simply pay existing voters. Platforms like Votium act as decentralized incentive markets. A protocol deposits stablecoins or its native token into a smart contract targeting their specific pool. Holders of vlCVX who vote for that pool then claim a proportional share of the deposited funds. This effectively converts protocol treasury spend into guaranteed third-party voting power.
The Alto Flywheel
Alto is deploying its Protocol-Owned-Liquidity in a joint program that involves Curve and Frax to achieve a long-term self-sustained growth by leveraging blue chip DeFi infrastructure.
Instead of renting liquidity, we are building a permanent stable infrastructure layer that guarantees deep on-chain liquidity while offering external Liquidity Providers highly predictable, risk-adjusted yields.
- PSM frxUSD & Curve Pool
Alto has upgraded its liquidity strategy using our permissioned PSM and frxUSD to generate additional yield for the protocol and our external Liquidity Providers (LPs).
- Upgrading Internal Lending Markets
Alto is currently supplying DUSD to our own lending markets to deepen protocol liquidity. We minted this DUSD by supplying frxUSD (instead of standard USDC) into our internal PSM. This allows the protocol to earn a baseline 4% yield from the underlying tokenized US Treasury bills, in addition to the standard fees paid by borrowers.
- Launching the Frax Curve Pool
We have also migrated a third of our Uniswap liquidity to a highly efficient Curve pool. This new DUSD / frxUSD pool is already active and incentivized, earning around 10% at the moment of this article. Thanks to our partnership with Frax Finance, the real-world yield generated from tokenized US Treasury bills is being passed directly to our LPs.
- Convex Flywheel
Instead of draining our treasury to subsidize LP yields, Alto is deploying a sophisticated liquidity flywheel built on top of Curve, Convex, Votium and Vault Aggregators.
We intend to strategically allocate 100 ETH to acquire a governance position in Convex, alongside deploying $500,000 in Protocol-Owned Liquidity (POL) on Curve. By utilizing Votium, we are consistently allocating more bribes for the DUSD / frxUSD Curve gauge.
Acquiring CVX is economically sound, since 1 CVX controls around 8.75 veCRV of voting power. CVX emissions are nearly complete, however, CRV emissions are not. This means, the ratio is posed to increase over time based on emissions and Convex’s CRV accumulation mechanisms explained earlier.
After acquiring and locking CVX for 16 week we get vlCVX. Protocols bribe vlCVX holders to direct CRV emissions to specific pools. Some of those bribes can be recycled into acquiring more CVX, which grows the Alto flywheel long-term.
CVX is not a treasury expense but a yield-bearing asset added to Alto balance sheet that puts the Protocol-Owned-Liquidity (POL) to work and generates protocol revenue. By strategically acquiring and locking CVX, Alto avoids having to spend their own treasury to incentivize Liquidity Providers.
Join the Ecosystem Today
The era of mercenary capital is over. The era of protocol-owned, structural yield is here. By providing liquidity to DUSD, LPs are tapping into a flywheel engineered to be resilient through all market cycles.
View the Pool: The Curve DUSD / frxUSD pool is officially live.
