We are now approaching the next scheduled halving of the ALB emission schedule. In the last halving, we highlighted that we could and should cut emissions relatively soon, as farming rewards began outliving their usefulness, especially in the presence of real value-add by Mothership and Epsilon Router.
The idea was optimistic, and the market didn’t cooperate, but the fundamental idea remains: farming emissions are at this point negative for the protocol. They take the majority of the emissions budget and do not return value to the protocol, giving instead subsidies to farmers.
Rewarding farmers was the standard play for most DEXs. In previous years it made sense as the market favored flashy APRs and emissions. Right now, the broader sector is moving towards generating real emission-adjusted fees.
Halvings are great at maintaining a grip on emissions, but they’re a one-way street: if the protocol needs more resources to grow, it can’t tap into them. If the main priority is product development, halvings become an inflexible race against time that requires everything to go perfectly, which is rarely the case.
Since the past few months we’ve worked hard for a plan to transition ALB tokenomics to a new reality: supporting product development and growth first, stopping the leakage of value to the outside and creating the basis for stable future growth. The result is AIP-5.
AIP-5 is a completely new approach to Alien Base tokenomics. It ditches farming in favor of Protocol Owned Liquidity. It formalizes governance and the roles of Labs, team and DAO. And instead of the Bitcoin-inspired halving model, AIP-5 introduces flexible emissions coupled with persistent buybacks to be able to scale supply up and down as needed.
The proposal is comprehensive and comes from years of experience running Alien Base. In essence, it’s the answer to the question “how would we launch Alien Base today?”
This is especially important in light of the upcoming launches of Mothership and the Epsilon Router. The new systems are able to provide real value to the market, making farming only a secondary tool to advertise the product.
To replace farming, we are proposing building up a Protocol Owned Liquidity (POL) fund, a basket of assets and LPs owned by the DAO. It’s a new approach for growing Alien Base that is sustainable from day one.
The POL offers a new narrative to ALB that leverages its position on Base. Now, instead of giving away emissions to mercenary farmers of all types, emissions will stay in the protocol as an allocation in major treasury assets. This includes stablecoins, blue chips, Base-native assets and Alien Base LP pools. This ties ALB intrinsically to the success of Base as a whole.
The POL is designed to generate yield, funneling it into ALB as a buyback and burn. It’s established programmatically by directing ALB emissions, in particular when ALB is strong. And it can be used for buybacks when ALB is weak, which has a stabilizing effect on the price.
Together with the POL, we’re launching a new funding concept based on the Line of Credit (LoC). Instead of asking for an allowance, funding to the Labs team will come as fully tracked debt that requires paying interest to esALB holders.
The debt is backstopped by grants split into price-based tranches: should the price go above certain thresholds for a consistent amount of time, each portion will unlock and cover any outstanding debt.
The result is that the team can plan for the long-term, instead of living from month to month, while keeping the spend limited and tied to the success of ALB. The tranches also allow incentivizing existing and future team members to benefit from the success of the project.
To accompany all this, we’re formalizing the governance processes and revenue flows to better align with the long-term future. Between the more complex nature of our future products and the obvious outside signals that unstable governance is a liability, we should grab the opportunity to set things right.
The general principle is simple: the Alien Base DAO governs the onchain part of Alien Base, including all its smart contracts, and it is responsible for their ongoing security and usage. Alien Labs, on the other hand, handles offchain products and their revenue (including the frontend). Items like the Line of Credit and POL mediate the financial relationship between the two entities, leading to a symbiotic partnership.
Alien Base DAO governance is to be procedurally formalized into proper onchain voting, instead of temporary multisig powers. As part of this formalization, we also need to make sure that voters are fully aligned with the long-term future of the protocol. To do this, we are introducing govALB, an additional form of a staked escrow token that has 10x the voting power and 1x the earning power of regular esALB, in exchange for an effective 2 year lock.
This proposal will require taking some hard, but necessary steps. One of these is migrating the ALB contract and increasing the supply cap. This is useful for the short term, but it also unlocks something that was never possible before: having enough supply to allocate for strategic investments, market makers and listings.