Final Proposal: Synthetic STX (aSTX)

Security Incident
1

Abstract

To address the loss of STX tokens due to the recent exploit on the ALEX decentralized exchange (DEX), we propose the introduction of a synthetic STX token, referred to as aSTX. This proposal is divided into three parts: a redemption contract, an aSTX staking farm, and a STX-aSTX liquidity pool (LP). Each part aims to restore value to users and incentivize participation while ensuring the gradual replacement of the lost STX.

Part 1: Redemption Contract

Objective: Gradually allow the burning of aSTX for STX at a 1:1 ratio.

Redemption Mechanism:

  • Redemption Contract: A contract will be created to handle the burning of aSTX in exchange for STX.

  • IDO Infrastructure: Redemptions will utilize the ALEX Initial DEX Offering (IDO) infrastructure, allowing a defined amount of aSTX to be burned for STX.

  • Linear Increase: The redemption limit will increase linearly over 18 months, enabling a total of 13 million aSTX to be burned for 13 million STX.

  • STX Funding Requirement: Funds provided by ALEX must be in the form of STX to be considered funded and ready for aSTX redemptions.

Redemption Funding Strategy:

Due to the uncertain timeline of fundraising and the recovery of stolen or locked funds, a flexible funding strategy will be employed to ensure the redemption contract remains collateralized. Priority will be given to utilizing protocol swap fees, recovered funds, and proceeds from fundraising efforts. Depegging of aSTX is expected and can be considered healthy, but it is unacceptable if the redemption contract is underfunded for a prolonged period of time. If underfunding causes prolonged depegging without a solution communicated, aSTX holders may vote for a solution that balances the burden of risk between the ALEX team and DEX users, ensuring long-term stability and fairness.

Redemption Funding Sources: The ALEX team may utilize one or more of the following methods to fund the redemption contract with STX tokens:

  • Recovered Frozen STX: STX recovered from centralized exchanges (CEXs).

  • Exploiter’s Wallet: Funds recovered from the exploiter’s on-chain wallet.

  • Future Fundraising: Proceeds from future fundraising rounds.

  • Protocol Swap Fees: Fees collected from protocol swaps.

  • Team Treasury*: Funds from the team’s treasury.

  • ALEX Tokens*: From newly minted or team allocated ALEX tokens.

*These options are only considered in prolonged depegging scenarios caused by an underfunded the redemption contract, after a vote by aSTX holders.

Part 2: aSTX Staking Farm

Objective: Incentivize users to lock up aSTX for varying durations with rewards in ALEX tokens.

Staking Options:

  • Users can lock up aSTX for up to 32 cycles.

  • For locked aSTX, an APY in ALEX tokens will be offered in a decreasing linear curve, from >20% to 0% over 18 months, averaging at >10% for the full duration.

Part 3: STX-aSTX Liquidity Pool (LP)

Objective: Enable users to swap between aSTX and STX at a market-determined rate.

Liquidity Pool Creation:

  • Initial Setup: The ALEX team will create the initial liquidity pool with an aSTX to STX ratio of 2:1, seeding it with approximately $20,000 of initial liquidity.

  • Additional Minting: To facilitate this setup, an additional 10,000 aSTX (on top of the base 13 million aSTX) will be minted for the initial LP pool.

  • Market Exchange Rate: The exchange rate will be determined by market demand and supply within the pool.

  • LP Token Lockup: Users can lock up STX-aSTX LP tokens for up to 32 cycles to earn ALEX token rewards.

  • LP Farming APY: An APY in ALEX tokens will be offered for LP farming, starting at over 60% and decreasing linearly to 0% over 18 months, averaging over 30% for the full duration.

Incentives for Users

Part 1: Redemption Contract

Incentives:

  • Guaranteed Redemption: Users holding aSTX can enter their tokens into an IDO lottery for STX over time, providing a transparent and fair path to recover their assets.

  • Predictable Returns: The gradual increase in the redemption limit allows users to plan their redemptions strategically, offering a predictable return on their aSTX holdings.

  • Arbitrage Opportunities: If the market price of aSTX is lower than STX, users can purchase aSTX at a discount, and redeem the aSTX for STX, profiting from the price difference.

Part 2: aSTX Staking Farm

Incentives:

  • Attractive APY: Users can earn higher APY in ALEX tokens by locking up their aSTX for longer durations. This incentivizes users to commit their assets and earn substantial rewards over time.

  • Flexible Staking Options: The ability to choose between different lock-up periods (1 to 32 cycles) allows users to tailor their staking strategies according to their liquidity needs and risk appetite.

  • Enhanced Engagement: Staking aSTX fosters greater engagement with the platform, as users actively participate in the ecosystem and benefit from additional rewards.

Part 3: STX-aSTX Liquidity Pool (LP)

Incentives:

  • Liquidity Provision Rewards: Users who provide liquidity to the STX-aSTX pool can earn a share of the transaction fees, incentivizing them to contribute to the pool’s liquidity.

  • Market-Based Swapping: Users can swap aSTX for STX at market-determined rates, allowing for flexible and efficient trading based on current market conditions.

  • Arbitrage Opportunities: The dynamic nature of the liquidity pool creates opportunities for arbitrage, enabling savvy traders to capitalize on price discrepancies between aSTX and STX.

Incentives for the DEX Project

Part 1: Redemption Contract

Incentives:

  • Extended Recovery Time: The gradual increase in the redemption limit over one year provides the DEX project with more time to recover and reclaim lost funds. This approach minimizes immediate liquidity pressure and allows for strategic planning to restore the STX reserves using any form of collateral they have available.

  • Controlled Liquidity Release: By managing the rate at which aSTX can be redeemed for STX, the DEX project ensures a stable and predictable return of liquidity to the market, preventing sudden shocks and maintaining user confidence.

Part 2: aSTX Staking Farm

Incentives:

  • Long-Term Commitment: By offering higher APY for longer lock-up periods, the DEX incentivizes users to commit their aSTX for extended durations. This reduces the circulating supply of aSTX, potentially increasing its market value and providing stability to the DEX.

  • User Engagement and Loyalty: The staking rewards in ALEX tokens not only incentivize users to stake their aSTX but also encourage continued engagement with the DEX ecosystem. Loyal users are more likely to participate in other aspects of the DEX, further strengthening the platform.

Part 3: STX-aSTX Liquidity Pool (LP)

Incentives:

  • Market for Long-Term Holders and Immediate Liquidity Seekers: The liquidity pool allows long-term holders of aSTX to swap positions with users seeking immediate liquidity. This creates a dynamic market where users can choose to either hold for potential future gains or exit their positions based on current market conditions.

  • Increased Trading Activity: The STX-aSTX liquidity pool facilitates increased trading activity on the DEX, generating fees and enhancing liquidity. Active trading helps stabilize the market price of aSTX and provides opportunities for arbitrage, further benefiting the DEX.

Conclusion

The introduction of the aSTX token, along with the redemption contract, staking farm, and liquidity pool, offers a comprehensive solution to mitigate the impact of the STX loss due to the hack. By providing extended recovery time, incentivizing long-term commitments, and creating a market for different user needs, we can encourage user participation, stabilize the market, and gradually restore the lost STX.

Next Steps:

  1. Update ALEX Re-Open Dashboard: Enhance the dashboard to include comprehensive documentation of the current proposal/plan in place for moving forward, as well as a dashboard to view assets they had at the time of the snapshot, as well as assets they are yet to be reimbursed with, including accrued rewards.

  2. Mint aSTX Tokens: Mint 13 million aSTX tokens to match the amount of STX lost, and return to users through a claim or airdrop.

  3. Develop and Deploy the Redemption Contract: Implement the contract to handle the controlled redemption process of aSTX for STX, and collateralize it with the STX that has been recovered thus far.

  4. Implement the aSTX Staking Farm: Establish the staking farm with clear guidelines and reward structures offering highly competitive APYs.

  5. Establish the STX-aSTX Liquidity Pool: Create and promote the liquidity pool to facilitate trading and liquidity provision.

This solution is designed to balance the needs of users who need to exit, users willing to take on more risk and wait, and provides ALEX the required time to generate and recover capital to restore users’ funds, while preventing short-term losses due to sell pressure on the ALEX token. Any solution causing downward pressure on the ALEX token in the short term is detrimental to both users being reimbursed in ALEX and the sustainability of ALEX itself, which is crucial for any long-term solution to effectively make users whole.

4 Likes
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Best Proposal and only fair solution.

1 Like
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I would like to propose an optimised solution based on your proposal

Collateral Details:

  • Sell $7 million USDC for STX + 16% ALEX (minus those used up in Option Two)
  • Protocol Swap Fees: Fees collected from protocol swaps.

Step One:
1、Mint 13.8m aSTX with the above assets as Collateral (mint how many aSTX depend on Option One adoption)
2、Distribute these aSTX to the affected users who chose Option One.
3、Provide a Burn feature. users can burn aSTX to receive the collateral assets with a fixed discount(85%)
4、Create a Flat Curve pool aSTX/STX, and create a Farm for it to incentive LP
5、Create a Farm for aSTX staking pool similar with the ALEX Staking
6、aSTX staked from the beginning and never be withdrawn, will have the right to receive the Recovered Frozen STX and Exploiter’s Wallet STX in the future(If have)

Step Two(months later):
1、Create a real Synthetic Engine for aSTX
2、Other eople can mint aSTX with stSTX/vLiSTX/xBTC/aBTC/sUSDC as collateral
3、People can burn aSTX to get back the collateral
4、When the Collateral Ratio falls below the threshold, liquidators can participate in the liquidation

Step Three:
Gradual replacement of STX in DEX trading pairs with aSTX.

2 Likes
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Posting in support of Rozar’s proposal. This seems like a well thought out plan that provides a more defined path towards making all of the ALEX users whole while providing the needed liquidity to get the platform up and running again.

This makes a LOT of sense.

1 Like
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I appreciate the feedback! Much of this is already part of the original proposal, so isuggest we stick with it as is to eliminate confusion. if there are additional amendments you’d suggest we add, that might it easier to compare the pros and cons.