Interpretation of the algorithmic stablecoin protocol ICHI: Creating an angel fund for the community and its LPs
ICHI has helped 9 projects including ShapeShift, 1inch Network, and DODO launch their own stablecoins. So far, over 30 million dollars in community stablecoins have been minted.Author: @JoeAnima, Sapling Insight
Project Overview
ICHI DAO is a mechanism for any cryptocurrency community to deploy its own community-specific algorithmic stablecoin pegged to 1 USDC. It also utilizes Angel Liquidity Vaults, enabling low-cost listings, protocol growth, and ecosystem acceleration.
Angel Liquidity Vaults are built on ICHI's unique Decentralized Monetary Authority (DMA) protocol, which allows any crypto project to create a community stablecoin valued at exactly 1 dollar, backed by its native token. These stable assets can be easily used for business operations and investing in DeFi by creating a reliable daily currency, thus retaining more value within the project.
Economic Model and Token Release
Token Sale: The token sale conducted by the ICHI Foundation will attract institutional buyers.
- Assist in establishing partnerships with portfolio projects
- Launch on other Layer 1s
- Increase the total value locked. The initial sale volume is 600k-800k $ICHI, with each ICHI priced at 5 dollars.
Table 1 contains a 4-year allocation schedule. The remaining tokens allocated to buyers can be sold later.
Token Allocation
After DAO approval, the upgraded ICHI token will be available. Each old ICHI can be converted into a new ICHI. The total supply of ICHI will be the sum of all new ICHI and the old ICHI that have not been converted. The four-year supply will include 10 million $ICHI tokens, allocated as follows:
- 70% to the community (7 million $ICHI)
- 15% to buyers (1.5 million $ICHI)
- 15% to the team (1.5 million $ICHI)
A permanent inflation rate of 2% per year will begin in year 5 to ensure continued, active participation in the ICHI community.
Figure 1: $ICHI Token Distribution in Year 4 and Year 10
Since 40% (approximately 4 million $ICHI) is already in circulation, the community treasury will retain 30% (approximately 3 million), which will be continuously allocated through contributor/advisor grants, community incentives, liquidity mining, and other programs. In the first year after the foundation's establishment, 1.5 million ICHI will be available for distribution.
The remaining 1.5 million community $ICHI will be unlocked continuously starting from Year 2 according to the following schedule:
Table 1 -- 4-Year Allocation Schedule
The allocations for the team, buyers, advisors, and community treasury will follow the same allocation schedule.
Key Feature Analysis
ICHI Angel Vaults Features:
1. Purchase Liquidity
Providing single-asset liquidity below the token price of the participating project will increase the price of that token.
Angel Vaults create concentrated buyer liquidity pools using Uniswap V3. These buyer liquidity strategies ensure that there is always liquidity for the stored tokens below the price of other assets in the Uniswap v3 pool. As asset prices change, the strategy rebalances the asset pool to exert buying pressure on other assets.
Example: oneUNI Angel Vaults creates a position in the Uniswap v3 pool with a oneUNI<>ICHI pair. The Angel Vault only receives oneUNI from LP (and returns an ERC-20 LP token) and uses it to provide buy limit orders on ICHI within the pool (holding oneUNI liquidity within the current price range). As the price of ICHI fluctuates, the Angel Vault rebalances to ensure it remains concentrated on the buying side of the token.
2. Deflationary Liquidity Rewards
By creating community stablecoins through ICHI and then establishing an Angel Vault with that community stablecoin, crypto projects can offset the costs of liquidity rewards.
Branded Dollars are a complementary feature of any project's Angel Vault. When used together, Branded Dollars and Angel Vaults enable projects to lock their scarce crypto tokens in the Branded Dollar vault. This eliminates supply in the open market and provides upward price pressure for scarce crypto assets, offsetting the incentives provided by the protocol to LPs.
3. Protocol-Owned Liquidity (POL)
Depositing a portion of the assets supporting the project's community stablecoin into the Angel Vault creates sustainable, lasting liquidity.
A key feature of the synergy between Branded Dollars and Angel Vaults is its use in converting Total Value Locked (TVL) into Assets Under Management (AUM). When community stablecoins are minted, scarce cryptocurrencies are locked in a vault managed by the protocol and its users. This incentivizes LPs to stake their Vault LP tokens, essentially encouraging these users to mint or purchase community stablecoins, thereby converting scarce cryptocurrencies used for minting into assets managed by the project itself.
The benefits provided by the combination of Angel Vault + Branded Dollar exceed the benefits provided by using Uniswap alone for projects and LPs.
From the Project's Perspective
ICHI's Angel Vaults are the simplest and most cost-effective way for projects to increase their liquidity bottom line.
- LPs earn more trading fees with less money
- Liquidity rewards increase the amount of buying liquidity while not stimulating selling pressure
- The inflation cost of rewards will be offset by the deflationary minting of the project's community stablecoin
- Establish management assets (AUM) to support its community stablecoin.
Angel Vaults Protect Token Projects from Market Volatility
The crypto market introduces a high correlation between crypto assets and BTC and ETH. The main reason is that most assets are traded on AMMs, where ETH is the primary asset --- when the value of ETH declines and the paired asset does not have active buying pressure, arbitrage opportunities arise, prompting arbitrageurs to sell assets paired with ETH for profit.
Angel Vaults solve this problem.
Angel Vaults act as Uniswap v3 liquidity position managers, providing buying liquidity for tokens. They are dynamically managed, so you can think of them as autonomous market makers, optimizing the capital deposited in the vault to achieve this goal, earning fees and saving LPs from the hassle of managing uni v3 positions.
Yield Operation Model Analysis
When a project launches an Angel Vault, they choose a stablecoin to pair with their native token (in our example ICHI-oneUNI* case study). This stablecoin will be used to provide seed buying liquidity below the spot price of the project token. Liquidity providers will deposit this stablecoin and grow the Angel Vault TVL (single token deposits). The project only needs to provide initial token liquidity --- as low as $20,000 (in this case, $oneUNI and $ICHI).
oneUNI is a stable dollar token backed by $USDC + $UNI, always redeemable 1:1 for USDC. At this point, it is assumed that the angel vault simply using USDC as the currency pair is sufficient (absolutely a viable option), but if you find this interesting and continue reading Part 2, you will better understand the reasons and benefits of using Branded Dollars). Now --- assume we used the stablecoin of your choice.
In the screen below, the red bar represents the spot price of the local crypto asset, and the high blue bar on the left represents the liquidity of the deposited token (stable asset) concentrated below the price, acting as buy orders for the crypto asset. At or above the spot price, the Vault will place liquidity as sell (profit-taking) orders in the local asset.
oneUNI-ICHI Angel Vault on Uniswap v3 --- each blue bar represents nearly $2 million in buy liquidity below the ICHI spot price.
Let’s run through 2 scenarios:
If the ETH price drops, arbitrage players wanting to sell $ICHI will sell into this buy wall --- these players must sell an entire column of ICHI to lower the price by one tick (in this case, one tick represents a drop of 20 cents). The price of $ICHI will not be affected by the sell-off. Without AV, on a standard AMM (XY=K), the price of ICHI would drop at a rate similar to ETH, often more so due to the way liquidity's normal constant product curve is spread out.
The pool will now hold walls of $oneUNI and $ICHI, then distribute above the spot market, so when the ETH price surges, it will match profit-taking orders, converting ICHI to $oneUNI, and then redepositing into the vault to expand the buy wall. Afterward, the vault can be rebalanced.
Note that the vault is constantly monitored, and if an abnormal sell-off occurs and the $oneUNI-$ICHI pair experiences a significant change, the vault will rebalance its position, and the buy wall will adjust to a lower ICHI price point.
Summary
Angel Vaults help to mitigate volatility across the market, so token prices are only affected by project-specific risks. This limits the impact of market downward pressure while continuing to leverage correlation with ETH during market upswings.
Of course, Angel Vaults cannot eliminate all market risks, as this depends on the strength of the vault (TVL compared to the project's market cap) --- but it can certainly reduce volatility, allowing token holders to feel secure in uncertain markets and build confidence by decoupling their token prices from the market.
RARI Lending Pool
- ICHI launched a Fuse Pool on Rari Capital for lending
- ICHI will provide $ICHI rewards for providing oneUNI Vault LP and oneUNI (more assets coming soon)
- Users can now borrow Branded Dollars and other assets using their held ICHI and xICHI
ICHI has deployed a Fuse Pool on Rari Capital, allowing all ICHI community members and HODLers to borrow community assets.
With the recently launched Angel Vaults, ICHI has proven to outperform Ethereum while protecting its price. Angel Vaults provide additional comfort for ICHI HODLers planning to use assets as collateral when borrowing on Rari Capital.
Users can now leverage their ICHI, xICHI, and Angel Vault LP tokens to borrow different assets. Additionally, ICHI partner protocols that have deployed Angel Vaults can now place their native tokens into the Fuse Pool and incentivize using them as collateral to borrow branded dollars.
Currently, HODLers of ICHI and many partner tokens have limited options to earn yields on their crypto assets. Additionally, there are few ways for DeFi users to obtain community-branded dollars. As a result, these assets have low capital efficiency across the DeFi ecosystem, ultimately leading to stagnation in protocol growth.
The deployment of decentralized lending pools will provide new opportunities for DeFi users. Users can head to ICHI's Fuse Pool, deposit any assets into the supply bar, and borrow against them. Most importantly, ICHI will offer $ICHI rewards, decided by ICHI Governance through a snapshot vote, for providing both oneUNI and oneUNI Angel Vault LP. oneUNI deposits will enable low borrowing APY, allowing users to borrow against their other assets and deposit into the Angel Vault for more ICHI rewards.
Risk Assessment
In every economic system, existing risks cannot be eliminated; if parties have different needs, risks can be transferred and mitigated.
- Liquidity providers offer downside protection in exchange for trading fees and rewards. They take on the risk that, in extreme cases, they may end up with 100% of their position in the form of the native token (note --- they start with 100% of the token pair --- in this case, oneUNI (or any other stablecoin). This is perfectly fine for LPs looking to go long on $Token and seeking that exposure. Another way to look at it is that LPs are option players --- they write a call option on the token's price in exchange for fees (liquidity rewards + trading fees).
- The project's risk is that if the buy wall (the thickness of the bottom range trading in uni v3) is not strong enough, the Angel Vault can serve as exit liquidity for current token holders. (Strength is measured as a percentage of the project's total market cap). Therefore, it is important to consult and design the correct structure, considering the many factors unique to each token project.
Project Interpretation
Angel Vaults provide a unique opportunity for crypto projects to manage their token liquidity and eliminate market volatility. They also offer investors and liquidity providers unique exposure that is typically only available to large market makers and seasoned participants.
Services like OlympusPro, Tokemak, and Curve War, which serve the community and are based on community project liquidity, have made some progress. By using the concept of community stablecoins, ICHI aims to help projects build more and sufficient protocol liquidity, retain more value for project tokens, and expand the use cases of community project tokens through market-making and lending, while aligning risk exposure for protection. Through collaboration with more projects, the ICHI protocol will also rise accordingly.
