Charting the Governance of Alien Base DAO: The Past, Present and Future

It’s been just over a year since Alien Base launched, just a few days after Base itself. The space and the ecosystem changed a lot since then, as did the exchange. It’s safe to say that when the team launched the DEX, nobody could’ve expected our current success. But there were quite a few obstacles to get here, and we wanted to explain how that journey defined the platform as it exists today, also for all our new users.

The launch

Alien Base was launched in a fair launch, immediately attracting huge attention and rising to Top-1 DEX by TVL at the end of August 2023.

The initial idea behind Alien Base was similar to other DEXs of the previous cycle, including PancakeSwap, Trader Joe and many others. Token emissions would serve for the initial bootstrapping phase to gain attention and notoriety, establish large TVL figures and capture the volume of the chain.

Alien Base had zero backers outside of the community that came post-launch, who provided the initial liquidity, attention and trust.

The tokenomics was certainly primitive: the initial mint was 26M ALB, of which 1M was locked into the liquidity pool and the rest sent for long-term storage. The rest of the tokens were minted over time, with 15% going to the team and 15% going into long-term DAO storage.

This meant the inflation at the start was relatively huge, but because Base was extraordinarily active, the inflation could be managed in the initial period and helped achieve enormous TVL numbers. By late August, we reached over $26M in TVL relying solely on the original V2 deployment.

By September, other protocols started coming through with their own existing user bases, partners and backers, which made the initial strategy impossible to execute: it was very unlikely for a bootstrapped protocol to compete on TVL with big players.

We could’ve decided at this point to crank up emissions on ALB or create new emissions tokens in the vain hopes of attracting more TVL to compete, but we knew very well this would be pointless and would only kill the project even more quickly.

The experience of seeing DEXs rise and fall throughout the previous cycles, especially in bear markets, taught us that liquidity mining emission models are fundamentally flawed. Liquidity mining is a subsidy, paid by token holders, to rent TVL and volume from users. When times are good, and enough people believe the narrative, tokens can “outpump” the emissions. But when attention dries down, then the model collapses completely.

The only potential exception might come from DEXs that “cleared their neighborhood” and are effectively the only choice that exists on any given chain. The death of the DEX would at that point result in the death of the chain, tying the interests of the two. Other kinds of external backers are also crucial in keeping the “flywheel” alive.

Surviving the winter

Given the situation, we decided to pivot in a different direction: focusing on organic volume, memecoins and alternative products to generate revenue. Products like Area51, a launchpad for vetted memecoins, as well as Predictions and Lottery products were the result of this thinking.

However, by late September the Base season was clearly over, and the overall market was entering into hibernation for the winter. The products ultimately weren’t successful and weren’t providing anywhere close to enough fees to sustain the project and provide enough resources to keep developing.

Around this time, we notified the community that part of the emissions we received (600,000 ALB a month) would start to be used to gain resources and support the development of the project. We had an ambitious roadmap, including products like Quasar and Nebula to get out of the liquidity mining trap.

That’s because ultimately the issue of DEXs is one of tech. Uniswap V2, or wide range V3 products just do not generate sufficient fees to be profitable for LPs in most circumstances: impermanent loss is extremely difficult to overcome. And if the LP doesn’t make money, then the protocol cannot seriously hope to generate fees either.

A product like Quasar, allowing the borrowing of liquidity positions, would allow LPs to essentially get paid a fair price from the impermanent loss they already suffer, leveraging the options market. Nebula would include novel liquidity provision algorithms to give more tools for mitigating impermanent loss, in addition to creating derivatives markets for any new token and generating extra fees.

But building these products requires A LOT of resources, and the Base ecosystem was quickly cooling off. When the original amount of 600,000 ALB/month was set, the price of ALB was around $0.06. It quickly went down to $0.01 and even less, ultimately settling around $0.001 by December, even despite us continuing to build and releasing products such as our V3. From Top-1, we essentially dropped to the bottom of the Base DEXs, in no small part because of interference from competitors (but that is a story for another time).

The ALB community became a very small, closely knit group of backers who continued to believe in us, continuing to put money and effort in supporting the project. This became the core of the Alien Base DAO, our signers, mods and biggest backers. Volume on ALB was low, but not zero, and by that point it was the only source of resources for development.

Delays in establishing the infrastructure for using the emissions, for example to avoid insider trading opportunities, price impact and the nosiness of competitors, meant that we could only begin to reliably use the emissions to fund the project when ALB was below $0.01. The next period saw an even bigger dip, and the original 600,000 ALB was worth $600. There is no business in the world that could survive on that amount in a month.

We had a tough choice: tap into the reserves of ALB the team had accumulated by then, or tap into the reserves established for the DAO. The former felt like the more correct choice for the long-term health of the project: the need to decentralize was obvious, and a DAO without tokens allocated to it is useless.

Long-story short: ALB recovered spectacularly from those days. And those early holders are the top holders of today.

The recovery in 2024

Given the continued Base downturn, the next most logical choice to recover the project was to take the technology and license it to DEXs on other, more active chains. We were presented with an opportunity to be the technology partner for a DEX on Blast. The ALB community was involved, and the new platform included some new technology we were at that point developing for Alien Base.

Ultimately, despite the potential, things played out in the completely opposite way: Blast became weak (at least from an organic DEX volume perspective) about a week after launch. Meanwhile, Base picked up spectacularly, allowing ALB to finally prosper directly.

Given what we had just survived, it was paramount to not repeat the same mistakes, and establish a reserve when times were good to last us through the bad. In addition, it was important to signal to others that we couldn’t be killed off that easily.

In this period for Alien Base, we developed products such as Epsilon, the Token Generator, esALB, Limit Order and Automated Strategies, and laid the ground for developing Quasar and Nebula.

We also paid attention to the DEX side of things, developing a new strategy to optimize TVL and volume while emissions are still live. We also focused on bringing long-term plays with other projects that would benefit Alien Base. For example we listed Golemz, a project spearheaded by our long-term backers and ALB holders/LPs Monstros, which allows anyone to just mint an NFT and earn a good APR without suffering volatility. Other projects would be listed if they provided value to holders, such as offering an airdrop to stakers or esALB holders.

We received extraordinary attention from the community, achieved fully organically just by building and by communicating openly. There was no “marketing” involved: the few attempts made were unsuccessful anyway, and all of our “KOLs” found us organically and simply liked the project.

With the threat of death staved off, we could also proceed with decentralization, establishing a formal budget that would connect the amount of resources we obtain to the success of the protocol: good times would help us build up reserves, bad times would force us to optimize and save. The budget was fully accepted by the largest and most involved esALB holders.

What comes next for Alien Base

Our vision for ALB remains largely the same as before: build a good product backed by true fundamentals and without overcomplicating tokenomics.

We believe DEXs can only be truly profitable if they establish a synergy between traders and LPs, without ignoring one or the other. The halving schedule underpinning ALB tokenomics helps everyone remember that the tide will eventually retreat, and the project can’t afford to be swimming naked (i.e. subsidizing liquidity) when it does.

There are a few major updates we expect to happen soon:

Full decentralization and DAO ownership

By the end of the year 2024, the DAO will have full control over the protocol. We have also been studying solutions in the legal space to help protect the protocol in the long run and give it a voice in the physical world as well.

All major aspects involving the smart contracts of Alien Base will be decided by the DAO, which will also be overhauled for a more structured and deep participation.

We will be also proposing an amendment to the esALB locking schedule to promote long-term ownership and reduce the prevalence of large unlocks, to help better achieve the ultimate purpose behind it: let governance participants join and leave freely, but without excessively damaging the others.

After this, the team will become simply another holder, with a significant but far from majority stake in ALB.

Details of the proposed structure will be shared later. We believe strongly in the A for Autonomous part of DAOs. This means running the platform via code and not decisions of humans, however many they are. This means that most common maintenance items for Alien Base, such as farm emissions, new pools and more will be automated according to fixed, fair and code-based criteria.

Project Mothership & Nebula

In the previous months, it became clear to us that concentrated liquidity is an unsolved problem. Market-leading CLM providers generally lose money to users, again requiring token subsidies to be profitable.

This is why we’re developing Project Mothership, an Automated Liquidity Manager (ALM) that offers Alien Base liquidity providers a way to earn organically from trading activity, without requiring constant manual action.

Mothership will allow us to integrate some of the concepts we were studying for Nebula, such as using more tools to enable effective market making strategies, and it will be gradually iterated all the way to become Nebula.

Nebula and Mothership will eventually be the logical conclusion of the AMM innovation: disrupting centralized market makers by letting anyone create advanced strategies and earn from them, a win-win for all.

Project Quasar

As mentioned before, Quasar will be the final piece of the puzzle for an effective DEX. Weaponizing the impermanent loss helps further solve the LP conundrum on DEXs. In addition, it will enable leveraged trading on the most popular assets and tokens on Base, which so far has been essentially impossible due to technological limitations.

While we were expecting to move on to Quasar right around now, we see a better opportunity for Mothership, as it better integrates with our overall vision of Alien Base: becoming the best place to trade and earn on Base.

This necessarily involves a delay to Quasar, but the point remains: in 2025, we expect Alien Base to achieve true profitability and truly innovate the DeFi space.