Users deposit stablecoins as collateral to borrow against on Alchemix, and the collateral produces interest in Yearn. Finance vaults. The yield, which is automatically transferred back and added to the original loan when it is earned, backs up the borrowed synthetic assets. Alchemix is the first prominent DeFi platform to automate the loan process, and it does so by combining great composability with DeFi solutions such as DAI and Yearn. Finance.
What is the Process of Alchemix?
Alchemix now allows users to deposit DAI stablecoins in order to produce, or “mint,” the stablecoin “alUSD.” You can borrow up to 1 alUSD for every 2 DAI submitted as collateral. The DAI transferred into Alchemix smart contracts is then routed to Yearn vaults, where it may instantly begin earning yield. This income can then be used to begin paying off your debt.
In the month after its original introduction, Alchemix has garnered a lot of talks. Yearn had to increase its DAI limit from $100 million to $300 million due to the rise in demand during the first week of the Alchemix launch, which went from less than $25 million on Feb. 27 to more than $130 million a week later.
Why should I be concerned?
You make a deposit to the protocol with Alchemix, and that deposit serves as collateral for a loan of up to $1 for every $2 you deposit. Alchemix earns interest on your deposits by depositing them in Yearn’s vaults. That yield — roughly 12% APY at the time of writing — pays off your loan automatically (or “automagically,” to borrow the Alchemix community phrase) over time.
Meanwhile, you may either convert your loan to fiat and utilize it to make purchases, or you can stake it in the Alchemix ecosystem and put it to work for you to generate further income.
Does it appear to be difficult? Here’s how to break it down:
You make a deposit to the protocol (your collateral);
You can get a loan for up to 50% of the value of your collateral.
Your deposit collects interest over time, which pays off your loan automatically.
In summary, Alchemix makes it simple to accomplish two things: 1) take a loan against your future profits, and 2) repay that loan automatically.
This is especially useful if you need money right away but don’t want to sell your cryptocurrency (either because of the tax implications or because you don’t want to give up the nice profits you’re making).
In other words, Alchemix allows you to take a loan against your crypto’s future revenues, which it then repays without you having to keep track of it. Furthermore, for those concerned about their collateral being locked up, Alchemix allows you to pay off your loan at any moment using your collateral.
Alchemix Crypto Loans and DeFi Lending
Alchemix is a decentralized finance (DeFi) lending platform that stands out in a crowded market by providing flexible loans that repay themselves over time. Alchemix’s architecture automates the process of repaying crypto-backed loans, ensuring that, given enough time, all loans on the Alchemix crypto platform will be fully paid back and no liquidations will occur. While there are a number of stablecoin-backed DeFi lending services available, the majority of them leave it up to the customer to maintain the loan collateralized and pay it off. For consumers interested in acquiring stablecoin-backed loans, Alchemix aims to automate this procedure.
The following is how the Alchemix loan payback process works: Users deposit DAI, an Ethereum-based stablecoin, as collateral with Alchemix in order to mint alUSD, a synthetic protocol token that tokenizes a user’s future income. In Yearn, the deposited DAI is then used to create yield. The yield is used to pay off the loan in finance vaults. Synthetic assets like alUSD may be turned back into DAI and then swapped for fiat, or they can be used to generate even more income in Alchemix staking pools or liquidity pools, depending on the depositor’s goals.
The Alchemix crypto platform automates the repayment procedure, which a consumer would normally have to perform manually elsewhere. Because alUSD is continually flowing in as Yearn.Finance yield, the supply of alUSD is automatically converted back to DAI at a 1:1 ratio to pay off the loan as yield is accrued. Alchemix’s interconnection with DeFi goods like Yearn.Finance and DAI is a feature known as composability, or a crypto product’s ability to communicate with other crypto products to boost usefulness.
The Transmuter of the Alchemix Crypto Protocol
Users deposit DAI into Alchemix vaults while applying for an Alchemix loan. They can then borrow funds up to a 200 percent collateralization ratio — or one alUSD for every two DAI placed — by doing so. Although many DeFi lending platforms accomplish this, Alchemix’s methodology uses yield farming through Yearn.Finance vaults automatically pay off a user’s obligations. In order to settle their debt, users can choose from an ever-growing number of yield farming options.
Users have a variety of alternatives after depositing DAI with Alchemix to mint alUSD. The Transmuter is a pegging mechanism used by the Alchemix crypto protocol for the platform’s synthetic tokens. It assures that alUSD and DAI may be exchanged at a 1:1 ratio. Yearn generates a yield. Finance vaults are delivered to the Transmuter, where they are continuously transformed into DAI as they come in. Users can put alUSD into the Transmuter smart contract, which in turn pays them with DAI in proportion to the amount staked. They burn an identical amount of alUSD when they withdraw their DAI payouts. Users may also utilize the Transmuter to change their alUSD to DAI, which is simpler to transfer to fiat money if they took out a crypto-backed loan to make a fiat purchase.
A user’s loan collateralization ratio must be at least 200 percent at all times. If the collateralization ratio falls below this threshold, a user may decide to sell some of their collateral in order to maintain the proper amount of collateralization. If the collateralization ratio rises beyond 200 percent owing to yield creation, the user can withdraw DAI or mint additional alUSD until the ratio falls below 200 percent. Users can settle their crypto loans early — if they require access to their underlying collateral — by repaying their obligation with either alUSD or DAI, which are regarded the same under the Alchemix system — for the purpose of flexibility. A user can withdraw all of their deposited collateral once their alUSD debt is zero.
ALCX Liquidity Pools with Alchemix Staking
In order to support its lending mechanism, Alchemix relies on platform members to contribute to its liquidity pools and staking pools. Users may also increase the yield on their synthetic assets, such as alUSD, by joining these pools. Users can earn a proportional quantity of ALCX tokens — the platform’s native governance token — by staking in Alchemix staking pools or supplying liquidity to Alchemix liquidity pools.
There are two staking pools available when the site first launches:
Users may earn ALCX by staking alUSD. This pool exists to assist in the establishment of a peg for alUSD that is as near to $1 USD as feasible.
ALCX: ALCX can be staked to gain ALCX. This pool was created to give risk-averse ALCX holders a less dangerous way to earn rewards.
Sushi Liquidity Provider (SLP) tokens are also used by two Alchemix liquidity pools:
SLP tokens for ALCX/ETH: Users may earn ALCX by staking SLP tokens. This pool exists to give ALCX token liquidity.
SLP tokens for alUSD/DAI: Users can stake SLP tokens to incentivize holding alUSD until the pair finds enough liquidity.
The ALCX Token and Alchemix Governance
Alchemix’s native currency, ALCX, is used to manage the platform through a decentralized autonomous organization (DAO). ALCX token holders have the opportunity to vote on protocol settings, new feature development, financing, and the DAO’s structure.
The Alchemix DAO earns 10% of the platform’s Yearn.Finance income, which it puts toward paying its developers, covering infrastructure expenses, awarding development grants, and funding other initiatives as selected by the community.
The ALCX coin was launched in a fair manner, with neither early investors or the development team putting aside their own supply. The system is set up to work best when the bulk of ALCX token holders are also platform participants.
ALCX does not have a hard cap on its token supply, but it does follow a fixed release schedule that gradually cuts issuance weekly overtime, rewarding early platform contributors the most. Three years after inception, ALCX awards will finally achieve a flat weekly delivery of 2,200 ALCX. The entire token supply is expected to be around 2.4 million ALCX by the end of this timeframe, according to this plan.
Three years after its debut, the Alchemix DAO got 15% of the expected token supply, with another 5% set aside for bug bounties, which compensate security auditors for revealing possible problems in the protocol’s code.
Staking particular tokens in the platform’s staking and liquidity pools might earn you the remaining 80% of ALCX tokens. Those that contribute to the platform will obtain ALCX tokens and will be able to participate in community governance through this method.
The Future of Alchemix Crypto-Backed Loans
Alchemix is a relatively new DeFi protocol, having been launched in March 2021. While the Alchemix crypto platform is still in its early stages, it is rapidly expanding its support for other cryptocurrencies and forms of collateral, as well as giving consumers more options for customizing the structure of their crypto loans. Alchemix also plans to grow its ecosystem by implementing more decentralized apps (dApps).
Alchemix is already a platform for consumers looking for capital-efficient loans that produce income on their collateral deposits in the background. Users may tailor their loan structure and yield strategy, borrow against stablecoins without the danger of traditional liquidations, and enjoy low-maintenance lending with crypto-backed loans that amortize themselves automatically, among other features and perks. Even if they never plan to withdraw cash from their crypto loan, Alchemix provides a lucrative opportunity for participants to deposit collateral in order to generate synthetic assets that they may subsequently stake and provide liquidity for.
I hope you enjoyed reading my article. Let me know your thoughts in the comment section.