We take a look at Alchemix — a red-hot DeFi protocol that launched just over a month ago — and explore how it enables users to earn advances on the future yield of their crypto. As well, we document the basic steps to staking on Alchemix and examine the pros and cons of doing so.
What Is Alchemix?
Alchemix is a new DeFi lending protocol that just this month raised $4.9M. Its special sauce: loans that repay themselves automatically.
Alchemix presents a new way of paying back debt. It uses the yield earned from the deposit to amortize the users’ debt. The longer you leave your deposit, the more yield you can earn and consequently have more of your loan paid back.
Why Should I Care?
With Alchemix, you make a deposit to the protocol, and that deposit becomes collateral for a loan you can take out: up to $1 for every $2 that you deposit. Alchemix takes your deposits and puts them in Yearn’s vaults to earn yield. Over time, that yield — about 12% APY at time of writing — automatically (or “automagically,” to use the Alchemix community term) pays off your debt.
In the meantime, you can convert your loan to fiat and use it for purchases — or you can stake it in the Alchemix ecosystem, putting it to work for you to earn additional yield.
Sound complicated? Break it down like this:
- You make a deposit (your collateral) to the protocol;
- Up to 50% of your collateral’s value is available to you as a loan;
- Your deposit earns interest over time, which automatically pays off your loan.
In short, Alchemix makes it easy to do two things: 1) take an advance on your future earnings, and 2) automatically repay that advance. This can be especially valuable if you have immediate cash needs, but don’t want to sell your crypto (either because of the tax consequences, or because you don’t want to give up the sweet gains you’re earning).
In other words, Alchemix lets you take an advance on the future earnings of your crypto — and it pays back that advance without you needing to closely monitor it. Plus, for those worried about locking up their collateral, Alchemix enables you to pay off your loan anytime, using your collateral.
How Does Alchemix Work?
In its current version, Alchemix enables users to deposit DAI stablecoins to create, or “mint,” the stablecoin “alUSD.” For every 2 DAI deposited as collateral, you can borrow up to 1 alUSD. The DAI deposited into the Alchemix smart contracts are then routed to Yearn vaults, where they can start earning yield immediately. This yield can then start to automatically pay down your debt.
Alchemix has generated a great deal of buzz in the month since its initial launch. The surge of interest during the first week of the Alchemix launch — from less than $25M on Feb. 27 to over $130M a week later — compelled Yearn to triple its DAI limit from $100 million to $300M.
Figure 1: Yearn DAI Vault Limit
The protocol’s governance token is called ALCX. From an initial launch around $360, the token has risen to trade at around $1,461 at time of writing:
Figure 2: ALCX Token Price Since Launch
What Else Can I Do?
You have several options for the alUSD you receive as a loan. The Transmuter is a mechanism that helps Alchemix maintain the 1:1 peg for alUSD. Via the Transmuter, you can redeem your alUSD for DAI (which in turn is easily convertible to fiat currency, if you are taking out the loan in order to make a purchase).
Additionally, Alchemix provides two liquidity pools and two staking pools. The staking pools are:
- The alUSD Pool (stake alUSD to receive ALCX)
- The ALCX Pool (stake ALCX to receive ALCX)
We’ll cover the basics of staking below, so read on if you’re interested. As well, there are two liquidity pool opportunities, which we hope to cover in a future post:
- The ALCX/ETH SushiSwap liquidity pool (stake LP token to receive ALCX)
- The alUSD3CRV Curve liquidity pool (stake LP token to receive ALCX)
Here’s a glimpse of the entire ecosystem:
Figure 3: Alchemix Ecosystem
How To Participate in Alchemix: A Newcomer’s Guide
The steps to getting involved in the Alchemix ecosystem are as follows. Note that as part of the DeFi ecosystem, Alchemix contains the same risks as many other burgeoning DeFi protocols:
- The protocol is not yet fully audited (although this is in progress);
- Alchemix is not fully decentralized, and makes no claim to be;
- The cost of transactions (i.e. gas fees) can be prohibitive for amounts under $1,000.
Metamask is the only integration that Alchemix currently supports. To get started, you’ll need to purchase DAI on any exchange and transfer it to Metamask. You’ll also need ETH in your wallet to cover your transaction fees for each step along the way. As noted above, gas fees can take a big chunk out of three- and four-digit transactions - though these fees likely do not faze the whales in the community:
Figure 4: Top Staking Addresses on Alchemix
For example, a series of recent transactions incurred the following fees, starting with a transfer of DAI from an exchange to Metamask and ending with staking alUSD:
Figure 5: Ether Fees to Stake on Alchemix (March 17, 2021)
These fees also highlight the steps for staking alUSD, which are:
- Send DAI to Metamask;
- Authenticate Metamask wallet in Alchemix;
- Navigate to the Deposit tab at https://app.alchemix.fi/vault;
- Deposit your DAI from Metamask into Alchemix.
- Borrow alUSD (up to 50% of your deposit) via the Borrow tab on the Vault page
- Stake your alUSD in a pool via the Farm tab, to earn interest in ALCX
Once you’ve deposited your collateral, you can also take the following steps:
- Liquidate your collateral to repay the borrowed alUSD;
- Withdraw alUSD beyond the Alchemix ecosystem, or claim some of the DAI yield that your collateral has earned over time.
Additional Resources
If you’re interested in keeping up with Alchemix as it grows, the following resources may be helpful in your journey:
- Whitepaper: https://alchemix.fi/c76d1d663f6c8247b86a8fca83d5bd1b.pdf
- Documentation: https://alchemix-finance.gitbook.io/alchemix-finance/
- Discord (Alchemix has a lively and active Discord community)
- DYOR Alchemix: https://dyor.fi/alcx
We look forward to keeping an eye on this protocol as it continues to expand its unique value proposition and carve out its niche in the DeFi community.
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