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Last updated: Aug 14, 2023
Alchemix Finance is a decentralized future-yield-backed synthetic asset protocol with a flexible instant lending model operating on the Ethereum blockchain. By making deposits in DAI, users can create synthetic assets, thereby tokenizing their profit, which automatically covers the loan collateral. This way, the platform creates derivatives based on yield rather than debt.
The protocol is managed by the DAO community, ALCX token holders.
Alchemix was launched in March 2021, when several funds, including Alameda Research, invested in the project by purchasing its tokens. The total investment was about $4.9 million. In addition, another $3.1 million was invested in the platform as part of a strategic round led by Spartan Capital. Delphi Ventures, Nascent, Maven 11, and Genesis Block Ventures also participated in the round.
The Alchemix Finance platform allows traders to pledge DAI to mint a synthetic USD stabelcoin called alUSD. The amount of minted alUSD can account for up to 50 percent of the deposited collateral in DAI and the exchange ratio between alUSD and DAI is 1:1. For example, pledging 200 DAI gives the right to borrow no more than 100 alUSD. Every DAI deposited in the Alchemix smart contract goes into the Yearn.finance vault and immediately starts generating income. This income automatically repays the debt (100 alUSD).
Alchemix charges 10% on the yield your collateral earns in Yearn, which goes to the DAO treasury. As soon as Alchemix earns $100 back, the collateral becomes available for withdrawal. This way, the user gains 50% minus the Alchemix protocol fee. Alternatively, if the user deposits funds without taking a loan, the income received will increase the user's credit line.
If the user decides to repay the loan, they can do so using DAI or a synthetic stablecoin alUSD. If only a partial repayment is made in alUSD, any remaining alUSD debt is repaid immediately with a collateral deposit in DAI.
Another important feature of the Alchemix platform is its special mechanism called Transmuter which ensures alUSD is pegged. If the market value of alUSD is below $1, alUSD can be deposited into Transmuter to exchange alUSD for DAI at a 1:1 rate regardless of the market value. Functionally, it works like a bond. It's a promise that you will be able to exchange 1 alUSD for 1 DAI in the future once the protocol gets enough yield on the bond.
To use Alchemix Finance, wallets such as WalletConnect or Metamask need to be connected to the Alchemix Finance app. Next, navigate to the ‘Deposit’ button on the ‘Vault’ tab and deposit DAI or ETH from your wallet into Alchemix. If you want to borrow an asset, click ‘Borrow’ on the ‘Vault’ page and borrow alUSD or alETH. You are able to borrow no more than 50% of the total deposit amount.
Received alUSD/alETH can be exchanged for another cryptocurrency under the ‘Swap’ section. The swap will be performed through the protocols such as Curve, Zapper, Paraswap, or Saddle. And also under the same section, you can exchange alUSD/alETH to DAI/ETH through the Transmute mechanism, which guarantees the exchange of tokens at a 1:1 ratio.
In order to unlock your collateral, you can redeem the total or partial amount of debt anytime. DAI and alUSD are treated 1:1 for repayment and liquidation. Therefore, you can redeem your alUSD/alETH debt with alUSD/DAI or alETH/ETH. Debt redemption is also a pegging mechanism because if alUSD/alETH falls below the peg, users can buy it from AMM and pay off their debt at a discount.
At any time, a user can liquidate some or all of their collateral. The contract will pay off the debt in alUSD/alETH using DAI/ETH from the user's collateral.
Alchemix fees include a 10% cut on the yield which goes to the treasury.
Alchemix Finance's native token is an ERC-20 token with the ticker ALCX. ALCX token holders are granted management rights in Alchemix's decentralized autonomous organization (DAO).
The Alchemix token (ALCX) does not have a definite maximum supply or hard cap, as the project uses a three-year issuance schedule. A new batch of ALCX is minted each week to provide rewards for liquidity mining. The number of ALCX minted per week decreases each week, and after three years, there will be a fixed predictable rate of inflation to maintain the protocol.
Alchemix Finance token ALCX can be deposited in a staking pool to earn ALCX. This pool was created to provide ALCX holders with a less risky way to earn rewards.
The Alchemix Finance team is completely anonymous. The head of the team has the nickname Scoopy Trooples.
Alchemix Finance has been engaged in a partnership with Runtime Verification since June 2021. Runtime Verification performs security audits using runtime verification-based techniques. It has made a thorough review of version 2 of the protocol before its launch. The full audit can be found here.
According to the roadmap, the Alchemix Finance team is working on new types of collateral, which include wrapped bitcoin (wBTC). Users are also expected to have a choice where to deposit their collateral, as well as delegate their available credit to other users.
The protocol is also planning to implement such new features as delegating unused collateral to the protocol in exchange for ALCX rewards and using NFT as collateral for delegated credit in a peer-to-peer network. The most important update will be the expansion of the protocol to Ethereum Layer 2 and other L1 compatible EVMs.
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