Mar 9 | 8 min read
What is Alchemix?
How does it work?The Alchemix v1 Protocol Architecture
The Alchemix v2 Development Roadmap
What is ALCX?
Who created Alchemix?
What makes Alchemix stand out?
Why was ALCX included in GMI?
How can I buy ALCX?
Alchemix is a DeFi lending protocol that offers self-repaying loans without the risk of forced liquidations. ALCX is one of 12 tokens currently held in the the Bankless DeFi Innovation Index (GMI) designed to capture the performance of the most significant tokens in the Decentralized Finance ecosystem.
Alchemix’s value proposition is that it enables its users to access tokenized value against their deposits, while those deposits harness the power of DeFi to automatically pay down a borrower’s loan balance over time. Conceived as a new tool for people to take advantage of the time value of money, Alchemix is deployed on-chain on Ethereum using smart contracts to provide security, transparency, immutability, and uncensorable access to all.
Alchemix is for people and institutions who want access to their future yield now, with their only debt being the time it takes the loan to self-repay. A borrower’s future yield comes in the form of synthetic tokens known alAssets. Alchemix currently offers alUSD to borrow against DAI, and alETH to borrow against ETH. Alchemix establishes a 1:1 peg between collateral types (DAI and ETH) and their pair alAssets via very deep exchange liquidity, as well as the novel Alchemix Transmuter, which provides a backstop for the peg.
The maximum LTV for borrowing alUSD is fixed at 50%, whilst it sits at 25% for alETH (to be raised in future by governance vote). Deposited assets are deployed from the vaults into yield-bearing strategies (currently on Yearn, with additional yield strategies to be added in Alchemix v2). Yield earned is used to offset the balance of alAsset borrowings, allowing the loan to incrementally repay itself, or the user to re-borrow the repaid amount. Because everything is on-chain and overcollateralized, and the unit price of the borrowed alAsset is fixed at a 1:1 ratio against the deposited collateral, borrowing future yield does not require any human intermediaries such as underwriters, and there is also no need for forced liquidations of user funds.
Alchemix does not impose fees on deposits or borrowings, but does take a 10% fee from all yield generated by user deposits. These fees are used to pay for operating expenses and the ongoing development of the Alchemix ecosystem. The remaining 90% is deposited into the Transmuter, where it can be exchanged to alAsset stakers at a 1:1 ratio over time, or re-deployed into yield-bearing vaults to generate even more future yield. Because the alUSD and alETH liquidity is deep, there is often very little demand for exchanging alAssets via the Transmuter — so its balance (currently over $400M USD combined DAI + ETH) is typically re-deployed for additional yield, to the benefit of all borrowers.
Since launching on Ethereum mainnet in late February 2021, Alchemix has achieved over $600M in TVL, across 2 lending vaults, and over $100M across various staking pools. Alchemix has found product-market fit amongst entities that want to leverage their positions in a comparatively low-risk manner.
The Alchemix team is currently hard at work on the imminent launch of Alchemix v2, with the formal audit by Runtime Verification having just been completed. The remainder of 2022 will be used to further expand on the new v2 platform; with the roadmap including new yield strategies, new collateral types, payment streaming, a multi-chain expansion to other EVM-compatible chains, and more. The new architecture also enables a multitude of third-party financial tools that can be built on top of Alchemix, as well as Smart Contract interactions to support DAO treasuries. The project also plans further decentralization through the formal implementation of the AlchemixDAO. See the Alchemix v2 roadmap announcement here.
At the time of writing, Alchemix represents over 85% of the DAI locked in Yearn’s yvDAI vault (1), and over 50% of the ETH locked in Yearn’s yvETH vault (2). By the end of 2022, Alchemix expects to represent a large percentage of staked TVL in a number of additional yield strategies and assets. Alchemix will be well-positioned to capture much more of the value from people and institutions that are looking to take advantage of their unique product.
ALCX is the Alchemix ERC-20 native token. It currently serves two roles: governance and incentivization. With the rollout of AlchemixDAO, stakers in the DAO will be given additional uses and roles. For example, planned revenue sharing (currently under discussion) will enable stakers to share in a portion of protocol revenues, whilst staked ALCX may be used as a backstop to protect the protocol’s integrity in the unlikely event of a Black Swan event.
At the launch of the protocol in February 2021, there was an initial pre-mine of 478,612 ALCX tokens, with 15% of the supply going to the DAO treasury and 5% to the bug bounty program. 358,959 ALCX were allocated to the treasury for use as determined by the community. Approximately 22,344 ALCX tokens were distributed from Staking Pools in week one of staking, and emissions have been decreasing by approximately 130 ALCX per week. The ALCX token has no fixed supply; at three years from initial launch, the circulating supply is expected to hit 2.393M tokens. At this point, emissions will have fallen to a flat 2200 ALCX per week, increasing the total supply by 114,400 ALCX annually and corresponding to an initial inflation rate of approximately 4.5%, decreasing annually.
Major ALCX deposits and holdings currently include:
29% Tokemak ALCX Token Reactor
18% ALCX Single-Sided Staking Pool
15% Alchemix Treasury
14% ALCX/ETH SushiSwap Liquidity Providers
The ALCX token is backed by deep liquidity and is currently listed with several CEXes and DEXes, including SushiSwap, Bancor, Gemini, Coinbase, Binance, FTX, HitBTC, BKEX and more. There is also an ALCX options market on Premia Finance. Additionally, as early partners in the Olympus Pro and Tokemak ecosystems, Alchemix is well-positioned to leverage Protocol Owned/Controlled Liquidity (POL/PCL), ensuring sufficient liquidity for the ALCX token, as well as other alAsset types.
Alchemix is the brainchild of a pseudonymous group of developers. They go by the noms de plume of Scoopy Trooples, Dr. Derivative, Gorby, Nomad, Snape, technocratic, Foobar, and Nano. Protocol spokesperson Scoopy Trooples entered the crypto space in 2016. Excited by the opportunities and possibilities presented by blockchain, he quit his job in 2018 and began learning how to code full time. In 2020, he became a founding member of the project that eventually became Alchemix. He also helped found eGirl Capital, which was one of Alchemix’s seed investors. Gorby and the other project leaders had similar trajectories of being in the crypto and blockchain periphery for a few years before finding Ethereum and deciding to work on something meaningful in the space. Many of the developers were able to quit their full time jobs to focus on Alchemix after the launch of Alchemix V1.
Today, the Alchemix team is composed of the 8 core developers, as well as a growing group of part-time staff members and community contributors. Anyone interested in getting involved with the project or learning more is encouraged to drop in their Alchemix Discord, where they have a highly engaged, helpful, and fun community. The Alchemix team is committed to the idea that only with and through the community can Alchemix really strive to meet its full potential.
Alchemix stands out because it enables self-repaying loans with no risk of liquidation. Much of DeFi is loan-based, but Alchemix is a rare example of a protocol that offers effectively negative interest rate loans AND no liquidation risk. From a practical standpoint, this means that Alchemix loans do not expose borrowers to the risk of inadvertently entering a pattern of cascading liquidations, which can be an unfortunately common occurrence in DeFi. Borrowers on the Alchemix protocol can sleep easy knowing that they don’t need to set up alerts or monitoring on their Alchemix positions.
Self-repaying loans offer individuals and organizations a new way to interact with their money and crypto. Instead of spending their assets, depositors use Alchemix vaults to actually be their own bank. This dynamic is still relatively new, and depositors are finding new uses for their Alchemix loans every day.
Early backers and strategic partners of Alchemix included eGirl Capital, DCV, Alameda Research, Weak Simp Capital, Immutable, LedgerPrime, Orthogonal Trading, Magic Ventures, The Spartan Group, Delphi Digital, CMS Holdings, GBV, Maven 11 Capital, Fisher8, Protoscale Capital, Nascent.
The addition of self-repaying loans without risk of forced liquidation is a DeFi innovation that improves capital efficiency whilst protecting users from market volatility. Alchemix has uniquely enabled this through its leading approach to peg stability and liquidity provision, and its ability to execute on its vision and collaborate with other leading DeFi protocols has made it a stand-out candidate for inclusion in the DeFi Innovation Index (GMI).
You can gain exposure to Alchemix and other promising early stage DeFi projects which are not yet considered “blue chip” by buying GMI which includes ALCX tokens. You can buy GMI directly from the Index Coop by connecting your wallet to the Index Coop app.
If you’re looking to exchange a fiat currency, like the U.S. dollar, directly for GMI, then you’ll want an Ethereum wallet like Argent, Metamask, or Rainbow. With each of these wallets, you can connect to your bank account or debit card, which allows you to exchange fiat currencies directly for Index Coop products like GMI.
The Bankless DeFi Innovation Index (GMI) is a simple composite index including promising early stage DeFi projects which are not yet considered “blue chip”.utilizes an indexing strategy to offer broad, diversified exposure in a single token. GMI allows users to de-risk their exposure to DeFi upstarts–which are often novel and risky, yet contain considerable upside.
Index Coop is a decentralized autonomous organization (DAO) that powers structured decentralized finance (DeFi) products and strategy tokens using smart contracts on the blockchain. We offer a suite of sector structured products, leverage and inverse products, and yield-generating products. We aim to create products that are simple to use, accessible to everyone and secure. Our products are built on Set Protocol, a twice-audited, self-custodial DeFi tool that allows for the creation and management of Ethereum-based (or ERC-20) tokens. Among users, partner protocols, and our composable products, Index Coop maintains one of the largest partnership networks in the DeFi ecosystem.
First, you’ll need to create an Ethereum wallet like Argent, Metamask, Gemini, or Rainbow.
Next, you’ll set up your new wallet and connect your bank account.
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