Alchemix Q4 2022 Report summary

9 min readFeb 6, 2023

This is a summary of the Alchemix Q4 2022 report which can be found in full in the Alchemix GitBook.

Key Insights

The fourth quarter of 2022 brought many developments into the crypto space and into the Alchemix world, including the following:

The FTX exchange and Alameda Research collapsed in early November, with fallout throughout the entire crypto space, including Alchemix and its alAssets.
Launch of Alchemix Vesper vaults on Mainnet.
12 governance proposals went to a vote in the quarter.
Alchemix published an update on the progress of the development of veALCX and the DAO.
Launch of alUSD/alETH Uniswap v3 Pool with Arrakis.
Alchemix has purchased carbon credits through KlimaDAO to offset historic emissions caused by the protocol.
Price support for Alchemix tokens was added to DefiLlama.
In collaboration with Multifarm, Treasury and Elixir dashboards were added to alchemix-stats.com.
Because of the FTX fallout that spread to USDT, certain transactions involving USDT were temporarily paused on Alchemix.
Beefy added the alETH/ETH liquidity pool.
v1 vaults were officially deprecated.

This document is not investment advice, nor should anything herein be construed as solicitation to buy or invest. This is solely for informational purposes only. The discussions in this document represent a good-faith effort to effectively summarize the information that is contained in the corresponding Quarterly Report, the disclaimer of which, including, but not limited to, discussion about forward-looking statements, also applies to this document. The numbers that are being provided below, as of 1 January 2023, as well as other information disclosed in this document, are unaudited. In an effort to effectively summarize the data, this document may contain conjectures or guesses that are the authors’ alone, and do not represent any official positions, feelings or statements of the Alchemix protocol itself.

Introduction

Established in February 2021, Alchemix is a DeFi lending protocol that offers Self-Repaying loans without the risk of forced liquidations. 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 tested and audited and then deployed on-chain using smart contracts to provide security, transparency, immutability, and uncensorable access to all.

Q3 Lookback

The third quarter of 2022 brought interesting developments into the Alchemix world, including the following:

Optimism deployment at the very end of the quarter.
Launch of AAVE vaults on Mainnet.
Launch of vault migration tool on Mainnet.
In the wake of the market disruption caused by the collapse of the Terra ecosystem, alAsset prices experienced volatility in Q2, but largely stabilized in Q3.
13 governance proposals went to a vote in the quarter.
Total deposits contracted significantly as a result of the general market downturn and the corresponding decrease in Curve and stablecoin yields.
Yearn Finance, which Alchemix uses to earn yield in many of its Alchemists, announced that it was cutting fees for some of its vaults

Q4 TL;DR Metrics

Due to continuing volatility caused by market disruptions, at the end of Q4 2022 alUSD (0.9822) and alETH (0.9806) prices had dropped slightly compared to the previous quarter. The value of Elixir contents had decreased 19.8% to $70.35M and the value of the Treasury had decreased 21.4% to $8.2M. Global Deposits however had increased 29.4% to $30.97M.

¹ This row only shows v2 metrics, as v1 had been sunset as of October 1st. This row shows the state of the aggregate global user debt across all mainnet Alchemists.

² This row only shows v2 metrics, as v1 had been sunset as of October 1st. This row shows the state of the aggregate global deposits.

Q4 Data

The revelations of fraudulent activity within the FTX exchange and subsequent filings for bankruptcy by FTX and Alameda Research exacerbated negative sentiment in the cryptocurrency markets, and as shown in the tables below, had a negative effect on alAsset prices and liquidity.

alAsset Prices

The main challenge for the protocol is to maintain a strong price for the alAssets.

alAsset Utility

The image below shows the tools and protocols used within the Alchemix ecosystem, many of which provide direct use-cases for alAssets.

Specific integrations and partners are discussed in the full report.

ALCX Governance Token

The governance token of the Alchemix protocol is ALCX. It allows users to influence protocol direction by voting on submitted proposals.

A portion of ALCX emissions are currently being redirected to the treasury, effectively reducing the amount of new ALCX that enters circulation.

As shown on the chart, the initial high token issuance rate decreases in a linear fashion, dropping to the baseline 2200 tokens emitted per week at the 3-year mark. At this date, annual inflation will be ~4.7%, very slowly decreasing in perpetuity.

ALCX emissions are used to support the strategic goals of the protocol.

The protocol is still incentivizing single-sided staking, ALCX liquidity, and alAsset liquidity by using ALCX emissions. However, it has begun the transition to using emissions for the purpose of accumulating strategic assets. As at January 1st 2023 the annualized inflation rate of ALCX was 25.44% and the table below shows future emissions.

Projected ALCX Supply Growth Compared to 2023.01.01.

Alchemix System Components

Three main components work in tandem to provide the functionality for the Alchemix system. These are the Alchemists, Transmuters and the Elixirs (AMOs).

User deposits are held by the Alchemist contracts. The Elixir and Transmuter contracts also hold a significant amount of funds that are responsible for providing a backstop for alAsset redemption. The Transmuters redeem alAssets for their underlying collateral pairs 1:1, but do this slowly, over a longer period of time.

The Elixirs, on the other hand, own a portion of the main alAsset liquidity pools and can take action to ensure that trades in their respective liquidity pools can be fulfilled at a reasonable level that is determined by governance. The Elixirs also provide a large portion of protocol revenue by farming the liquidity pool tokens.

Excess funds are being deployed in the Transmuters or in the Elixirs to provide price stability and to earn additional protocol revenue.

This quarter the Elixir contracted by -$17.32M (-19.76%). Caused by the further market downturn this quarter and the price drop of ALCX, CRV and CVX, incentives to alAsset pools decreased considerably, resulting in assets being removed from alAsset pools.

Elixir Contents

In Q3 2022, the Elixir contained 61.5 million in USD equivalents and 19726 ETH, with a total value of $87.67M. At the close of Q4 2022 these had decreased to just under 49 million in USD equivalents and 17066 ETH, with a total value of $70.35M.

Treasury

The main goal of the Alchemix treasury is to use its value to support and expand the protocol. It acquires assets that it can use for the needs of the protocol, or use for some other strategic purpose. As a baseline, this is done by investing protocol revenue into these assets.

A Treasury dashboard that highlights revenues and expenses, as well as assets and liabilities, can be found at https://alchemix-stats.com.

At the end of Q3 2022 the treasury assets were valued at $10.43M and comprised stablecoin assets valued at $0.83M and $9.6M of other assets. By the end of Q4 2022 the treasury assets were valued at $8.2M and comprised stablecoin assets valued at $0.73M and $7.47M of other assets. The above numbers reflect non-ALCX holdings.

As a result of the latest market downturn the treasury essentially returned to a state where it was 6 months prior. It contracted by $2.23M (-21.4%) as a result of the market downturn and partially counteracted by revenue contributions mainly from the Elixirs.

Deposits and User Metrics v2

This section provides numbers for user activity in the protocol’s v2 contracts. All data is for Q4 of 2022. Please note that the numbers in this section do not yet include a large amount of funds that were still in the temporary v1->v2 migration contract.

Net Deposits at Quarter End

At the end of Q3 2022 net deposits on Alchemix were $24.13M. This consisted of mainnet stablecoins $8.48M, mainnet ETH $15.12M, and Fantom stablecoins $0.33M. At the end of Q4 2022 net deposits on Alchemix were $30.97M, an increase of over 28% on the previous quarter despite difficult market conditions.

Q4 deposits consisted of mainnet stablecoins $13.81M, mainnet ETH $16.54M, Fantom stablecoins $0.14M, and for the first time, Optimism deposits of $0.48M. The Optimism deployment of Alchemix accepts deposits of ETH, DAI, USDC and USDT and totalled $0.15M stablecoins and $0.33M ETH.

Governance

The following are Governance proposals that were voted on in Q4 2022:

AIP-66 was passed to start a trial of an alUSD-alETH liquidity pool on UniswapV3 in collaboration with Arrakis Finance. The vast majority of liquidity for Alchemix is alUSD/stablecoin and alETH/ETH so this trial would allow a direct path for users between alAssets and could result in increased arbitrage on alAssets and therefore increased trading fees for alAsset liquidity providers.
AIP-67 was an interesting proposal regarding the offsetting of Alchemix’s historical emissions. At an estimated cost of around $8K USD only 2% of the votes were against this proposal.
The approval of AIP-68 authorizes the launch of Yearn ETH, USDC, and DAI vaults and the vault migration tool on Optimism. As the adoption of L2s picks up, Alchemix will be positioned to serve these users.
AIP-69 was passed to authorize the launch of the Idle strategy for USDC Clearpool Senior Perpetual Yield Tranches (PYTs), which lets users access a type of product from traditional finance that allows them to select their risk/return profile. However, with the difficulties many centralized institutions suffered in 2022 and the subsequent loss of trust, Alchemix will not be launching this in partnership with the proposed centralized organization.
AIP-70 passed to raise the deposit cap on the stETH vault to 3000 ETH and an additional increase to 5000 ETH a month later and use an oracle for price reporting. This is the highest yielding ETH vault so users have been waiting for an increased cap.
AIP-71 passed to authorize a migration of funds from deprecated Alchemix v1 vaults where users were not earning yield since October, to v2 where users were once again able to earn yield on their deposits.
AIP-72a and 72b were passed with the results meaning FRAX will be accepted as collateral on Alchemix and that 80% of both the 46.9M alUSD3CRV and 11.5M DAI will be allocated to the alUSDFRAXBP AMO. The resulting alUSDFRAXBP AMO is expected to make alUSD liquidity incentivisation less expensive for Alchemix.
AIP-73 was passed to start a trial allocation of ALCX tokens to the StakeDAO bribe market.
AIP-74a and 74b reached quorum to decide how to allocate the 250K OP token grant that Alchemix received to incentivise both Alchemix depositors and alAsset liquidity providers on Optimism.
The Unstoppable Finance ecosystem grant AIP was passed to pay for the audit costs of their Fair Funding platform contracts, which are based on Alchemix v2.