With over 6 months of planning and production, ideation and consolidation, we are thrilled to finally share what we have been hard at work creating. Alchemix, an ancient power in a modern time(™)
Alchemix is a DeFi protocol that allows for the creation of synthetic tokens that represent the future yield of a deposit. It enables users to retrieve near instant tokenized value against temporary* deposits of stablecoins. A magic money potion if you will, however one that is crafted in Defi with perhaps a sprinkling of ancient wisdom(!). The protocol presents a powerful new DeFi primitive offering myriad applications for users and an exciting new tool for other developers.
How it Works:
Version one of the Alchemix protocol will be launched with a synthetic derivative, “alUSD,” which will be mintable using DAI (other stablecoins to follow). To mint alUSD, users deposit DAI into the Alchemist smart contract via our hosted UI and can then mint alUSD, up to 50% the deposited amount of DAI at a 1:1 ratio. The deposited DAI is deployed to yearn vaults to earn yield.
Alchemix is full of possibilities... your funds aren’t imprisoned in some medieval way.
Once deposited, funds are committed to earning yield which will eventually, automatically pay back user debt. There are however several ways in which a user can choose to manage their loan:
Option 1: leave their deposit to continually earn yield, allowing them to periodically draw down their loan collateral
Option 2: repay the loan early using alUSD or DAI, allowing them to withdraw their collateral
Option 3: liquidate their loan using part of their collateral to repay the loan and allow them to withdraw whatever is remaining.
What can you do with alUSD?
Like many other ERC20 tokens on Ethereum, alUSD is tradeable and experiences price fluctuations. This opens up an array of opportunities for the savvy investor that are beyond the scope of this article. We’ve speculated about some use cases at the bottom of this article for your entertainment.
Enter the Transmuter
Users can send their alUSD to the transmuter which will queue it for conversion back to DAI and other stablecoins. At this point you may be mistaken for believing that the genius of Alchemix has indeed conjured a recipe for creating free money. The Transmutation process however does take time, relying on other ecosystem dynamics to determine its speed.
How alUSD is pegged to $1:
There are several governance-minimised pegging mechanisms built into the protocol itself:
- Transmutation from alUSD to DAI:
Yearn vault yield is periodically collected and deposited into the transmutation pool. Each time yield is sent to the transmutation pool, it is allocated proportionally to all the alUSD staked in it. When users claim their DAI in the transmutation pool, an equal amount of alUSD will be burned from their staking deposit.
- Staking (alUSD-3CRV) incentive:
Staking rewards are earned in the form of ALCX DAO tokens by providing liquidity in alUSD/DAI/USDC/USDT in curve.fi (via the permissionless crv.finance dapp), and then staked in the Alchemix protocol. This adds deep liquidity for alUSD, enabling frictionless transfer of value, resulting in minimal price impact on the alUSD token.
- Early settlement of user deposits:
Debt can be repaid at any time with DAI and/or alUSD. For example, Bob has 1000 DAI of debt in the system, and he sees that alUSD is cheap at 0.9 DAI. Bob can buy 1000 alUSD off the market at a discount and settle his debt with alUSD, which the protocol always treats as equal value to DAI. Doing so would save Bob money and his act of buying alUSD would help to restore it to its peg. The opposite is also true. If alUSD is over the peg, Bob could sell his alUSD for DAI, allowing him to settle his debt at a discount.
- Ecosystem Growth:
The Alchemix team plans to release additional dApps that will utilize alUSD and other future al-tokens for their usage. With more dApps utilising these tokens, greater demand and upward price pressure will be projected toward them. This will reduce selling pressure on the al-tokens, and make all of the other pegging mechanisms more effective as a result.