New collateral types
Alchemix is opening the doors to more collateral types.
Leverage more of your wealth (without risk of liquidation!) than ever before. What was an interesting defi innovation is becoming a serious proposition DeFi users need to think carefully about before they ignore.
One of the major features of the V2 architecture is the ability to collateralize loans with multiple different underlying tokens. Importantly, each collateral for any given synthetic must still be soft-pegged to the synthetic (ie. alUSD loans cannot be collateralized with wBTC).
On the stable coin front, alUSD loans will now be collateralized by DAI, USDC, and USDT, greatly expanding user options for how they wish to back these loans. All of the deposits in a single account, regardless of collateral type, are aggregated into one account balance, allowing users to borrow alUSD relative to their total amount deposited instead of being isolated to each collateral type. This creates a seamless user experience for managing your collateral and debt positions.
This increase in collateral types also helps Alchemix scale. Currently, we only use the yvDAI strategy for alUSD, and as we pour TVL into Yearn, we dilute the vault, bringing the yield down. By having more collateral options, it will allow our users to deposit at scale while not overwhelming any one vault’s capability to generate yield. Long term, the Alchemix DAO will be tasked with assessing the eligibility of new collaterals on a per-synthetic basis.
As Alchemix v2 expands, new synthetic tokens can be considered including BTC and valueless governance tokens. The Alchemix DAO will search out the highest yields for our users to make Self-Repaying Loans as attractive as possible.
We wanted to remove as much UX friction as possible with Alchemix v2. One way we achieved this was allowing users to deposit either the underlying or the yield bearing asset into the Alchemist. In v1, if a user already has yvDAI, they have to withdraw from yearn, then deposit back into Alchemix. In v2, users can deposit and withdraw both DAI and yvDAI. This should remove friction for users that already hold interest bearing tokens, helping onboard collateral to Alchemix at warp speed.
Every stablecoin has its own unique risks. Centralized stablecoins could lose their peg if they are run fraudulently and can blacklist specific addresses. DeFi native stablecoins have greater smart contract and depegging risk, since they are not directly convertible to FIAT. As such, each yield strategy for each collateral type has its own deposit limit. If there are risky strategies, or high risk stablecoins added to Alchemix, we can limit the total amount that can be deposited into the protocol, and manage our risk accordingly with deposit limits, thus limiting the damage that they could potentially do.
We have been fortunate that nothing has happened to the Yearn vaults that power Alchemix. If the yvDAI or yvWETH vaults suffered a hack, the V1 architecture would produce a race condition where the first users to withdraw would receive their initial deposit in full — until there is no yvDAI left. At that point, users who weren’t fast enough would be left with nothing.
V2 changes that, and any such loss is shared equally to everyone who is in that same strategy. For example, if the yvDAI strategy got exploited and suffered a 10% loss, all users in that strategy would see their deposit in that strategy decrease by 10%. Users would not be liquidated in this scenario, and if they wait long enough, Alchemix will continue working with their deposits and pay off the debt over time. This is a much fairer process if an exploit were to happen with any of our yield providers. It also places some responsibility on users to select strategies that they are comfortable with. Of course, the Alchemix core team and DAO will work to ensure that only proven and time-tested yield strategies will be adopted, but one can never know if they are truly safe in a DeFi protocol.
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