De-fi lending is an aspect of the Decentralized Finance space that keeps growing, giving more incentives and advantages to users. The constant growth has led to the birth of Self-repaying loans, a system that automatically pays off loans through investment yield earnings. A protocol that is becoming well known for this is Alchemix Finance. In this article, we will analyze Alchemix (ALCX), what it is, how it works, and what the protocol has in store for users.

What is Alchemix (ALCX)?

Source: https://alchemix.fi/

Alchemix is a pioneering De-Fi platform that provides an alternative to collateral borrowing through self-repaying loans. Self-repaying loans are automatically settled using the yield earnings from investments or businesses. Smart contracts on the blockchain power self-repaying loans. The smart contract automatically deducts the repayment amount from the collateral until it is completely settled, depending on the protocol’s rate. Once the repayment is settled, the collateral is returned to the user.

Alchemix is a protocol to create yield-backed synthetic tokens that users obtain in exchange for locking collateral in the Alchemix system. Built on the Ethereum network, Alchemix provides users with an opportunity to take out instant loans in the form of synthetic tokens that are repaid automatically over a period using earned yields.

Alchemix is a financial platform that provides users with self-repaying loans, letting users leverage several tokens without the risk of liquidation. The deposited tokens serve as collateral, allowing users to earn advances on the yield instantly. The platform mints its synthetic token versions of the collateral, reducing the user’s risk of being liquidated to the minimum.

History of Alchemix

Alchemix protocol and the resulting ALCX crypto was founded in February 2021 by a group of pseudonymous developers led by an alias, Scoopy Trooples. At the protocol’s launch, the only acceptable token was DAi, which was used to mint synthetic alUSD tokens and included a collateralization ratio minimum of 200%. The team later created a new vault that allows users to deposit ETH and mint alETH tokens with a collateralization ratio minimum of 400%.

After the ETH vault was released, an accident allowed users to withdraw collateral without repaying their loans, which led to the protocol losing 2,200 +ETH. To gain some of the lost ETH, the Alchemix team organized a campaign encouraging users to return the ETH they got in exchange for exclusive NFTs and ALCX rewards. This strategy helped the team recover more than half of the funds lost.

How Does Alchemix Work?

There are several lending dApps across several blockchains. In a bid to make itself stand out from the crowd, Alchemix has adopted an auto-repaying loan system that is different from the classic interest rate models.

Alchemix, through the use of decentralized smart contracts, allows users to deposit DAI in order to mint alUSD, a synthetic stablecoin, which is then used to earn yield over time. Alchemix then offers users several yield strategies to choose from. The alUSD can be traded 1:1 for DAI or bought and sold on exchanges.

Alchemix stacks several protocols on top of each other for maximum yield returns. Users can turn their loans over for fiat purchases or stake them for additional yield. Users who want to make use of the protocol can follow this simple process:

• Connect their wallet of choice to the Alchemix platform, which must contain DAI tokens.
• Place/deposit their tokens into Alchemix through its vault page.
• Alchemix then stakes the DAI tokens into a Yearn vault to earn yvDAI.
• The user then borrows alUSD worth up to 50% of the previously deposited collateral.
• The yield accrued to the yvDAI is periodically harvested to repay the debt of depositors.

Once the loan is paid back, the user can unlock their initial deposit and accrued yield. This seamless and user-friendly process makes Alchemix a good choice for DeFi enthusiasts who want to maximize their returns without bothering with collateral management.

Main Features of Alchemix: Collateral-Free Loans, Synthetic Assets, Alchemix Vault and more

The DeFi lending space is a growing market, and to facilitate its rise to the top, the protocol has equipped certain features that have contributed to its rapid success in the DeFi space. Some of these features include:

Collateral-Free Loans

This feature is a game-changer for Alchemix. This is because it provides loans without requiring collateral, unlike traditional DeFi lending platforms that require collateral in the form of locked-up assets, which is very risky due to the nature of the crypto market. Alchemix’s collateral-free loans are safer and, as a result, make DeFi lending more accessible to a larger audience.

Synthetic Assets

Synthetic assets are simply tokenized derivatives that mirror the value of another asset. To fully understand what they are, the first step is to know what derivatives are. Derivatives are any assets that derive their value from an underlying asset or index.

Alchemix users borrow synthetic assets that are backed by the yield earned, which is automatically paid back. Users deposit DAI tokens into Alchemix to mint alUSD.

Self-Repayment Mechanism

The biggest part of Alchemix is its self-repaying loan mechanism, which ensures the borrowing process is smooth and user-friendly, reducing the risk of borrowing from the crypto space. With this feature, users can borrow without worrying about manual repayments or sudden liquidation, the latter a major concern in the defi lending community.

Yield Optimization Strategies

Alchemix allows users to deploy their borrowed alUSD in several yield-generating strategies. This greatly empowers users to build their returns based on their investment goals and how much risk is involved. This feature turns Alchemix into more than a lending protocol but also a yield optimization platform.

Alchemix Vault

Vault is an essential part of the protocol that allows investors to generate yield as a form of passive income. This core tool accepts DAI as the collateral token and deposits it in the Alchemix Vault, which allows investors to mint up to 50% of their deposit in alUSD.

This is possible due to Alchemix depositing investor’s DAI into Yearn Finance yDAI vault. Alchemix’s DAI pool automatically rises as more yield is generated from the Yearn vault, thus leading to the loans being paid off on time.

Alchemix Components

Four main components work hand in hand to ensure that the platform functions properly. These Four components are Alchemists, Transmuters, alAssets, and the Elixirs AMO.

Alchemist

Alchemist serves as the smart contract hub to generate yield and yield advances. They have similar features to collateralized lending platforms like MakerDAO and AAVE. The platform currently accepts collateral in the form of ETH, DAI, USDC, USDT, and FRAX, including their respective yield-bearing tokens for each strategy.

Users take loans in the form of synthetic alAssets, and Alchemix takes 10% of all generated yield as a service fee. The generated service fee is then sent to the Alchemix DAO treasury.

Transmuter

Alchemix uses a Transmuter that follows a primary pegging system for all synthetic tokens. The Transmuter ensures a stable 1:1 peg between alUSD tokens and DAI deposits. The DAI deposits create alUSD, so the Transmuter’s job is to keep the two tokens equal.

alAssets

alAssets are synthetic debt assets used to represent a user’s future yield. Users have to sell alAssets before they can utilize them for on-chain and real-world purchases. Users can also buy alAssets to repay their loan early, or they could choose to convert the underlying overtime via the Transmuter.

Elixir AMO

The Transmuter has a limited amount of alAssets that can be converted to the underlying collateral. This means the transmuter can have an excess supply of assets. When this excess occurs, they are used to provide liquidity for their corresponding alAssets. This is where the DAO-controlled Elixir AMO comes into play. The Elixir increases the price of alAssets and earns yield by depositing into liquidity pools. This liquidity created can be withdrawn single-sided as alAssets to copy the effects of the Transmuter.

Alchemix DAO

The Alchemix DAO receives income from the Alchemix Protocol. The treasury pays developers and other permanent staff to grow and sustain the protocol. Also, treasury funds will be used to cover the price of audits of the protocol and any other products that come up.

The Alchemix DAO will fund projects developed on the Alchemix protocol or that use the Alchemist synthetic tokens in their applications. The DAO is currently run through a developer multisig with signaling through the Snapshot app. The governance of the protocol is decided by ALCX token holders. It follows this simple process:

• A proposal is submitted by a token holder with the tag “Ecosystem Development” with a minimum of 50 ALCX.
• Other users have 3 days to vote on the proposal and can only vote to be For, Against, or Abstain.
• If 50% of the non-abstain score is in favor of the proposal going forward and a total of 5K ALCX voting is met, the proposal is then moved to the official Alchemix Proposal Snapshot as an AIP (Alchemix Improvement Proposal).
• Official AIPs have a quorum of 35k ALCX. If that is met, then the multisig will be sent to execute the most popular voting option unless ordered to do otherwise by the voting parameters.

Alchemix V2 Remake

In the early periods of 2022, Alchemix upgraded, and this upgrade granted borrowers increased flexibility. Borrowers could now select their yield strategies and the type of token collaterals. This enables users to generate their yield aggregators by combining different strategies with different collateral types.

Alchemix also integrated Vesper and Aave vaults alongside Yearn Finance vaults. The combination of smart contracts with other platforms is a unique DeFi feature called Composability since each new component added creates a new product. In Alchemix’s case, new yield-generating strategies.

What is The ALCX Token?

This is the native token of the Alchemix platform, and like tokens of its nature, ALCX gives users a say in the affairs of the protocol. Holding the ALCX token gives crypto users the right to vote on decisions that affect the protocol, like product rollouts, new project implementation, liquidation, treasury management, and so much more.

The release of Alchemix v2 saw stakers receiving a share of the yield generated by the protocol. In exchange, ALCX stakers risk losing a portion of their stake in the event of a hack. This ensures the protocol becomes whole again even after a loss occurs.

Tokenomics

The maximum supply for the ALCX token is capped at 1,562,945 coins, with a circulating supply of 960,356 ALCX coins. The token was to be distributed to users and other stakeholders in the following way:

• 20% of the supply is allocated to the ALCX DAO. 15% of that is to be controlled by the community, while the remaining 5% is reserved for bug bounties.
• Yield Farming Participants are allocated 60% of the total supply.
• 20% of the total supply is allocated to the development team.

The token was released with an initial first-week distribution of 22,344 ALCX tokens, with 130 ALCX tokens being added weekly for the next three years. After the three years are up, a flat emission of 2200 ALCX tokens will be released weekly, supporting the ongoing need for rewarding user interaction in the ecosystem.

Is Alchemix ALCX A Good Investment?

Alchemix is poised to be one of the top projects in the DeFi lending sector by providing loans and empowering users to transform their assets into new opportunities without worrying about collateral, especially loan repayment. It is a project to keep an eye out for as the DeFi landscape keeps evolving. Although it has vast potential, it is important to do your research before making any decision.

Where To Buy ALCX

ALCX is present on a few cryptocurrency exchanges. It is available on exchanges like Gate.io. To begin trading, users must register on the platform, create a gate.io account, complete the Know Your Customer (KYC) procedure, and then review how to purchase the token once their accounts have been funded.

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