Together DEXLanding services is one of the cornerstones of the DeFi segment. With relatively simple interfaces, they allow holders to earn interest and borrow funds secured by digital assets in a few clicks.

The segment has long been led by projects such as MakerDAO, Aave, and Compound. To them TVL $15.15 billion, $13.59 billion and $6.64 billion, respectively (as of 04/10/2022). The Anchor protocol from the Terra ecosystem is also gaining momentum. His TVL has already surpassed $15 billion.

Landing projects of the DeFi 2.0 concept, such as Alchemix, are gaining popularity where debt obligations are self-repaying and not subject to liquidation.

Key Features of Classical Landing Protocols

Any landing protocol has digital asset supply pools and leveraged pools. Each contains a specific set of coins.

Users deposit their assets into the supply pool, which gives them the opportunity to earn interest on the deposited funds and borrow coins. The amount of available loan funds is slightly less than the value of the assets in the supply pool.

For example, the Credit-to-Value (LTV) parameter for WBTC “wrapped bitcoin” on the Aave platform on the Ethereum network is 70%. This means that if the collateral amount is $10,000, the user can borrow WBTC no more than $7,000.

Overcollateralization is the key difference between permissionless protocols and traditional financial market products based on partial reservations. KYC.

Another important aspect of extraction protocols is purges. If the value of the collateral falls below a certain level, the user’s collateral assets will be forcibly sold.

Alchemix value proposition

Alchemix is ​​a relatively new landing protocol with some specific features.

“Alchemix self-repaying loans allow the use of a range of tokens without the risk of liquidation,” the project’s website says.

To avoid the risk of liquidation, loans on synthetic versions of collateral assets are allowed. For example, a user deposits the collateral in ETH or DAI and releases the assets linked to them – buyETH and buyUSD respectively.

If coin prices fall, the value of both the collateral and the borrowing falls. However, this does not adversely affect users’ debt positions and does not affect the LTV parameter.

This is the main difference between Alchemix and classical lending protocols where variable assets such as ETH are usually deposited and borrowed in stablecoins (when the collateral value in Ethereum drops, the loan amount in the stablecoins remains unchanged, making the debt position risky).

The platform interacts with the yEarn Finance protocol created by Andre Cronje. Thanks to this integration, users earn income from the collateral assets they deposit.

e.g, the user contributes DAI to Alchemix. Stablecoins start earning immediately thanks to the use of one of the yEarn Finance strategies. Regarding the security of invested funds, the user can borrow alUSD, the local stable currency of the protocol.

The interest income generated by the yEarn vault gradually repays the user’s loan. This approach is more efficient because it allows you to borrow more and minimizes liquidation risks.

The Credit Rate parameter of the Alchemix protocol is 50%. This means that the user’s loan amount cannot exceed half of the collateral value. In other words, the value of the collateral must be at least twice the loan amount.

Users can cash out the collateral or a part of it at any time to instantly pay off their debt in alUSD. Partial liquidation of a position can be beneficial if the user urgently needs collateral assets, but there is no way to fully return the borrowed funds.

You can repay the loan either with a synthetic stablecoin or with the more familiar DAI, USDC or USDT.

At the time of writing, the yEarn Vault yield for the DAI stablecoin is only 2.53%. The strategy includes interaction with the Compound and Curve platforms for the cultivation of COMP and CRV tokens. The generated coins are sold for DAI and then deposited back into the Vault.

10% of the proceeds go to the treasury of the decentralized autonomous organization Alchemix. These funds can be used to pay developers, fund various community initiatives, periodic audits, etc. using for. The remaining 90% is used to pay off users’ debt positions.

An arbitrage system similar to Terra is used to maintain the stability of the AlUSD exchange rate.

Suppose 1 alUSD is less than 1 DAI. An arbitrageur can buy synthetic stablecoins from Alchemix at a discount on one of the exchanges and then profitably exchange them for an equivalent amount of DAI to pay off the debt in his vault.

If 1 buyUSD is worth more than 1 DAI, the asset can be issued at a discount to the market price and then sold.

The platform has a Converter tool. Thanks to this, conversion and reversal of WETH and stablecoins to synthetic assets are available at a 1:1 ratio. For example, it is possible to replace borrowed USD with DAI and then use DAI in third-party DeFi protocols to maximize return on capital.

Alchemix has a native ALCX token. Used in protocol management voting. The token can also be used for staking or the WETH/ALCX liquidity pool on SushiSwap.

The chart below shows that in March 2021, shortly after the project launched, the ALCX rate briefly crossed the $2,000 mark. Later, the price of the asset went into free fall.

At the time of writing (04/10/2022), the asset is trading at an all-time low – just above the $90 mark.

ALCX, ETH and synthetic versions of these assets can also be cultivated.

Pool annual returns (APY) vary significantly. For example, as of February 6, 2022, the APY for Saddle alETH is 3.12% and for ALCX/ETH v2 is 44.91%.

Alchemix 2.0 and the future of the project

The launch of the first version of Alchemix took place in February 2021. At first there were only two Vaults on the platform – for DAI/alUSD and ETH/alETH.

With the release of the second version in March 2022, the Alchemix interface has changed and the platform’s capabilities have expanded significantly.

The vaults arose on the basis of the popular central stablecoins USDC and USDT, as well as the “wrapped” ether of Lido (wstETH) and the rETH of the Rocket Pool protocol.

In line with the new assets, Transmuter’s abilities have also expanded, the Farms section has changed.

Alchemix co-founder Scoopy Trooples announced integration with Aave, Compound and other DeFi protocols in addition to yEarn.

We start at the beginning with @earnfinance as our yield provider, but will soon have strategies that can be linked to yield sources from @AaveAave and @compoundfinance and other protocols that share token standards.

— scoopy trooples (@scupytrooples) 15 March 2022

New return strategies and collateral options will emerge soon, he said.

More strategies and collateral types will be added to Alchemix v2 over time. Our goal is to ensure that our revenue sources for our users capture the best returns in DeFi.

— scoopy trooples (@scupytrooples) 15 March 2022

Scoopy Troops too named The second version of the protocol is more secure than the first.

Results

Alchemix has an interesting value proposition – the developers have radically revised their approach to unattended lending.

Through interaction with the yield aggregator yEarn and the use of synthetic assets, user collateral is used efficiently. Debt positions are virtually immune to liquidations and are automatically paid by future interest income.

Among the shortcomings of the platform, the low (at the time of writing) profitability of yEarn strategies can be noted. It also lacks support for next-generation networks such as Fantom and Avalanche, with their fast and low-cost operations. However, given the optimistic explanations from the developers and the growing popularity of cross-chain solutions, it is highly likely that these issues will be resolved soon.

In the future, we can expect the emergence of no less original approaches within the framework of the DeFi 2.0 concept and new solutions that motivate users to actively participate in decentralized ecosystems.