What Is Alchemix?
A self-paying loan may sound alien in the traditional banking industry, but anything is possible in the crypto space. Alchemix is one of the fast-paced decentralized finance (DeFi), applications deployed on the Ethereum network that provides users with instant loans against a temporary deposit of stablecoins.
This beginner’s guide discusses information about the Alchemix finance project, architecture, unique features, and perks. Let’s begin.
What Is Alchemix?
As stated earlier, the concept of self-paying loans is often considered radical. However, Alchemix generates high yields and loan solutions using the decentralized finance (DeFi) protocol.
Alchemix is an innovative DeFi lending platform representing a new debt repayment approach. The finance platform is built on the Ethereum blockchain and allows users to receive advances on future cryptocurrency yields.
Users deposit collaterals into the Alchemix platform to take out instant loans in the form of synthetic tokens that are automatically amortized over time using yields earned. This enables investors to access instant advances on the yields of their deposited collateral. The longer deposits are left, the more yields investors can generate and consequently pay back on loans.
Furthermore, all the tokens created by the crypto lending platform are synthetic versions of the deposited collateral by users; this means that investors on the platform are never exposed to liquidation risk as the initial deposits are still in the pool and users can borrow the synthesized versions.
In essence, the Alchemix lending protocol presents a powerful finance platform that offers myriads of DeFi applications for investors and an exciting tool for developers. Furthermore, the protocol is governed by the Alchemix ALCX token, currently the No. 494 cryptocurrency with a market cap of $29 million.
Before diving deeper into Alchemix's architecture and features, it is worth noting how this innovative protocol started.
Alchemix Finance protocol was founded by pseudonymous developers hiding behind a cartoonish Twitter profile known as Scoopy Trooples. The anonymous developers are known for their ideas, creation, and investment in an array of up-and-coming decentralized finance projects, including eGirl Capital, a digital venture capital company.
The Alchemix protocol debuted in February 2021 and only accepted Dai (a stablecoin on the Ethereum blockchain pegged to the U.S. dollar) as the only collateral deposit. Dai is used to create synthetic Alchemix tokens known as alUSD and has a minimum collateral ratio of 200%.
Since then, the team has developed a new vault that enables investors to deposit Ethereum and create alETH tokens with a minimum collateral ratio of 400% estimates.
While the founders behind Alchemix are yet unknown, we know the DeFi crypto lending protocol is fully committed to decentralization. The finance platform asserts to utilize on-chain governance and evolve into a decentralized autonomous organization (DAO) overseen by the community.
How Does Alchemix Work?
The architecture of Alchemix is built to work in a simplified way compared to legacy financial systems. For instance, traditional banks require credit history, employment data, and identification before a loan is considered. In contrast, only a collateral deposit in the form of DAI tokens is required on the Alchemix platform.
The Alchemix platform gathers investors’ deposit collaterals, deposits those funds in other decentralized finance protocols like Yearn, and immediately generates yields as earnings to repay everyone’s loan.
In simpler words, investors can deposit DAI (a stablecoin issued by Maker DAO) to mint alUSD stablecoin. For every 2 DAI deposited on the crypto-lending platform, investors get to borrow up to 1 alUSD. The DAI deposited into Alchemix are deployed to a DeFi protocol, where yields are generated. This yield can be used to clear investors' debts.
To start, users must have a MetaMask crypto wallet containing some DAI. Once done, investors should connect the Alchemix app to their MetaMask wallet. This will enable the app to detect the user's DAI balance and initiate a deposit.
What Makes Alchemix Unique?
The innovative finance protocol integrates several core lending features that distinguish it from its competitors.
Vault
Vault is an integral feature that enables investors to generate yield as passive income. This core tool accepts DAI as the collateral cryptocurrency. Depositing DAI in the Alchemix Vault allows investors to mint up to 50% of their initial deposit amount as alUSD.
This is made possible by the finance protocol depositing investors' DAI into Yearn Finance yDAI vault. As Alchemix generates yield earnings from the Yearn vault, the DAI pool that belongs to Alchemix investors automatically rises, thus paying off advances in time. The Alchemix vault is similar to other lending platforms like MakerDAO and AAVE.
Transmuter
The Transmuter is a functional tool on the Alchemix decentralized platform that follows a primary pegging system for all synthetic tokens. The Transmuter maintains a stable 1:1 peg between alUSD tokens and DAI deposits. DAI deposits are used to create alUSD, so Transmuter is important to keep the two tokens in parity.
Furthermore, as the Alchemix platform harvest yields from Yearn Finance vault, the Transmuter plays an important role in siphoning them. For instance, when investors deposit alUSD back in the transmuter to withdraw DAI, there will always be high liquidity of DAI.
What Are the Benefits of Alchemix?
There are several key advantages and benefits that can be leveraged when investors join Alchemix finance:
Simplified Loan Repayment
One of the biggest benefits of Alchemix Finance is its simplified loan payment structure. Specifically, the collateral-backed loans are repaid through profits generated by initial deposits/collateral via Yearn Finance vaults. As investors' debts are paid back, there are more opportunities to borrow against their future yields.
Passive Income
Another major draw for Alchemix Finance that continues to drive its massive adoption is its passive income streams. Users can farm their alUSD to generate high annual percentage yields (APY) with low risk.
Crypto farming requires investors to provide liquidation to a smart contract; the more liquidity provided, the higher the rewards. This is similar to staking, but there are no fixed APY or lock-up periods.
Security
The Alchemix platform development team ensures that the lending protocol is always secure. The DeFi network has been tested, audited, and passed major security scrutiny, including CertiK, with an 80/100 test score.
Alchemix (ALCX)
ALCX is the native token of the Alchemix platform. The Alchemix ALCX enables holders to partake in protocol decisions such as product rollouts, new project implementation, liquidation, treasury management, and so much more.
According to CoinMarketCap, Alchemix is trading at $17.75 per token, with a 24-hour trading volume of $1.2 million. This digital asset also has a market cap of $29.9 million and a circulating supply of 1.68 million ALCX coins.
Currently, investors can stake Alchemix ALCX on the Alchemix platform to generate additional ALCX tokens distributed as part of the token’s emission schedule.
In terms of storage, the lending protocol does not keep funds. However, investors can connect supported crypto wallets like MetaMask, WalletConnect, and Atomic to the protocol for seamless deposits and withdrawals of ALCX tokens.
Bottom Line
Alchemix is one of the fastest-growing protocols to disrupt the medieval lending space. Integrating the independent altcoin ALCX has expanded the finance platform’s unique value position. With Alchemix, both investors and developers can seamlessly generate passive income, take advances, and pay back on loans through their yields.
FAQs
What Is Alchemix Crypto?
Alchemix crypto is ALCX, an altcoin deployed on the Ethereum network (ERC20). The token is used to govern the Alchemix protocol and to reward participants on the platform for providing liquidity.
Who Owns Alchemix Crypto?
Alchemix ALCX lending protocol was developed by a pseudonymous group of developers known as Scoopy Trooples. To date, their identities or whereabouts remain unknown.
Is Alchemix Built on Ethereum?
Yes, Alchemix is an Ethereum-based decentralized finance (DeFi) lending protocol that provides instant loans that automatically pay themself over time.
How Does Alchemix Make Money?
Alchemix's lending protocol relies on investors (participants) to contribute to its liquidity pools by depositing collaterals to facilitate its lending mechanism. These pools provide opportunities for investors also to generate passive income on synthetic tokens like alUSD stablecoin.
