As much as I am interested in stablecoins, I have recently explored Alchemix protocol. looks like lower risk capital I can get by depositing DAI or ETH by looking at the APY > 6 % (at the time of writing). but.. what is this? what are the differences and how much should i at least deposit to get profits considering transactions fees? Let’s look into them
This is my personal experiences and opinions !
What is Alchemix?
Alchemix is a self-repay loans protocol that you can deposit your DAI or ETH as a collateral and you borrow 50% of the collateral. interests that you get from deposit will reply your debt.
What does self-repay loans means?
Alchemix allows 50% borrowings from your deposit. so when you borrow 50% of 1000USD for example, you have 500 USD debt with 1000USD deposit. you do whatever you want with 500 USD. but you need to pay out this debt somehow. so here, Alchemix algorithm is that they help to deposit your 1000 USD, get interests from depositing, make these interests to repay your loan(500USD) with time. the amount of time is depends on your deposit, debt, APY for sure. but yes, this is the simple explanation of ‘self-repay loans’
ok sounds great, then now we need some calculation of when can we get some profit with transactions fees.
here is the tricky part. I have found that using Alchemix is not something you put deposit and get interests. you won’t get anything unless you borrow. I have deposited some amount of DAI, and watch few days that how much I can get profits. yes there are interests that I am getting. but the additional amount is adding into the amount of borrow that I can borrow. not adding into the amount of deposit that I put already.
so, what does it mean : I need to make debt and make this debt to be repaid with interests in specific period time. yes this is what exactly self-repay loans mean. but if we want to take out the deposit before my debt is fully repaid, we need to repay the debt or liquidate our collateral (DAI) to repay the debt.
Yes it is returning interests, but only when you borrow alUSD.
I am just thinking from a perspective of ‘investor’ who need capital gain. the alchemix model is a great model for guaranteed gains but you need to create yout debt to earn, and also repay debt to have actual gains. I’m sharing this as a investor, i imagined just simple model as depositing + interests.hah! what does it mean? : lots of transactions :)
How many transactions are required?
my scenario is : you put deposit, 50% borrow, put this borrowing again into the deposit and let the interests repay my debt. and here, as it takes time to repay full debt, I put assumption that you take out deposit before the full repay.
- Approve DAI send
- Deposit DAI to Alchemix
- Borrow alUSD
- Approve alUSD
- Spend Swap alUSD to DAI
- Deposit DAI to Alchemix (2nd deposit)
- Repay debt alUSD or liquidate DAI
- Withdraw DAI
Total 8 transactions required! this is quite a number of transactions, and with the fact that I will have a debt, I started having doubt.
I will share the actual gas fee that I have paid once I complete the 8 transaction journey. as there are many transactions, we need to bear in mind that there must be a minimum amount of DAI to use in order to have profit. (like all other protocols!)
