Alchemix: Self Repaying Loans
Alchemix is a DeFi platform offering collateralized self-paying loans; they can do so by deriving yield from other DeFi protocols on your collateral.
Alchemix (ALCX) is a decentralized finance (DeFi) project that launched in February 2021 offering self-paying loans – which means you’re never making a payment on the loan. These loans work by providing collateral in the form of cryptocurrency (presently either Ethereum or the stablecoin DAI), which Alchemix will then use to generate yield on other DeFi projects. The returns on the staked collateral will pay back your loan.
Alchemix currently offers a 400% collateralization ratio on Ethereum, meaning for every 4 ETH you deposit, you can borrow 1 alETH (their wrapped version of ETH). For DAI, the collateralization ratio is half that. The loan lengths depend on the amount borrowed and the yields that Alchemix can derive, and therein lies the downside. Loans can take a long time to pay back; some appear to take 5-7 years to repay.
One of the biggest strengths of loans like this is that there is no risk of liquidation due to price changes; Alchemix affirms that “your only debt is time.” Being able to use Ethereum as collateral allows users to maintain a long position on ETH while gaining the flexibility to reinvest by having access to future yields up front.
Alchemix does come with some measure of risk. The project is very new and has had some bugs pop up like most of DeFi projects do. In June, Alchemix accidentally returned roughly 2,000 ETH to borrowers prematurely, effectively giving those borrowers free money. Although this circumstance was a net positive for the involved individuals, young DeFi protocols that have displayed unplanned behavior should be used with caution.
If you want to learn more about Alchemix, the team has a Medium account with a series of detailed breakdowns.
TL;DR: Alchemix is a DeFi platform offering collateralized self-paying loans; they can do so by deriving yield from other DeFi protocols on your collateral.