Comparing Alchemix with MakerDAO. Which is better and why.

Lending Protocol.

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Jul 21, 2021

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What Is Alchemix?

Alchemix calls itself a future-yield-backed synthetic asset platform. You receive yield from the collateral capital. To understand how Alchemix works, check out our detailed analysis. In this article, we focus on comparing stablecoins that are backed by stablecoins.

Question: Why Use A Stablecoin To Back A Stablecoin?

Why would anyone deposit a stablecoin ($DAI) to borrow less stablecoin ($alUSD)? We compare some of the strengths and weaknesses of the Alchemix protocol below and compare it with Maker.

Strengths

No kind of stability fees (as compared to MakerDAO)
No kind of liquidation fees
Yields are generated from collateral automatically
Simple and easy to use (not as complicated)

Weaknesses

Opportunity cost of collateral
$alUSD, the stablecoin does not have much utility for it to gain traction
$ALCX tokens currently have no utility other than governance
Much more centralised compared to other protocols

We note that the main value proposition that Alchemix brings for its users is that a loan will repay itself over time. In general, users pay less fees and do not have to worry about being liquidated from their collateral. Traditionally, users of $DAI deposit their stablecoin in a lending protocol such as Compound or Aave and earn interest. With Alchemix, they can expand their capital base to either leverage on their positions or finance a self-repaying loan.

Comparison: Alchemix vs Maker

Which protocol mints a token using the same token of value? Why?

To put things into perspective, we compare Alchemix to a similar form of protocol. This protocol should also accept asset as collateral to mint another asset of the exact same value. Both assets should remain on the same blockchain system. BTC and wBTC do not count because BTC exists on the Bitcoin blockchain network while wBTC exists on the Ethereum blockchain network.

With that in mind, we have Maker and Alchemix.

Maker uses $USDC to mint $DAI
Alchemix uses $DAI to mint $alUSD

What Else Did You Miss?

Analysis
- Borrowing Cost/Benefits
  - Maker
  - Alchemix
- Alternative

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TLDR:

There is a use case for Alchemix users to borrow stablecoins from their collateral. However, the comparison to MakerDAO in the example might not be a good comparison because they serve a different function for their respective protocols.

In MakerDAO, $USDC deposits are used as a backstop to prevent $DAI stablecoin from being unpegged — rather than to actually borrow $DAI. In the case of Alchemix, deposits serve as collateral for users to borrow a loan that is being rewarded with yields. They sell a completely different value proposition. For now, it appears that Alchemix has no close competitors that compete for their market share. However, it would need to greatly increase utility for its stablecoin $alUSD and its governance token $ALCX for the protocol to truly shine.

Economics Design