Discover more from Economics Design Newsletter
EP 2 | How to DeFi with Kiefer Zang | How to take a loan on #Alchemix
Welcome to all our free subscribers. What will be shared today and the days ahead are free alpha from our Economics Design's researchers.
TLDR below. This is not financial advice.
Catch the episode on YouTube
Please keep these mails secret and do not share them with any one because these alphas are confidential. Enjoy your reading.
Alchemix is a decentralised lending platform that allows you to borrow up to 50% of the value of your collateral right away. Your loan is automatically paid back over time through the protocol lending out your collateral to Yearn finance. All of this with no risk of your loan getting liquidated.
The action happens on this vault tab. This is where you manage your loan with the choice of lending either $DAI or Ether. In this article, we will demonstrate using $DAI. An important figure to note here is that the $DAI APY is currently at 8.131 percent and this is the current rate at which your collateral will be paid back through Yearn earnings and this figure will fluctuate a lot over time.
Another helpful part to look at is the loan calculator/estimator which tells you how long it will take for the debt to be paid back in full if you let it go, based on just the current Yearn earnings. You can calculate based on how much you actually want to borrow and what the full payback time would be.
In this example, we're going to deposit $DAI in order to borrow the stablecoin $alUSD. First, we are going to deposit just 20 $DAI. We will start off by approving the $DAI on the contract and then deposit this 20 $DAI. Now the wallet balance will be updated and we will have 20 $DAI as collateral and 10 $alUSD available to borrow which is coming from 50% of the value of the collateral.
Here we can select how much $alUSD we want to borrow. For example, if we put 100% here then this would be the maximum amount that we could borrow. Since we have 20 $DAI deposited we can borrow 10 $alUSD by clicking on the borrow button and wait for that transaction to be confirmed. Once it is confirmed we will have 10 $alUSD in the wallet.
In this tab, you can take out any excess $DAI. If we did not take out the full value of the loan, or if we waited some time for a portion of the loan to be paid back, then there is some excess collateral and this is where you can withdraw it.
In the repay tab you have the option to close out your loan early. You can make a repayment in either $alUSD or $DAI or some mix between the two. If one of these tokens for some reason is cheaper than the other on the exchange, or if you have some mix already in your wallet, then you can pay it back in whichever way that works for you.
If you do not want to bring in external funds to pay off your debt, then the other method to close out your position is through liquidating the collateral. So, if I wanted to repay that 10 $alUSD debt, then I could liquidate some of my $DAI collateral to pay it off.
The swap tab contains links to where you can swap your $alUSD with other stablecoins like on Curve. There also are options for doing the equivalent with $ETH and $alETH.
If $alUSD is trading under a dollar (so below a one-to-one ratio with $DAI) you can use the transmuter by depositing some $alUSD. The transmuter will then take some of the interest from the Yearn deposits and gradually transmute or give you $DAI in exchange for the $alUSD that you deposited.
This is a place where you can stake tokens to earn $ALCX rewards which is the governance token for the Alchemix protocol. Three of the five options available here are for the rewards for liquidity providers. They would stake their LP tokens after staking two tokens in the pool but by being a liquidity provider you expose yourself to the risk of impermanent loss.
On the other hand, the $ALCX and the $alUSD pools are single token staking pools so you do not have the impermanent loss risk.
Get premium access to unlock more content