How Does Alchemix Work?
A lending protocol where your deposited collateral earns yield that automatically pays off your debt over time. It holds $29M in deposits with a unique self-repaying loan model. Its B- grade reflects genuinely innovative design with clean recent operation, offset by dependence on external yield sources and historical integration incidents.
TVL
$31M
Sector
Lending
Risk Grade
B-
Value Grade
C-
Core Mechanisms
Lending/Self-Repaying
NovelSelf-repaying loans where deposited collateral earns yield that automatically pays down debt
Genuinely novel mechanism: users deposit yield-bearing assets, borrow synthetic alTokens against them, and yield pays down the debt over time. Few implementations exist.
Stablecoin/Synthetic
NovelalUSD and alETH synthetic assets pegged to underlying through collateral yield
Synthetic assets backed by yield-bearing collateral with self-repaying characteristics. Unique peg mechanism distinct from CDP or algo stablecoins.
Yield/Strategy
Yield strategies deployed to Yearn and other yield sources for collateral
Standard yield vault integration pattern (Yearn since 2020).
Lending/Liquidation
Self-liquidation mechanism allowing users to close positions at any time
Users can self-liquidate to repay debt with collateral. Standard pattern.
Governance/DAO
ALCX token governance
Standard governance token model.
Oracle/Chainlink
Chainlink price feeds for collateral valuation
Standard Chainlink integration with fallback mechanisms.
Token/Staking
ALCX staking for protocol revenue share
Standard staking/revenue share pattern.
How the Pieces Interact
If underlying yield strategies (Yearn vaults, etc.) earn zero or negative returns, self-repaying loans stop repaying. Users face indefinite collateral lockup with no path to recovery.
At 90% LTV, even small yield shortfalls create negative margin. If yield drops while collateral value declines, positions become undercollateralized faster than self-repayment can offset.
Synthetic asset pegs depend on DEX liquidity for redemption. If liquidity is thin or concentrated, large redemptions can depeg alAssets, trapping holders.
Yield strategies deployed to Yearn and Curve create transitive dependency. The 2023 Curve reentrancy exploit affected Alchemix despite being an external protocol issue.
Governance could adjust LTV ratios or yield strategy allocations in ways that increase risk for existing depositors.
What Could Go Wrong
- Self-repaying loan model depends entirely on sustained yield generation from underlying strategies. If yields go to zero, loans never repay and collateral is locked indefinitely.
- Historical integration risks: $4M yETH reverse rug (2023) and Curve pool reentrancy exposure demonstrate compounding third-party dependency risk.
- Upcoming v3 with 90% LTV introduces thin margin for error if yield strategies underperform, compressing the buffer between collateral value and debt.
Yield Drought Self-Repaying Loan Freeze
ModerateTrigger: DeFi-wide yield compression drives Yearn/Curve yields below 1% APY for 6+ months while Alchemix V3 has $50M+ in 90% LTV positions
- 1.Yield strategies earn near-zero returns across all deployed protocols — Self-repaying loans stop making meaningful debt repayment progress
- 2.V3 positions at 90% LTV become borderline undercollateralized as yields fail to offset any collateral value decline — Users attempt mass self-liquidation to recover remaining collateral
- 3.alUSD/alETH selling pressure from liquidating users depletes DEX liquidity — Synthetic assets depeg as sell pressure exceeds available buy-side liquidity
- 4.Depegged alAssets further reduce effective collateral value for remaining positions — Protocol accrues bad debt as collateral is insufficient to back outstanding synthetic supply
Risk Profile at a Glance
Overall: B- (31/100)
Lower score = safer