Many newcomers to Alchemix end up asking how Alchemix can remain solvent. This thread aims to collect any analogies or concise mental models from the community to explain the mechanics of Alchemix and help new DAO members get oriented.
Table of invariants and mechanisms which ensure Alchemix's solvency.
(If you see a governance proposal which undermines one of these then tread cautiously 😅 )
| Mechanism | Benefit |
|---|---|
| Lock principal into an Alchemix run strategy | Prevents double spend, ensures no-loss of principal |
| Issue interest-free debt against your collateral | User gains risk-minimized, leveraged use of the base asset |
| Pegging Mechanisms | Ensure alAsset maintains equivalent utility to asset |
| Backstop mechanism to reclaim collateral | Security against pegging failure |
| Token Distribution and Open-Governance | Trust in Governance Decisions |
| Audits, Secure Development | Minimize smart-contract risk |
Resultant Value Props for Users:
- 1x-2x leverage without interest or risk of liquidation.
- Guaranteed to exit the system with principal amount + interest.
Principal received may be denominated in base asset or synthetic debt asset depending on exit mechanism.
- "liquidate" - Alchemix deposits base assets (equivalent to outstanding debt) from the user's collateral in the transmuter. The system does not reclaim or burn the already issued alAssets. Users who liquidate get some part of their principal in the already alUSD.
- "Repay" - The user pays down a portion of their debt in the base or synthetic asset. If the user pays in the base asset then this is sent to the transmuter. If the user pays in the synthetic asset then the asset is burned, clearing the debt from the system.
- "Wait for loan maturation" - User receives full initial deposit in the base asset and advance on interest in synthetic asset.