What is Alchemix (ALCX) and how does it work?

Alchemix describes itself as the first autonomously operated same-asset loan protocol, or what’s known in the decentralized finance (DeFi) realm as a “self-repaying loan.”

ALCX is the governance token for the Alchemix protocol, according to CoinGecko. It’s a governance token granting holders the right to vote on future changes to the protocol. ALCX can also be staked to the protocol to earn additional tokens.

Governance on Alchemix is fully decentralized and led by a community-run decentralized autonomous organization (DAO).

Messari has described the protocol as crypto’s equivalent of a “cash advance.”

A loan that pays back itself might seem like a form of alchemy but there is at least ostensibly an actual methodology beyond magical thinking underpinning the project: step one, users deposit a supported asset (collateral) on to the protocol where it earns yield (via Yearn Finance vaults); then users get a loan, in the form of synthetic tokens; the borrowed synthetic assets are backed by the yield, automatically collected and used to repay to the original loan. These synthetic tokens maintain a 1:1 peg to the original asset, allowing users to seamlessly swap between the underlying and the derivative, according to Messari.

Users can withdraw the initial deposit at any point provided that the outstanding loan balance is repaid in the form of the original asset or its synthetic equivalent. Like many of its decentralized peers Alchemix is currently secured via mechanisms most aptly described as “over-collateralization,” meaning that liquidity providers can only procure a loan worth up to 50% of the value of their initial deposit.