Alchemix Alchemix combines yield-bearing collateral with automatic loan repayment
Alchemix lets you borrow synthetic tokens against deposited assets while the collateral continues earning yield. In v3, yield increases collateral value, and Transmuter redemptions use collateral to reduce debt. This creates a self-repaying loan, but repayment can consume principal when yield does not cover the redeemed amount. Borrowing therefore requires tracking both remaining collateral and outstanding debt.
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The protocol also supports holding yield-bearing vault shares without borrowing and redeeming synthetic tokens through the Transmuter. These paths have different commitments: a vault investment carries strategy exposure, a loan encumbers collateral, and a transmutation has a defined term.
A smaller borrowing request preserves more collateral headroom
A borrowing request normally proceeds against eligible deposited collateral; a request exceeding available capacity needs adjustment before submission. The smallest recovery is to reduce the requested loan while leaving the deposit unchanged.
Before signing, record the intended debt increase and the amount of borrowed tokens you expect to receive. A forecast showing future repayment does not establish either result. Use the position’s starting debt and collateral balances as the comparison point.
- Confirm the selected vault accepts the deposit asset and the wallet holds enough native tokens for transaction fees.
- Check the requested amount against available borrowing capacity and the resulting debt-to-collateral ratio against the displayed liquidation threshold.
- If the request leaves insufficient headroom, lower the borrowing amount and review the revised position before signing.
- Treat signing and broadcasting as commitment; a pending transaction does not establish successful execution.
- After confirmation, reconcile the recorded debt increase with the borrowed tokens received before making another request.
With collateral unchanged, borrowing less lowers the loan-to-value ratio and reduces the tokens received. Neither change depends on future yield. If execution remains pending, inspecting its status avoids creating a second request merely because the interface has not refreshed.
Vault shares determine what supports the loan
Mix-Yield Tokens, or MYT, represent shares in assets allocated across yield strategies. Alchemix v3 supports ETH and USDC deposits, with the corresponding synthetic borrowing assets alETH and alUSD.
Yield changes the value of each share
The vault issues MYT using its exchange rate against the underlying asset. Successful strategies increase the underlying value represented by those shares. A stable token count can therefore accompany rising collateral value; share count alone does not describe investment performance.
The Alchemix DAO chooses strategy allocations and rebalances the portfolio. Diversification spreads exposure across strategies, but shared dependencies and strategy losses remain relevant. The allocation behind a selected vault matters because its performance supports both withdrawals and borrowing capacity.
Depositing and borrowing create different obligations
Holding MYT without a loan provides strategy exposure without creating borrowing debt. Pledging shares to a loan adds collateral requirements. Loan-to-value, or LTV, expresses debt relative to recognized collateral value; increasing debt raises that ratio when collateral stays unchanged.
A vault’s borrowing limit and liquidation threshold serve different purposes. The first constrains additional borrowing, while the second concerns an existing position’s health. Use the selected vault’s displayed parameters rather than treating a headline maximum as a target.
How does a v3 loan repay itself?
Transmuter redemptions automatically repay a v3 loan using collateral, while strategy yield increases that collateral’s value. Borrowers can also repay manually.
Earmarking reserves debt for settlement
Transmuter activity earmarks portions of borrower debt for redemption. Earmarking identifies debt awaiting settlement; it does not mean settlement has already occurred. Collateral supporting that debt continues earning strategy returns until redemption takes place.
In Alchemix v3, Transmuter redemptions use borrower collateral to repay outstanding debt. Consequently, a smaller loan balance can accompany a smaller collateral balance. The amount of principal remaining depends on earned yield, settled redemptions, fees, and any additional deposits or withdrawals.
Yield and redemption speed measure different things
The vault’s yield describes investment performance. The redemption rate estimates how quickly Transmuter activity reduces system debt. Faster redemptions can clear debt sooner while leaving less collateral invested for future earnings.
A repayment projection therefore needs more than an annual yield percentage. Transmuter activity, the applicable term, and total system debt also affect the estimate. During maintenance, compare collateral value and remaining debt together, including earmarked amounts. A falling debt figure alone does not measure profit or preservation of the original deposit.
Can strategy losses trigger liquidation?
Strategy losses can trigger liquidation when they reduce collateral backing enough to breach the applicable position threshold. Like-kind borrowing limits exposure to ordinary price movements between collateral and debt, but it does not protect MYT against losses within its strategies. An exploit, negative strategy return, or severe execution loss can impair that backing. Higher LTV leaves less room to absorb deterioration before liquidation becomes possible.
Interest-free borrowing still has transaction and redemption costs
Alchemix v3 loans do not accrue borrowing interest, but other costs affect the value retained or received. These costs arise at different points, so a single interest figure does not describe the full economics.
A performance fee applies to strategy yield. Borrower redemption fees apply when redemptions pay down debt. Transmuter claims and early withdrawals have their own fee parameters. Governance can change these settings, making the applicable transaction terms more useful than a permanently quoted percentage.
Selling borrowed alAssets adds a separate market cost. Their exchange price can differ from the underlying asset’s face value, and a swap can incur fees and slippage. The proceeds received may therefore fall short of the recorded borrowing amount. Network transaction fees also apply to on-chain actions.
Repayment and transmutation lead to different exits
Manual repayment reduces a borrower’s obligation and can release collateral, subject to the position’s remaining requirements. Unearmarked debt can be repaid in alAssets or MYT; earmarked debt requires the supported MYT repayment path. Using deposited collateral to repay consumes part of the position rather than restoring the original deposit.
The Transmuter serves holders seeking redemption of alAssets. Its contractual accounting exchanges each alAsset for an equivalent underlying-asset value through MYT at maturity, subject to solvency conditions. The applicable transmutation term varies with configuration. Early withdrawal carries a fee, and available capacity can constrain new deposits.
Settlement and receipt of the underlying asset are also distinct. If immediate unwrapping would encounter liquidity or slippage problems, the claim can return MYT instead. Bad debt can reduce the immediately claimable redemption amount; waiting for restoration does not establish a recovery date.
An external swap offers a market-priced exit, while transmutation introduces a waiting period and redemption conditions. For an existing borrower, the next decision is whether to retain the remaining strategy exposure or repay enough debt to withdraw collateral. For an alAsset holder, it is whether the available market proceeds justify avoiding the transmutation term.
Details worth knowing about Alchemix
Does an alAsset discount reduce the debt I owe?
An external market discount does not automatically reduce the debt recorded by the protocol. Internal repayment accounting uses the alAsset’s face value. Purchasing discounted alAssets can change the market cost of obtaining repayment tokens, but the repayment asset must match the debt and its permitted repayment path.
What does the NFT associated with a v3 loan represent?
The NFT represents the borrowing position rather than the synthetic tokens received from the loan. Position information and the wallet’s alAsset balance describe different holdings. Selling or spending borrowed tokens does not itself repay the associated debt.
Is a higher redemption rate the same as a higher investment return?
A higher redemption rate describes faster projected debt reduction, not a higher investment return. The measure relates projected annual Transmuter redemptions to total system debt. It can rise because redemption activity increases or system debt decreases, even without an improvement in the underlying strategies’ yield.
Can I use the Transmuter without opening a loan?
An alAsset holder can use the Transmuter without opening a borrowing position. The entry requirement concerns the supported alAsset, available capacity, and applicable redemption terms. Borrowing is one way alAssets enter circulation; it is not a prerequisite for every subsequent holder seeking redemption.
When does earmarked collateral stop earning yield?
Earmarked collateral continues earning strategy yield until redemption settles. Reserving debt for a redemption does not immediately remove the associated collateral from its earning position. Once settlement uses that collateral, the redeemed portion no longer contributes to the borrower’s future vault earnings.
Will an unused borrowing capacity expire if I do not borrow immediately?
Available borrowing capacity is a calculation based on the position and applicable protocol limits, rather than a reserved loan offer. Its amount can change with collateral valuation, debt activity, and configuration. A capacity figure viewed earlier therefore does not establish how much a later transaction can borrow.