I spoke with Sean Donachiue after he created these dashboards to showcase the growth and sustainability of Alchemix. To his surprise, Alchemix’s on-chain data demonstrates a healthy ecosystem.
The surprise probably comes from the fact that there are so many new DeFi projects, and Alchemix is still very new so..who knows if it’s legit. Alchemix’s core purpose – to provide loans that pay themselves back – also seems too good to be true and sparks suspicion.
But Alchemix’s on-chain data reveals strong continued growth of the ecosystem and its use case:
1/ First time wallet interactions with the contract are picking back up again
This shows the number of first time wallet interactions with the contract recorded on the network each day. In my view, this is the best metric we have for organic growth, since most people learn about new products and services from word-of-mouth.
2/ Total Daily Deposits Are Keeping Steady
While quite similar to unique wallet interactions for now, expect these metrics to diverge over time with daily deposit events outpacing first time users, as the protocol gradually accrues repeat users.
3/ The Alchemix Treasury Keeps Accumulating More Over Time
The Alchemix treasury receives a 10% cut of yield produced by user funds locked in the Yearn v2 DAI Vault each day
4/ The alUSD:DAI Peg is Stable
Alchemix has major dependencies on four popular defi protocols: MakerDAO, Yearn Finance, Curve, and SushiSwap. Barring attacks on these protocols, I identify the main systemic risk within Alchemix to be the stability of the alUSD:Dai peg, as well as the Dai:USD peg itself.
Of the above protocols, MakerDAO is the oldest and has already survived a catastrophe following the March 12th 2020 liquidation cascade. Due to the rapidly falling price of ETH, demand for Dai to pay back loans in Maker was so high that Dai was temporarily worth $1.12.
Were this to happen again today, so long as the Dai balance in the transmuter is large enough, alUSD could be transmuted to Dai 1:1 and then sold on crv.to at $1.12. In the case that Dai price moves above $1, there need only be enough Dai in the transmuter and liquidity in the alUSD-3CRV pool on Curve to account for the outstanding alUSD supply. The same applies if alUSD falls below $1, but in reverse.
We can evaluate the safety of the peg from these numbers with (3CRV liquidity + Transmuter DAI) / Total alUSD Supply. If this function falls below 1, the peg is at serious risk. In that scenario, the transmuter backstop has dwindled, liquidity has dried up, or both. At time of writing, the ratio is a healthy 1.54.
For a strong peg, we also want to see these two lines track each other closely, so that large transactions don’t suffer from slippage.
For the foreseeable future, alUSD-3CRV LPs will remain heavily incentivized by inflation rewards of both CRV and ALCX. It remains to be seen whether a downturn in prices will depress yields enough for LPs to look for alternatives.