We will be hosting a weekly tutorial on the most compelling opportunities to consider yield farming, written by our friend DeFi Dad, an advisor to the Defiant and the Chief DeFi Officer of Zapper. The goal is to expose more Defiant readers to new DeFi applications and their associated liquidity mining programs.
Background on Protocol: In TradFi, investors use interest and dividends as a source of income. However, these payments are usually quarterly at best. Alchemix is a newer DeFi protocol that flips this concept on its head by providing the ability to get your future yield now. Alchemix vaults act as the hub to generate yield advances in the form of a synthetic derivative called alUSD pegged to $1.
Having launched in February, Alchemix already boasts $1.17B in TVL. With Alchemix, you can deposit DAI and borrow up to 50% of the deposited amount of DAI at a 1:1 ratio, by minting alUSD. The deposited DAI is then deployed to Yearn vaults to earn yield and continuously pay back the vault owner’s debt while the vault owner can choose to use the alUSD for personal expenses, farming, or whatever they want!
- Alchemix enables borrowing from future yield in the form of dollar-pegged alUSD.
- Alchemix automates paying back loans with the yield earned from deposited DAI. So as the protocol pays down your debt, you can withdraw more DAI collateral unless you choose to pay back the alUSD sooner.
- Vaults are not liquidatable by “keepers” based on a collateralization ratio like with Maker, Aave, Compound, or Reflexer. The owner of an Alchemix vault can choose to liquidate part of their collateral to repay the loan, allowing them to withdraw whatever is remaining, but there’s no liquidation to enforce maintaining a specific loan-to-collateral ratio.
- Alchemix is governed by the ALCX token.
Opportunity: Alchemix currently offers 4 farming opportunities to earn ALCX in exchange for helping to bootstrap liquidity of alUSD and ALCX.
- 72% APR -> Stake alUSD
- 76% APR -> Provide liquidity for alUSD3CRV in Curve
- 251% APR -> Stake ALCX
- 339% APR -> Provide liquidity for ALCX/ETH in SushiSwap
Time to Complete: 10-20 mins if paying the recommended FAST gas price on gasnow.org
Gas + Protocol Fees: Based on the FAST gas price on gasnow.org currently between 100-150 Gwei, I would estimate paying the the following gas fees.
- Staking alUSD or ALCX = $100-$150
- Zap into ALCX/ETH or alUSD3CRV + Stake LP = $200-$250
Length of Program: The current program will last about ~3 years. 22,344 ALCX tokens were distributed to Staking Pools in week one of staking, and the amount decreases by approximately 130 ALCX per week for three years, which means a little over 21,000 ALCX are currently being rewarded weekly to those participating in these 4 staking pools. After 3 years, there will be a flat 2200 ALCX weekly emission, increasing the total supply by 114,400 ALCX annually. At the three year point, there will be approximately 4.5% annual inflation of supply, and it will gradually decrease over time.
Risks: As always, this is not financial advice and you should do your own research.
- Smart contract risk
- Oracle failure
- Liquidity crisis
- Financial incentive failure
- Systemic risk in DeFi composability
- alUSD de-pegging from $1
- Estimated APRs can go up or down with the price of ALCX’s price
- If I become an LP for ALCX/ETH, I’m likely to experience impermanent loss.
Tutorial + Forecasting Capital Required: The first major decision is whether one wants exposure to stablecoins by staking alUSD or LPing the alUSD3CRV Curve pool vs holding a volatile asset like ALCX or LPing the ALCX/ETH pool in SushiSwap.
Let’s pre-calculate “how much DAI must I deposit and how much alUSD must I farm in order to earn a return justifying my gas costs?” Let’s assume it’s $200 in gas fees before claiming ALCX rewards and I’m willing to commit to at least 1 month in the alUSD staking pool. Here’s what I need to earn consider:
- Staking alUSD earning 70% APR means ~5.83% APR over 1 month.
- $200 in yield will get me to break even.
- $200 divided by 0.0583 tells me that 3430 alUSD staked will get me to just break even.
- Then, if I can borrow up to 50% against my deposited DAI, that means I must deposit 6,860 DAI to break even at 70% APR for staking alUSD for 1 month while ALCX maintains a price of $1,875 or higher.
- Another example of this is if I deposit 10,000 DAI, mint/borrow 5000 alUSD to stake at 70% APR, I’ll have earned ~92 DAI in profits in 1 month (subtracting 200 DAI in gas fees).
Moving ahead with the more conservative strategies of staking alUSD or the alUSD3CRV LP assuming I’ve calculated how much capital I need to be profitable farming, here’s how I get started.
- Go to the Alchemix app and click on Vault.
- Specify how much DAI to deposit and click Approve followed by Deposit.
- After those 2 transactions, click on the BORROW tab to specify how much alUSD to mint/borrow against one’s deposited DAI.
- Now that I have my alUSD, I head to the Zapper Farm page, search ALCX, and I should see the 4 staking farms for Alchemix to double-check the rates for being an LP in the alUSD3CRV pool (#1) vs staking alUSD (#4).
- Once I have alUSD in my wallet, notice the green button on the far right of the Zapper Farms page to STAKE. Click that, specify how much alUSD and after an Approval transaction + a Confirm/Deposit transaction, one can track the staked alUSD under Active Farms on the Zapper Farms page. (Ignore the green below–I was showing a demo wallet that’s not mine for this tutorial.)
- Now we’re earning ALCX each block and can return to this page to Claim Rewards (ALCX) or Unstake alUSD in the future!
To farm the higher APY as a Curve alUSD3CRV LP, here’s how to get started.
- Assuming one already has alUSD or even traded for alUSD using a DEX aggregator like Zapper Exchange, head to the Zapper Pool page to zap into the Curve alUSD LP.
- Search alUSD and then search Curve to find the Curve alUSD pool below.
- Click Invest and specify how much alUSD to deposit. (Side note: One might also choose to skip ever opening an Alchemix vault and save gas by opting to add liquidity using another stablecoin such as DAI, into the Curve alUSD LP. Zapper will auto-swap one’s tokens to the appropriate underlying stablecoins for the Curve alUSD LP.)
- After the Approve + Confirm/Deposit transactions, hop back to the Zapper Farms page and click the Show Available to Stake switch to reveal an option to “Stake” the Curve alUSD LP.
- Similar to the alUSD staking earlier, follow the prompts to Approve + Confirm/Deposit the Curve alUSD LP to start earning ALCX.
- One can return here in the future to Claim Rewards (ALCX) or Unstake this Curve LP before withdrawing from the LP.
Next up is farming with exposure to the volatile price of ALCX but also higher expected rewards for staking ALCX.
- To participate in staking ALCX, one simply needs to have farmed/claimed ALCX or have traded for ALCX on a DEX aggregator like Zapper Exchange.
- Assuming one has ALCX, follow the same instructions as described above for staking alUSD by returning to the Zapper Farms page to stake ALCX.
- Click Show Available to Stake to reveal the ALCX staking opportunity.
- Click Stake and follow the prompts to deposit ALCX and start earning more ALCX!
Lastly, one can opt for the highest risk, highest reward farm as an LP for the ALCX/ETH pool in SushiSwap.
- To participate, go to the Zapper Pool page and search ALCX to find the ALCX/ETH LP (line 1 below).
- Click “Invest” if one wishes to deposit with a single token like ALCX or ETH to split into a 50/50 ratio of ALCX/ETH and become an LP.
- Once deposited into the LP, hop back to the Zapper Farm page to Show Available to Stake, find the ALCX/ETH LP, and click Stake to follow prompts to deposit the SLP and start earning ALCX!
About Author: DeFi Dad is a DeFi super-user, educator, and investor. You can subscribe to his YouTube channel at defidad.com.