The Delphi Podcast Host Tom Shaughnessy, The Spartan Group’s Jason Choi and Paul Burlage of Delphi host Scoopy Trooples, the co-founder of Alchemix.
The conversation covers Alchemix as a project, how the protocols loans repay themselves over time, the ALCX token and value accrual, audience questions and much more. This episode was originally aired live on Clubhouse.
Disclosure: Delphi Ventures is long ALCX tokens.
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(1:12) – (First Question) The Elevator Pitch for Alchemix.
(3:50) – How to use Alchemix
(5:29) – What is the alternative for people to use Alchemix?
(11:41) – Alchemix as a useful tool for newcomers to Crypto.
(13:11) – Cross Asset ideas with Alchemix.
(14:32) – How the peg for Al USD is maintained
(19:17) – Why Alchemix is needed as a separate product
(25:49) – Striking a good balance between wanting to reward the stakers, but also taking the minimal amount you can so that everyone’s loans are repaid faster.
(27:50) – Biggest challenges for Alchemix.
(30:45) – How Alchemix handles yield farming incentives and emissions
(35:35) – What’s on the roadmap for Alchemix?
(40:39) – Thoughts on Institutions moving into the DeFi ecosystem.
(43:19) -The composability aspect of Alchemix?
(45:20) – Thoughts on projects providing some way for people not in crypto, but “normies” to get a higher yield by providing their checking account balances basically.
(49:28) – Risks that could harm the longevity of Alchemix.
(52:04) – Is the loan coming from the yields or from the collateral?
(54:15) – Thoughts on the different interoperability that needs to have the layers2.
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Hey everyone, welcome back to the Delphi Clubhouse. Today, we’re thrilled to have on Scoopy from Alchemix. We’re thrilled to invest in Alchemix recently along with Spartan Group and others. Jason Choi from Spartan should be joining us soon. And Scoopy, how are you doing?
I’m doing great, man. I’m happy to be on with you guys tonight.
Yeah. We’re thrilled to have you, I know it’s late for you. So let’s dive right in. I mean, where did you get the idea for Alchemix? Was it your idea? Was it somebody else’s? And if you could just give a quick elevator pitch for those new to the story, that’d be helpful.
Yeah. So, back in June 2020, my longtime friend, Dr. Derivative, he’s the CTO of Alchemix. He approached me with an idea for DeFi app. At the time I was just a humble web to developer doing mostly React apps. And I’d always wanted to start building something on Ethereum. And when he approached me to build a UI for him, I thought this would be a good excuse to learn through UI. Back then, we called our project Cheese Pie, that was before Sushi or GAM, or any other food tokens. The whole idea for Cheese Pie was that you would lock Dai for between 10 and 100 days. And depending on how long you lock and how much you put in, you would get these cheese tokens immediately.
And then that Dai would be put into Idol because Yearn didn’t exist at the time. And then we would harvest the yield from Idol to buy back the cheese tokens from a Uniswap market. So creating this yield token, it would represent yield. But then we did a lot of research on this model and a lot of the stuff about the MEV, Miner Extractable Value, came to light and there’s a big chance that Cheese Pie would’ve failed because of sandwich attacks. Where let’s say, if you go to buy a token on Uniswap and you have pretty high slippage, then somebody could come in and buy it right before you. So right after you and extracting profit in the process. And if this happened enough, then the concept would completely fail. So we had to go back to the drawing board and eventually after a few more iterations, we came up with the Alchemix system. But it still embodies the whole idea of getting your yield upfront, but we thought we came up with something a lot more superior by being able to tokenize that yield in the form of a liquid stablecoin.
Makes a lot of sense. Appreciate the intro and Jason Choi from Spartan Group just joined us. How’s it going Jason?
Hey, Tom, hey Scoopy, how are you guys?
Good. How are you?
Doing well. Thanks for having me here. Excited to join you guys.
Yeah. So Jason, we’re just diving in, feel free to lob questions Scoopy’s way, and we’ll go back and forth, we’ll keep this conversational. But Scoopy, can you give us I guess just a brief overview of how to use Alchemix, what users on both sides get from using the platform and then we could dive deeper into Alchemix itself.
Yeah. So, Alchemix is a system that allows you to realize the future yield of your deposits in Yearn vaults immediately. So let’s say you put $10,000 in Yearn and that’s making 50% a year. A year later that would be $1,500 worth of yield that you would earn from that. With Alchemix, you can get that right now. It’s a CDP system built on top of Yearn. So you can take up to 50% of your Dai collateral in Al USD. Say you put in 10,000, you can draw 5,000 Al USD. What’s really cool about this is that, when we harvest yield from Yearn, it actually pays down your Al USD debt in the system. So it’s a loan that pays itself off. It might take a couple two, three years to completely pay it off if you do a max borrow. So it’s a pretty cool concept instead of you paying interest, we pay borrowers interest. It’s neat that we’ve flipped the script on how lending traditionally works.
Yeah, no, I agree. And we just had Paul from our side as well. So interested to dive in. Scoopy, what’s the alternative, I guess, for people to use Alchemix? Where do people go today to get leverage? Instead of using Alchemix, you just go to Compound, you just go to Albay?
Yeah. I mean, if you want to get leverage typically you would go to an Albay, you’d go to a Compound, the positive collateral, and then you would be able to draw assets from it. Those are awesome systems and they can do a lot of things that Alchemix can’t do. For example, in Albay or Compound, you could deposit ETH and then borrow any of the assets that are available there. With us, you can only do, Dai to Al USD, and eventually we’ll add more stablecoins in our version two of Alchemix.
So it’ll be not just Dai, but also Tether, USDC, sUSD and other ones that they become more viable. So we only work in mere assets because if we didn’t, then we would have to have liquidations because that’s something we don’t have in Alchemix. You cannot get liquidated. So it’s a little bit of a trade-off between Albay versus Alchemix in that regard.
Scoopy I’m curious because obviously being able to monetize your yield upfront has a lot of different implications. What are some of the most interesting use cases that you’ve seen people talk about when it comes to be able to just borrow against your future yield? What are people doing with that money they’re getting upfront?
Well, I’m sure some of you guys know that I’m in Eagle Capital, pseudo anon, VC Collective. And one thing that the other members in Eagle are really eager to see is some type of investment portal where, let’s say a VC whale can come in with 20 million Dai and that they could draw out 10 million Al USD to use in investment rounds. And I think that’s a really powerful tool because, all of a sudden that risk that you take as an investor, is now essentially risk-free because your capital base will return back to you. And I think that’s one very compelling use case. It’s something that us having a liquid pay, really facilitates this moment. I mean, I’m also thinking personally, let’s say, I know I’m going to need $60,000 for my annual household budget this upcoming year. I can just take that out using my collateral in Alchemix and just have peace of mind that I have a nice budget for my family.
Also imagine you buy a car using Alchemix loan, instead of wasting money on a depreciating asset, it’s almost like you’re breaking even at the end, and actually coming out ahead. Because the car will essentially pay for itself.
Scoopy, I guess the question is, just from an investment perspective, you have an opportunity cost. Because you have to deposit Dai to mint your Al USD and then you could, I guess earn yield on Al USD, but if I have $1000 worth of Dai, what’s the benefit of just putting them in Compound or in the yield? You answered this already, but I guess I’m just wondering what this looks like at a full market cycle with full adoption.
Yeah. I mean, the whole idea is that, you can even do the same thing in Alchemix. If you put in 1000 Dai and don’t draw any Al USD, you will see that your Al USD credits go up every single time that we harvest. So it’s essentially the same thing as being in a Yearn vault. Anyway, except it’s a line of credit that it opens up on top of it. So it makes it more capital efficient.
Got it. Yeah. You get to pull all the yield basically to the starting point, which is pretty cool. And I guess my other question, I’ll throw it back to Jason and Paul, you’re doing this for yield farming, so people could mint Al USD, pull their yield forward. Is there a way to do this for the long tale of yield farming assets? If I’m in some yield farm, can I pull all my yield upfront? I guess it’d be hard to do that from a risk perspective though, because a lot of the farms are new and volatile.
I mean, one thing that we’ve noticed a lot of users are doing is that, since the ALCX price has been doing pretty well, that a lot of people are just borrowing Al USD and then going into the three curve pool. Yeah, it’s curve pool. And then we incentivize it in our farm, the LP tokens. And so people are farming with the Al USD that way. But we also envision, let’s say, you want to go into this new Uniswap, you like chatting. I don’t know if I want to use all my capital base on it, but I could throw a $500 at it, let me get some Al USD for that, and then you get robbed. Because it’s Uniswap. But with us, you’re not going to get wrecked at the end, you might have your Dai locked in the system for a little while, if you want to wait for the loan to mature. But at the end of the day, you’re not going to end up losing anything other than opportunity cost.
Also, I was tossing this idea to you Scoopy earlier today on Telegram, that for crypto natives who want to invest in different projects or want to participate in new communities, it’s a really interesting tool because say I have a core, a certain position that I’ll probably never sell. I’m just earning yield on it, I’m just holding it as passive position. I can now basically borrow against that E, and get cash upfront to invest in whatever I want without ever having to worry about that low position. So I don’t have to go and monitor my liquidation ratio, my collateral ratio, which as people who live through the Black Thursday know, it could be quite a troublesome experience, especially when desk costs are so high that you can’t liquidate yourself. So I think for crypto natives especially, this seems like a really cool tool.
But I’m curious about in terms of, expanding beyond crypto natives. Because right now we’re talking a lot about yield farming, a lot about maybe bringing cash upfront to invest in things. Do you see people outside of crypto or maybe more of a newcomer to crypto also finding Alchemix as a useful tool?
Yeah, it’s a good question. I think right now, I mean, just where crypto is and DeFi is, needing to know how to use MetaMask and things like that, make it something that only really the hardcore users use. It’s something that’s really only aimed at DeFi users already, but I definitely think this would be appealing to quote unquote, “normies” out there. It’s just a matter of wider crypto and DeFi adoption to bring it to them. I mean, a lot of people in the community are clamoring for something like a credit card using Alchemix. And I’m not saying it’s happening, but I think it’s possible. I mean, it certainly makes sense on paper. I’m sure we’d have to forge some really, really strong partnerships in order to get something like that done, but people’s minds and their imaginations are racing with ideas. Me and my team, we are really listening and in tune with our community who we think are really, really smart. They’ve already given us a few really good ideas for some improvements that we’re going to be trying to incorporate into Alchemix soon.
That’s awesome. Paul, we’ll throw it your way. I’m sure you have a couple of questions if your Wi-Fi is good.
How’s it going guys? Sorry if I cut out, my Wi-Fi is not great. I was wondering, do you ever see the possibility of cross asset borrowing where I deposit Es into an EVault and then I’m able to borrow some other type of asset.
Yeah. So in version two of Alchemix, we’re going to add ETH as a collateral type, so you can borrow Al ETH with it, and we’re going to add BTC as a collateral type, there’d be a BTC so you can borrow LBTC. But we’re also planning to add, Zaps into the contract, so instead of just saying, “Oh, I’m going to borrow WBTC,” you could say, “Oh, I’m going to Zap my WBTC into, I don’t know. Sushi, or Dai, or something else.” So it’ll extract that and save the user a lot of time in that process. But the debt would still be denominated in WBTC in that example.
Got you. Got you.
And Scoopy, can you dive into a little bit of-
[crosstalk 00:14:09] we change it up.
Oh, sorry. Go for it.
No, no, after you. Shoot.
I said, oh, if we change it up, where likely you could put in Al USD and then borrow ETH or something like that, it would require that we would have to deal with Asians and use Oracles and all this other extra stuff that I think would take away from some of the elegance of the system. But by using Zaps and stuff like that, I think we can abstract it away and make it a really nice UX for users. So there’s a lot to look forward to for V2.
Hey, Scoopy, and probably we should have hit on this earlier on, but can you just dive into how the peg for Al USD is maintained?
Yeah, so it’s maintained in three separate ways at this current moment. One is all the Dai that goes into our vaults, it’s sent to Yearn and it’s earning interest. And when we harvest it, first the system counts that harvest as a decrement of your own debt in Al USD, but then it gets sent to this transmitter module. And the transmitter is a module that allows you to swap Al USD to Dai, one to one, and the idea is that, the future yield will eventually pay off the Al USD in there. Ad that’s how we were anticipating it to work. It would be a slow trip going in and over time you would be able to get your Al USD positions filled to Dai, but we had some very unexpected behavior from our users. They discovered this very D-gen strategy, because at the time when Al USD farms just launched, the curve pool rather, Al USD was at a premium.
And so what they found out is that, they could deposit Dai, max borrow Al USD and then use their Dai collateral to repay their debt using the liquidate function, so you can liquidate yourself. And in doing so, then they were able to withdraw the remainder of their collateral, that they put that into three curve pool. So that was a really big boost of liquidity for the three curve pool, but the interesting thing about that is, all that liquidated Dai went into the transmitter. And right now there is a 180 million Dai in the transmitter. So that’s effectively a $180 million buy wall for Al USD to Dai at this point. So with that, that’s a really, really strong pegging mechanism, I know that there’s been a few whales who have been taking advantage of the transmitter, for arbitraging the different rates on the current finance pool. And the other part of the formula is incentivizing the liquidity and the pay via the yield farming. So those three aspects together have made for an extremely liquid Al USD pool and a strong peg at the same time.
Maybe it’d be good to take this opportunity to take a step back as well to understand what Al USD is just for our listeners, because there are a lot of computer crewing tokens out there. So C tokens in Compound, and you got the A tokens from Albay. So in what key ways are these Al tokens different from the C tokens and the A tokens out there?
Well at this current moment, we don’t have the Al tokens in any lending markets, we’re waiting on a few infrastructure pieces to come along in order for that to happen, TBA soon. But when that happens, I think there’s some people that are interested in listing Al USD as asset in their lending protocols. So that will then bring parody to Al USD compared to the C Dai, C USDC, A Dai, et cetera. And another thing is, let’s say the Al USD peg drops really low, it becomes an arbitrage opportunity for people in two different ways.
You can repay your Alchemix vault debt using Al USD. So if you see that it’s now 95 cents on the market, you’d be like, “Oh, I’m going to scoop of a bunch and pay off my debt for cheap.” And the other thing is that somebody could scoop it off of the market for cheap and then put it through the transmitter and then via the difference in price there. And both of these things, these strategies, are also further stabilized Al USD as a stablecoin there. So there’s multiple market forces that you can take advantage of in Al USD that can earn you an edge or some Alpha.
And this is something that I’m personally curious on and I think we’ve discussed this before Scoopy, but I noticed that people might look at Alchemix in its version today, before knowing what the version two is and these other products that you guys are working on. And they might think that, “Okay, this seems like a feature that maybe someone like a Compound or Albay can build. An existing landing protocal candidate has been on top of them. So what would be your reply to them and how would you, not justify, but how would you explain why Alchemix is needed as a separate product in and off itself?
Well, I’ll give the same canned response that I gave to you in our [inaudible 00:20:04] recording. I disagree that we’re just a feature, we’re a product that’s tailor made for our features. That one that hasn’t been done anywhere in the traditional finance world or DeFi, it’s something so foreign that nobody aired or imagined to do it. But also to expand on that, in order for an Albay or Compound to do something like this, they’d have to restructure their products from the ground up, they would probably have to increase the borrowing rates or put users collateral in yield aggregators. And I don’t know if they would want to do this because these are really backbone projects for DeFi, these things are the life blood of DeFi. And if they were to go higher up the Lego stack, I think it might introduce risk that might not be good for their systems.
So if they’ve also wanted to keep the flexibility of their systems, being able to put in Dai then borrow ETH, for example, they would have to have liquidation modules in there. They do, which we don’t. So there are some key differentiating advantages between Alchemix and the other lending protocols, I don’t think we’re competitors per se, to Compound or Albay, they have certain qualities that we cannot integrate. Because we’re only doing mirrored assets. Stablecoin ETH to Al BTC, things like that. It’s both a feature and a limitation of our system. And I guess maybe those other projects could make a stablecoin that uses the funding rate, the difference between the funding rate of the borrowing and lending. And I think that’s compelling. I just don’t know if it’s as scalable as the Al USD system is in Alchemix.
Hey, Scoopy, one side question. That was an awesome question and answer Jason and Scoopy, when we’re thinking about just the protocol overall. So one of the key features, obviously your sticking point is, you just get an advance on your yield farming yield via synthetic token. I guess, just moving along the strategy side, are you going to allow the community to decide where that yield is earned? I think it’s in Yearn today, but could we eventually deposit that Dai in Idol or somewhere else? I guess, how do you guys think about the different areas where you could earn that yield potentially faster so people can get repaid faster?
Yeah, that’s a great question. So you know how MakerDao, a single collateral Dai. It was just, you put an ETH, and there was one ETH poll and you control Dai from it. And then when they went to multi collateral Dai, a whole host of different pools opened up. And now when you go to Oasis app, it’s a long, long list of different vaults that you can go into. You’ll keep on scrolling and scrolling. I think there is over 40 different vaults that you can go into. And I think that we’re going to be doing something similar to that in version two, where, if you deposit Dai, not only can you choose to go into the Yearn, YD vault, but maybe if that is a little bit too risky for your appetite, you could choose go into Albay or Compound, or you could choose to go into state Dai, or Rare Capital, or one of the other yield aggregators in the space. So that way you can shop around for rates, and also balance it with your own risk appetite.
Awesome. That makes a lot of sense. And that’ll be awesome to see. And I wanted to switch over to your native token, value accrual, but I’ll lob it over to Paul and Jason. Do you guys have any more questions on the project itself?
I’m all good from my end. I mean, that’s non project related, but I can save that for later.
Yeah. We can always bounce around. Paul, what about you?
Yeah. Any developments on or the dowel level progress would be great.
Oh, I’m not sure if I’m ready to talk about the Alchemix, I’m supposed to be dropping a medium article this week. [crosstalk 00:24:45].
Scoopy, we could save you the article.
How many et ceteras do we have in here?
Oh, man. That’s a lot. So let’s see. I guess I can, offer some thoughts about this, and this will also answer Tom’s question about value accrual. I don’t want to go into all the details about the dowel, but the current plan for it is that, Al state steppers can go into the dowel, and currently right now, when we harvest yield from Yearn, 10% of that gets taken to the treasury. We’ve been averaging somewhere around three to $4,000 a day harvested, that goes right to the treasury. So we already have a decent cashflow. We have 70 million Dai in the Yearn vaults, we’re going to be working on integrating the money and the transmitter to further also the treasury and do some other cool stuff with it.
We’re figuring out exactly what we can do with it at the moment, but we definitely have some ideas. So between that and the Dai we have in the Alchemix vault, we should be having a really, really nice cashflow. And as we increase in TVO, and we have more collateral types, Al USD supply goes up, there’ll be speed, that much larger of capital base and that 10% harvest fee. And then the transmitter will be flowing into the treasury. But when people stake out Alchemix tokens, then what we’re planning to do is just passing all that onto the Alchemix statements. So that will create Alchemix into a cashflow token, so it won’t just be Al USD, it’ll be the Al ETH, it’ll be Al Bitcoin and the other Al tokens that we add in the future, they’ll all be part of the revenue stream for Alchemix stakers.
Hey Scoopy, one quick question on Paul’s question. So you guys take a percent of the yield and that will flow to the dowel, but I guess that is at odds with the higher percent you guys take the longer it takes for people’s loans to get repaid. So how do you strike a good balance between wanting to reward the stakers, but also taking the minimal amount you can so that everyone’s loans are repaid faster, and I might be thinking about this wrong, but love to get your thoughts.
Well, if you look at any of the vault products, they have a fee model that usually is somewhere. I think Pickle uses maybe 5% of the profit, but then they take a 0.5% on withdrawal from your collateral. And I think you’re in version two, is they have, a 20% fee on the profit, but no withdrawal fee. So with that in mind, we thought 10% would be a fair thing for us to charge because, we still do have to run operations to harvest and do other things as a dowel. So we needed some revenue stream in order to sustain the protocol. And we thought 10% was a nice, happy, medium that it wouldn’t take too much yield away from our stakers. And it will still also provide us decent cashflow for operations.
Got it. That makes sense. I’ll see it to Jason and Paul.
Also participating in the Yearn affiliate program as well. So that’s another additional source of revenue that’ll be coming in.
That’s cool. Yeah, it’s an interesting balance. And it sounds like you guys have a nice, happy medium there, which is great.
Yeah. We want to do what’s best for the users and still have a sustainable protocol at the same time. And I always felt like, 10% is a fair number. If I was running good government tax, 10%, that sounds really good. It’s not too bad, I think everybody will be happy to pay a 10% tax.
Yeah. No, that’s totally fair. I’ll see to Jason and Paul because I just asked them.
And this is more of a general question, but what would you say are the biggest challenges for Alchemix in terms of, growing this to the next million nutrition? What are the biggest obstacles in the way?
Right now, I think our bottleneck is sourcing talent. We’re actively trying to bring some more people onto the team. I think we might have a couple people joining us over the next couple of weeks, and when we’d have that, we’ll have more bandwidth to more integrations with other projects in DeFi. And also might have more bandwidth to perform community requests. They wanted to make an auto Compounder for our farm. It’s like, “Hey, do you want that? Or do you want to me too?” But if we have more debts then, it’ll be a lot easier to do more things at the same time.
So once we scale up our team, we can go faster in our development and broader in our development, but I think what’s going to make us really reach a larger audience is integrating ourselves into more, and more, and more things in the Ethereum ecosystem. If you look at Dai, it has such a strong demand for it, because it’s used in so many different apps. I mean, it’s even used as a native currency in the XI side chain. So if we can get more integrations, and we can get it to be something that has an actual demand more than our own sponsored yield farms and stuff like that, then it’s going to become sustainable, it’ll become something that’s in demand across DeFi. And if we can keep this up long enough, then it will become money essentially. And that’s the goal in the end, is to have a very sustainable ecosystem where people can bank on the fact that they can get their yield upfront and do things with it afterwards.
So that’s what we’re really looking forward to. I mean, it would be really awesome if we could partner with payment processors to bring Al USD into the real world. But I think that might be more of a long-term vision, and we also have other plans for lots of different modules in version two, but we are not ready to talk about those yet.
God, [crosstalk 00:31:43] I’m going to pull a Hayden Adams on you guys and just [inaudible 00:31:46] do all night long. [crosstalk 00:31:50] We’re going to skip B2 and go straight to B3. Okay? Funny, you said that there’s, I think just 15 minutes ago, Uniswap just announced there’d be three. That’s-
Oh, my God.
This is Albay. This is Albay [crosstalk 00:32:03].
I was here for the memes and now they’re all over.
Turn it up to debt.
Hey Scoopy, could you dive into just your take on how you guys handle yield farming incentives and emissions and staking and everything like that? Because there’s so many ways to do it. Would love your view on how it worked for you guys, any things you would change and just your take afterwards.
Yeah. I mean, I consider myself one of the earliest yield farmers out there. I was in the ESE pools running synthetics back in 2019 before yield farming was even coined. And I’ve been a very avid yield farmer all through 2020 and up till now as well. And I just looked around the ecosystem about different yield farms and what I thought worked, what didn’t work, and then tried to learn from all that to build our model. And so with that in mind, I think synthetics was really one of the key pieces, just the OGEO farming thing. I really loved their emissions curve that they had in synthetics. And I thought that having a gradual steady weekly draw down in rewards, really helped to keep the liquidity sticky in the system.
And even with the high inflation, it wasn’t synthetics. It didn’t really cause a ton of cell pressure because the stakers were getting rewarded so much and it would just pay so much more to stay and to keep on re-upping your position in the yield farms. So with that in mind, that’s how we based our emissions curve. It started off with 22,344 tokens the first week of emissions, and then it goes down by 130 every single week for three years until the third year where it then stays flat at 2,200 a week. And the reason why we did a flat 130 token with decrement every single week instead of a percentage based one, is that we knew we needed to have a little bit more time to get all the other assets that we planned to get out in the ecosystem. And if we were to go through most of the emissions curve in the first half of the first year, then it will have enough ammo left to establish pegs and bootstrap liquidity for any future tokens. So that’s why we have the emission curve that we have.
Also, I didn’t investing either because I’ve been in a few programs that have investing of their tokens in farming, and I didn’t like that as a farmer. Like, “I want my tokens now.”
Yeah, no, screened rewards make sense. I mean, that’s what I loved about FRAX. It’s just, you could lock up for the set amount of time you want and get a multiplier based on [crosstalk 00:35:19] and the time in the cloud-based ratio, but also you just get the sreened rewards. And I guess Scoopy, my other question for you is, is there any customization you’ll let the users eventually do on their end? So you lock up Dai, you meant Al USD, you basically get an advance with 50%, I guess. Is there any way I could, as users say, “Hey, you know what? I’m going to lock up my Dai for 10 years.” Can I even get a greater advance within that? Or am I thinking about that the wrong way?
I don’t think we’re going to do anything like that. I definitely don’t like the idea of locking anyone in, even if it does offer a better return or a better rate. One thing I really love about our system is the flexibility. If you need to get out, you can always get out at any time. There’s no lockup. If you borrowed all of your Al USD, then you lost it in a rug and you need that collateral for something in life, you can liquidate part of your collateral to pay off your debt and then withdrawal the rest. I really, really liked that flexibility. Imagine you have an investment property with tenants and it’s paying you your money, and then the income from that is financing a home equity line. That would be an analog to Alchemix. But if you wanted to get out of it, you’d have to kick the tenants out of your building, then you’d have to sell the property, and that all is a lot of friction.
And one thing I think that’s really cool about Alchemix is that, it’s essentially friction less. We don’t charge any fees on liquidations or repayments or anything like that. You get in, you get out at any time. It’s very friendly in that respect. And that’s something I don’t want to change.
Yeah. That’s fair. The flexibility of not being locked in is super nice. I guess just thinking ahead, I mean, Jason alluded to this earlier, but what do you view as the traditional… On your roadmap, you have additional apps expand the Alchemix ecosystem, what do you mean by that? Do you mean other people building with Al USD or do you mean you guys will fund different teams to build within it? Or how exactly are you thinking about that?
That’s fair, that’s fair.
[crosstalk 00:37:47] both of those things where we have plans to build more apps, a few of our debts are really big fans of NFTs, and they’ve been brainstorming different ideas that we can use somehow using the Al tokens or Alchemix tokens as currencies in our own platforms there. We have been talking to a handful of other protocols already. I know we’ve already integrated ALCX tokens, or rather Rare Capital, shout out to Rare Capital. They’ve integrated ALCX in their pews pools. And that’s really awesome. We’re really big fans of Rare over here. There’s a few other ones that I’m not going to name just yet because they’re a little bit hush, hush, but we definitely are talking to different projects and different projects that are not even out yet. So we definitely want to integrate ourselves with the wider DeFi ecosystem because we really share ourselves as synergistic with other people. We’re not enemies of anyone else. I think that we can enhance other people and other people can use us to enhance their own products.
Yeah, no, I totally agree. Let’s pull some people in from the crowd to see what questions people have. I’m sure people have questions after listening to the whole conversation as well. All right, cool. I think we’ve got Joshua up here. Joshua, feel free to ask your question. Then will go to Jonathan.
Thanks. I really like what you guys are doing at Alchemix and I also really like your memes as well just as a side thing. But curious as to, if you could talk about, I don’t know if this was talked about earlier, it seems like Eagle Capital is pretty instrumental and this is coming about and just how you interact with them. Yeah.
Yeah. So Eagle, we like to say that we are a meme or a joke that takes itself very seriously. For awhile, we were just fooling around, but we got really active and really serious over the last few months. Really, trying to approach products, we make investment thesises for them, we work with promotion, and everybody in Eagle has a very extensive network. So anybody that we invest with, we try to help them out by leveraging our own networks. So it’s not just an eighth in type of thing, “Let’s profit off these projects.” We’re very selective about who we invest in. We only want to promote the coolest stuff out there because we’re more and more long-term focus, we don’t have any LPs that we owe anything to, so we can have that luxury.
So that’s something that we really pride ourselves on over at Eagle. And Eagle was really instrumental and helping Alchemix get an early boost. Before we launched, we were like, “Well, it’d be really nice to have a liquid pool when we first start.” But it was either, “I’m going to use all my capital.” I’m not quite a whale, or I wasn’t before we launched Alchemix or anything like that. And the option was, “I’m going to use all my capital to see the liquidity pool or we can go out and reach out to other people.”
And when I approached Eagle about it, a lot of the members were really supportive and they help see almost all of the initial liquidity for us. There’s another group I’m close with called DeFi Chad’s Ventures. Actually we weren’t even called DeFi Chad’s Ventures until we got into the LGE for liquidity generation event for our Sushi pool. But then we were just like, “Hey, what if we become a VC firm? Eagle’s doing it?” I mean, it became reality. And that’s how things go. But it was really nice to have that boost from them, and then they did a really nice article outlining the investment thesis on Alchemix and its use case. And I think between them promoting it and some of the influencers that are in Eagle that gave us a lot more visibility than just myself would bring to it. And they’ve also been really helpful with connecting us with really good people to help us out in various aspects. So I can’t say enough good things about Eagle.
Cool. Thank you.
Appreciate the question Joshua. Let’s shoot over to Jonathan.
Thanks a lot Tom and also Scoopy, great to hear the story so far. What we see with these large-scale digital asset custodians that are taking custody of large amounts of institutional capital moving into the crypto ecosystem. And as DeFi is replicating various parts of the traditional financial system, I’m just wondering, what are your thoughts around institutions moving into the DeFi ecosystem, essentially utilizing services like what you’re building?
Man, that’s a good question. I mean, I think it’s just the natural evolution of it. As the crypto space gets larger and more liquidity gets added via Bitcoin and Ethereum and the other large coins, especially stablecoins, then they feel more comfortable jumping in. Then as DeFi matures and they get used to seeing more of the structured products that they’re used to seeing like, tronches and other fixed interest lending models and stuff like that, then they’re going to dip their toes in even more. And then as that happens, it’s going to be a snowball effect as their liquidity comes in and it gets more liquidity. And eventually you’re going to see the two worlds merging together where of course, there’ll be people, power users who can use Metta mask, all the other wallets and do everything manually.
But I also think you’re going to see traditional FinTech, just hooking into DeFi itself and abstracting everything for the users. The user would be like, “Oh, I’m going to deposit $1000 into my Wacovia account, and now I’m earning 8% interest.” That’s cool. And it’s going to be something just like that going on. And the average user is not even going to know that it’s on crypto rails. And I just think that’s the natural evolution of where things are going. I mean, I think of course I would prefer people being sovereign users and not requiring intermediary to do all this stuff, but I’m just being realistic, keeping up in DeFi and managing your finances in DeFi is very much a full-time job. And I don’t think most people are prepared to do that. So having some middlemen in the way they can take care of or take the advantage of DeFi. Then it’ll be a happy medium for much of the world.
Awesome. Thanks for sharing. Thanks guys.
Appreciate that Jonathan, let’s go over to Brian.
I’m such a big fan. I think you guys have been doing fantastic things. I’m a proud L six bag holder. My question’s-
Because I got to state that I need a badge for it. But anyway my question, it’s a two parts. So first, I think we’ve all seen the idea of underclyrise credit as an [inaudible 00:45:33] application protocol. So there’s been a few white papers on how to create credit scoring and put that on change. My question to you is, do you see Alchemix playing a hand for potential future of cultures on chain where, they have a principle now that they can build a credit protocol with credit scores and use Al USD such that their principal’s protected. And then the second part of that question which would extend off that is, what do you see as the composability aspect of Alchemix?
If you have a wallet, there’s a lot of things that you guys can do. And this is a really early question, but what other Daschle CP builds on top of Alchemix that use it ultonomously? Hopefully that makes sense.
Yeah. Okay. So the first one about delegated credit, all I’m going to say is no comment, wink, wink. Okay? I’m not going to elaborate any more on that or else I will get heated very hard. And as far as integrations with other apps, so I don’t want to jump the gun and say who or what just yet, but imagine you’re in another protocol that takes a collateral that’s earning yield on it. Wouldn’t it be pretty cool if at the same time you’re in there that it could hook into Alchemix and you could also borrow some Al USD while you’re in there?
I guess to play minesweeper here, and [inaudible 00:47:16], but thank you so much. Take care.
Thanks, Brian. Scoopy, it makes our job easy. Well, we got 10 minutes left if you’re still good to keep going.
Yeah, I can do this all night, man.
All right. Cool, cool. Max, you’re up?
Hey guys, I guess I have two questions for Scoopy. One, a little bit more generally. I am just totally enthralled with the space, and DeFi generally. I come from an economics and markets background, and I want to get involved in making something myself, and I’m curious, one idea you had that you actually took right out of… well, that sound original to me, but providing some way for people not in crypto, but quote unquote “normies” to get a higher yield by providing their checking account balances basically. And then me providing a bridge for some of the yields that they can get in crypto. I mean, it’s probably a number of projects do something similar to that, but that seems scary. I don’t even know what laws and regulations and laws that is involved in that, but what do you think about doing projects like that?
I mean, do I need to be asking anyone’s permission or should I just be doing it? What do you think about that?
When you’re interfacing with the legacy finance world, it’s a lot trickier. I know that some teams have had to go through a lot of hurdles to get money transmitting licenses and stuff like that in order to make these things work. I’m not terribly knowledgeable on it myself, I consider myself more of a DeFi native. I only go to check my bank account every couple months just to make sure my credit card is paid off and stuff like that. But that’s really maybe to withdraw a little bit of money from crypto so I can pay some bills, but 99.9% of my net worth is in crypto. So I largely shun the traditional finance world at this point. Yeah, it’s something that is doable and I’d say like, “Go for it.” Because these things need to happen and there’s a lot of space available for it, but I’m not sure exactly how to best go about it. I think-
… Tom or Jason knows more than I do about that.
Yeah. It’s a long, long conversation probably for another pod, to be honest.
Sure. I mean, Tom I can do a followup. I guess then, what would you say, it just means starting an idea and then pivoting? Because it seems like DeFi is limited to, right now taking collateral apart against it. And then also some these, just borrowing and lending innovations, which I like, but where is the bottleneck to doing something even bigger, more ambitious in this space?
I mean, that’s a great way for me to plug one of my favorite projects, synthetics. I mean, they have this amazing protocol that allows for unlimited liquidity and no slippage traits. So if you have any of their synthetic tokens, whether that’s a USD stablecoin, or Bitcoin, or Tesla stock, you can hop from one to the other without any slip that you pay a small fee, like 0.3% and you can go from one asset to another. I think that’s incredibly powerful, and I think that’s going to be something that is going to probably be bridged to the financial world making me incredibly bullish on synthetics. It’s one of those things that I’ve been farming since 2019 and not even sold one up yet. I think there’s a ton of potential. I know that there’s like Saffron Finance who are doing debt tranches and stuff like that, offering more traditional structured products. So I think as DeFi matures, you’re going to see things that are just mind melting and also a convergence of traditional financing.
Thanks. Thank you guys.
Yeah. Thank you, Max. Let’s go to CK and hopefully we give Scoopy a second to catch his breath.
Yeah, thanks so much. Hey Scoopy, I asked you some questions in this call before, and thanks for answering me those questions. And a question I want to ask is, what are the risks that you think could harm the longevity of Alchemix that concerns you? And how would they be addressed? Because something like an insiders Mark [Kendrick 00:52:04] had in the case of Alpha [inaudible 00:52:07]. Thank you.
Yeah. So one of the things that happened to Alpha is, it had this design pattern, it’s called the proxy pattern. And with it, it allows for contract upgradability at the expense of immutability. So the code can be changed, and there are some unknown vulnerabilities in the proxy pattern, which is why our team has avoided it in general. We would rather make a system with modules that can be swapped in and out, and that way we can have upgradeability built into it, but without using experimental design patterns in DeFi. Another thing that we did in Alchemix was, we limited contract interactions to only externally owned accounts. So no smart contracts can interact without having speed one. And we did that as a draconian safety layer for Alchemix because there’s all sorts of weird economic attacks that can be done if somebody has enough capital. And especially if they have a flashloan and doing this all in one atomic transaction, it can lead to a lot of really weird stuff that you just can’t test for.
And so out of the abundance of caution, we disabled smart contracts from interacting with version one. Version two will be a little bit more open, and it’ll go through a lot more rigorous auditing. Version one was reviewed by Yearn developers and a few other developers in the space. We’re very confident in it’s security, but with more security, reviews we’ll be able to open up the protocol more. And of course there’s always a chance that there’s a smart contract bug, or there’s a chance that the underlying you’re involved could suffer an economic exploit. So always in DeFi, don’t invest more than you are willing to lose, and always know that there is additional risk involved, so invest safely.
Love that. We’re running low on time. So we’ll go to the last two and we’ll close out. Morino, you’re up.
Speaker 10 (00:54:24):
I’ll be quick. I’ll be quick.
No worries. No worries.
Speaker 10 (00:54:28):
I guess. So I have a few questions I hope that’s okay. I’m going to try to be quick though. So I guess these are the upfront paid bonds in a way. Is the loan coming from the yields or from the collateral? So are you paying the… You know what I mean?
It’s both. Because not only is the Dai backing it, but it’s also the yield that is enforcing the peg at the same time. If you know, MakerDao has a stability module that allows you to swap USDC together. And that helps stabilize a MakerDao’s Dai peg. And the transmitter is the analog to that stability module that MakerDao has. So together with that thing over collateralized, and the transmitter module. Imagine if Al USD really falls off the peg really terribly, then it becomes a bond at that point because if you wait for it to mature in the transmitter, then you’ll be able to get out one for one.
Speaker 10 (00:55:37):
So when it’s peg stable, it’s a stablecoin and it falls off the peg, then it becomes a bond. But I think we’re really confident in its ability to remain a peg to a dollar.
Speaker 10 (00:55:50):
This is like algorithms. Algorithmic stablecoin but it’s also used to unlock, to make yield pools liquid, like what Lido is doing with these maybe?
I’m not terribly familiar with Lido at this point. I know they’re doing something with ETH two stay in the game, but I haven’t looked into it too much. I can’t comment on that.
Speaker 10 (00:56:13):
Okay. So I have a final thought. I mean, who knew yields on the loan that you got and this thing could go on forever in a way.
Yeah, I mean, that’s what a lot of users are doing. They’re taking their Al USD that they’re borrowing and then using it for more yield farming. So not only are they earning the 12, 15% from yarn, but then they’re going out seeking more yield. Yeah, it’s a way to effectively increase your capital base for even more yield.
That’s awesome. Morino, great questions. But just in the essence of time, we’ll go to [Toma 00:56:49] and then we’ll close out.
Speaker 11 (00:56:51):
Hey, I’m just working on some cross chain deployments across EVM compatible chains. I’m wondering what your thoughts on the different interoperability that needs to have the non layer twos to work. Because I’m just realizing a lot of bridges into other things, side chains, they’re locking, they’re minting. And it just seems fucked up. And it seems like there’s no standards for any of these L2s if they’re going to be able to switch back and forth. And I’m just curious, if you’re building in this space and you’re trying to be chain agnostic, how can you build your tout or protocol to be as interoperable, I guess, with all the different options that you have now?
Yeah, that’s a good question. I think it’s one of those things is that, we’re really early to the era of multi chain DeFi and the multichain world in general. There is definitely a few projects that interest me in this space of bridging everything together. One of them is Connects, they use state channels and you can swap tokens from any EVM chain to any other EVM chain. You could either take [Wrobston 00:58:14], Etheren. Wrobston tokens and bring them onto the main net. You can go to Expert, you can go to Rollups, you can go to MADEC. Or you can go to BSC, you could go to avalanche using this method. And then when the tendermint ecosystem matures more with their ethermint protocol, I know that there is a lot of plans for the cosmos STK in the future to talk with Etheren. So these things are going to be happening in time, and these bridges are going to be happening at time we’re just really early to it.
You’re going to see lots of innovations. I know Andre and Yarn are working on cross asset swaps using Phantom and other blockchains. I know that for optimism, MakerDao is offering a bridge using Dai. That’s going to make it really fast, it’s not going to take a week to get off of optimism with your Dai. It’s going to be pretty much instantaneous. I think the ZK roll up stuff is really, really promising, even though it’s a little bit early at the moment because they have the scrub proves that allow you to withdraw immediately. So there’s no lock up time for that. I think we’re just really early in the space. And there’s more liquidity bridges when there is native protocol to protocol swaps using something like forward chain. Then this stuff is really going to come to fruition. I think that that’s going to be a big theme. I don’t know about this year, but definitely in the near future in crypto. I mean, I guess it’ll feel like years, but it will be a year or two.
Speaker 11 (01:00:04):
Yeah. Thank you. My ultimate dream is, cross chain loans where I could deposit my asset on one thing and then I can actually borrow it on a different chain. So that’d be cool.
Yeah. Having those be atomic is going to be hard, but if you’re able to wait time for transactions to go across chains, then they’ll definitely be cross chain DeFi in the future.
Awesome questions Toma. And Scoopy, I know it’s getting late by you and I want to respect everyone else’s time. So we’ll cut this off, but just a couple of disclosures. We’re obviously invested in you guys, Delphi Ventures. I’ll let Jason give his disclosure as well after me. Also shout out to my partner Paul, for covering you guys early on, and I just really appreciate your time Scoopy, we love what you guys are doing. So keep on building.
Yes. Thank you for listening to my Ted Talk.
Yeah. Thanks everybody.
Awesome. Thanks so much, guys. We’ll chat soon.
All right. Bye.