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How does Alchemix work?
Alchemix works by taking a deposit of yield-bearing collateral, routing it into a yield strategy, letting you mint a synthetic alAsset against a portion of that deposit, and then applying the collateral's yield directly against your debt until it reaches zero. No interest is charged and no manual repayment is required.
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The five-step Alchemix mechanism
Every Alchemix position follows the same sequence regardless of which vault is used. Collateral goes in, the vault forwards it to a yield source, a synthetic alAsset is minted against a conservative share of the deposit's value, yield generated by the collateral is applied against that debt automatically, and the depositor can withdraw once the ratio allows it. Nothing about this sequence changes whether the collateral is a stablecoin producing alUSD or ETH producing alETH.
What makes the sequence unusual is where the interest rate would normally sit. There is no rate, because there is no external lender being compensated for the use of capital. The protocol simply mints a claim against collateral it already holds and lets time and yield close the gap between what was minted and what remains owed.
How the alchemist vault decides how much you can mint
Each alchemist vault enforces a maximum loan-to-value ratio for the collateral type it accepts. A deposit worth a given amount can only ever back a smaller amount of minted alAsset, and that gap is the buffer that keeps the position solvent through ordinary market movement. Because the debt and the collateral both track the same underlying asset, this buffer exists for operational safety rather than to protect against one asset's price falling relative to another.
A borrower who mints well below the maximum LTV gives themselves a wider margin for withdrawing before the loan has fully repaid, or for adding more collateral later without first needing to reduce debt. Borrowing at or near the maximum leaves little room to manoeuvre.
Where the yield that repays Alchemix debt actually comes from
Alchemix does not generate yield internally. Deposited collateral is routed to established external yield sources — lending markets, liquid staking, or stablecoin strategies — and the return produced by those sources is what gets applied to the borrower's debt. This means the pace of repayment is tied directly to the performance of whichever strategy backs a given vault, and that pace can speed up or slow down as market conditions and strategy allocations change.
Because yield is variable rather than fixed, Alchemix cannot promise a repayment date. What it can guarantee is the mechanism: whatever yield is produced is applied to the debt automatically, with no action required from the borrower and no interest ever accruing in the meantime.
- Deposit → vault → external yield strategy
- Mint an alAsset up to the vault's maximum LTV
- Yield is applied to outstanding debt continuously
- Withdraw once the remaining debt still satisfies the ratio
Why Alchemix debt cannot be liquidated the ordinary way
In a conventional lending market, debt is denominated in a different asset than the collateral, so the two can diverge in price and trigger a liquidation. Alchemix mints debt as a synthetic version of the very asset that was deposited, so a market move in that asset affects both sides of the position together. This structural choice is what removes ordinary price-driven liquidation from the picture, though it does not remove smart contract or yield strategy risk.
Understanding this distinction is the key to understanding why Alchemix is described as a self-repaying loan rather than simply an interest-free loan: the repayment mechanism and the liquidation-resistance are two separate consequences of the same underlying design decision to tie debt to a synthetic of the collateral.
How does Alchemix work?: step by step
- Deposit collateral into an alchemist vaultSend a supported asset such as a stablecoin or ETH into the Alchemix vault that matches it, recording your deposit balance on-chain.
- The vault routes your deposit to a yield strategyThe vault forwards the collateral into an approved external yield source so that the deposit is productive rather than idle.
- Mint an alAsset up to the allowed loan-to-valueBorrow alUSD or alETH against a conservative share of your deposit's value, staying below the vault's maximum LTV for a safety margin.
- Yield is applied automatically to reduce your debtAs the underlying strategy produces returns, that yield is credited against your outstanding balance without any action on your part.
- Withdraw or repay once your ratio allows itRepay manually at any time to accelerate the process, or wait until yield has cleared enough debt for your desired withdrawal to satisfy the vault's ratio.
Frequently asked questions
- How does Alchemix let you borrow without paying interest?
- Because the protocol mints a synthetic token against collateral it already holds rather than lending out another user's deposit, there is no lender to compensate and therefore no interest rate to accrue on the position.
- What actually pays off an Alchemix loan?
- The yield generated by the deposited collateral once it is routed into an external yield strategy is applied directly against the outstanding debt, gradually reducing the balance without any manual repayment.
- Do I need to do anything for my Alchemix debt to go down?
- No. Once you have minted an alAsset, the vault applies accrued yield to your debt automatically. You only need to act if you want to repay faster, withdraw collateral, or mint additional debt.
- Can my Alchemix position ever owe more than I originally minted?
- No new debt is created on its own; the balance can only fall from the amount you minted unless you choose to mint again. There is no accruing interest that could push the balance upward over time.
- What happens if I withdraw before my Alchemix loan is fully repaid?
- You can withdraw at any point as long as the remaining collateral still covers the outstanding debt at the vault's required ratio; the contract will simply reject a withdrawal that would breach that ratio.