Self-Repaying Loans All Grown Up: A Look at Alchemix V3

One of the first DeFi projects I ever wrote about in 2021 was Alchemix.

That spring, Alchemix had just unveiled its V1 protocol and alUSD, a synthetic stablecoin you could mint-and-borrow and that would automatically work to pay back your debt via yield farming.

This was, of course, the first money lego of its kind in DeFi, and I remember having my mind blown at the concept of self-repaying loans. And now, 5 years later, it's been cool to see how Alchemix has continued to work on improving this model ever since.

The latest milestone here is Alchemix v3, which went fully live this May and is the biggest rework of the original idea to date.

The pitch is still the one that hooked me in 2021, i.e. borrow against your deposit and let yield quietly clear the balance, but the v3 plumbing underneath is expanded and more capital-efficient.

The big ideas

If you're new to Alchemix, the basic loop is simple. You deposit ETH or USDC, you borrow a synthetic version of it (alETH or alUSD) against that collateral, and your deposit earns yield in the background that steadily pays down what you owe.

There's no interest rate, and crucially, no price-based liquidations, so for example a dip in ETH won't get your position force-closed because your debt and collateral move together.

What has changed in v3 is mostly how your collateral earns and how the debt gets repaid. Three pieces are the main pillars here:

• The Mix Yield Token (MYT): Rather than parking your deposit in a single place, v3 wraps it in the MYT, a basket of strategies (built on Morpho's Vaults V2) that the Alchemix DAO curates and rebalances. If one strategy stumbles, the basket spreads the hit instead of concentrating it. You can also just hold the MYT for passive yield without ever borrowing if that's all you want.
• 90% LTV: v3 lets you borrow up to 90% of your collateral's value, which is basically 2x as efficient as what was possible in the V2 protocol. More of your capital is freed up to actually use, in other words.
• The Transmuter: This is now a fixed-term bond market. You can deposit alUSD or alETH, lock it for a set period, and redeem 1:1 for the underlying (via MYT) at maturity. If an alAsset is trading below $1 on the open market, buying it cheap and locking it in becomes a fixed-rate yield play, and that arbitrage helps keep the peg tight.

All that said, you still have the same self-repaying loan possibilities I first got inspired by in 2021, just with a sturdier onchain engine bolted underneath.

How to try the V3

There's no need to reinvent the wheel here because Alchemix's own docs already cleanly lay out all the ways to dive in with step-by-step guides. If you want to try the new protocol, the specific walkthroughs for the three main things to explore are as follows:

1. Earn passive yield: Mixed Yield tutorial
2. Lock in fixed returns: Fixed Yield tutorial
3. Take a self-repaying loan: Borrowing tutorial

Basically, you'd connect a wallet on Ethereum, Arbitrum, or OP Mainnet, deposit ETH or USDC to mint MYT, and from there either sit on the yield or borrow against it, etc. The alchemix.fi/dashboard page will show your live LTV against a health bar, so you always know where you stand.

Some risk considerations

Liquidations in v3 aren't triggered by price swings, but they can happen if a yield strategy inside the MYT takes a real loss, so maintaining a conservative LTV is your friend (the DAO caps higher-risk strategies, which gives you a basis for picking a safe number).

That said, alAssets can also trade slightly below peg, which is an upfront cost when you borrow and sell. And crosschain bridging back to mainnet is rate-limited, so be sure to double check liquidity before fully diving in and building up a big multichain position.

On the security front, v3 ships with audits from several top firms and an active Immunefi bug bounty, a stark contrast from the "no audits yet" caveat I noted when I first wrote about Alchemix's V1 yield farms back in 2021. This is encouraging, but always do your own research too.

My grand takeaway here is that the self-repaying loan was a wild idea 5 years ago, and it's now a much more refined piece of DeFi machinery thanks to Alchemix v3. This is a slick one to explore in my opinion, so give it a look if you're hunting for new DeFi things to try.