Cloning Alchemix

Hello Jetters,

This is my first “proposal” so plz bear with me.

As crypto begins to mature and composable projects enable interesting combinations of dapps to mesh together, revolutionary new financial products are bound to be unleashed into the skies.

As we all understand to varying degrees the promise of Solana relative to Ethereum 1 & 2, it isn’t a stretch of the imagination to consider that most if not all of the projects on Ethereum will eventually end up being developed on Solana.

With that being said, I have an idea that has yet to be considered until today: cloning Alchemix.

For those that don’t know, Alchemix (ALCX) is a borrow/lending protocol built on Ethereum that leverages Yearn Finance vaults in order to generate yield on deposited assets. Funds deposited on Alchemix can , but are not necessarily required to, be used as collateral for loans. ALCX then uses the yield generated from deposits, minus a small percentage that goes back to their treasury, in order to pay off whatever a user has borrowed. This creates a product where individuals, or even DAOs themselves, can take out self paying loans!

I believe that Jet Protocol can clone Alchemix and utilize several Solana DeFi projects in order to bring this incredible product to Solana. By utilizing collateral deposited to Jet and deploying those funds to other projects like Solfarm, Mango Markets, Raydium, Saber etc., Jet Protocol can create a type of loan, similar to ALCX that is self paying, but is much more capital efficient by leverage multiple sources of yield as opposed to just one.

Here’s what I’m thinking:

  • User deposits SOL into a Self Paying Loan Pool (SPLP) that is unique for each user’s account.

  • This pool gets automatically deposited into the highest yield for USDC (a program can created similar to SolFarm to automatically shift funds between different protocols in order to maximize interest).

  • Once deposited, user receives jSOL. This can either be HODLed for interest, or the user can swap for USDC (there can be a liquidity incentive program as well).

  • While the user is doing god knows what, the collateral’s generated interest is going towards paying off whatever % of the collateral is borrowed against.

Feel free to take this and make it your own, offer feedback, or just cringe at my smoothbrain. Just thinking out loud here :slight_smile:

5 Likes

Welcome to the forum, and thanks for the suggestion, @spl_liff! It’s quite compelling. I am very interested in supporting exotic products on Jet. Tell us more about the use cases here:

  • Is it expected that the protocol will eventually pay off the entire loan for a borrower, from earnings on collateral? How long is that expected to take?
  • What if the value of the collateral drops significantly, are borrowers still subject to margin calls / liquidations in this model?

“Is it expected that the protocol will eventually pay off the entire loan for a borrower, from earnings on collateral?”

Yes… the way Alchemix deposits user collat onto Yearn I was thinking Jet could aggregate yield for specific tokens from different protocols…
Theoretically, User A deposits 10 SOL in Jet’s SPLP, Jet takes that sol & checks whether the yield for it is better on Solfarm, on Jet, on Solend etc.

It’s also less that Jet is paying it off whereas Jet just deploys collat & routes the interest into a program that has a “-=” on the balance

“How long is that expected to take?”
That would depend entirely on how much collateral is deployed for yield, how much is borrowed, and what the highest interest rate (which is variable so its in flux) for that particular collat is.

" * What if the value of the collateral drops significantly, are borrowers still subject to margin calls / liquidations in this model?"

There wouldn’t be liquidation risk because a massive price drop would effectively just extend the amount of time required for the collat to earn enough yield to pay off the balance.

I was thinking that within the UI, there could be a button next to the cockpit (cabin/first class/ business class [there are a lot of creative names for this type of program]) where it redirects you to a pool the self paying loan.

the image isnt the best so here’s the link, just scroll down within the page to view it better link

3 Likes

Digging this line of thought. Paging @adamdelsol and @wil.

Think of this as a structured product. The deal is

  • client delivers U now, and
  • provider delivers V now and U at some point in the future.

In the best case for the provider, and what we’ll assume here, is that it is entirely up the provider when to return U.

Suppose that, over some period T, the provider can generate an effective rate Ru on U, and pays Rv on V, and let let Xu and Xv be the prices of U and V in dollars at the end of the period. Compared with the start of the period, the provider’s balance sheet has changed by

U Xu Ru T - V Xv Rv T

The risk of course is that this quantity is negative. Particularly that the loss starts eating into the collateral base on which which the provider originally sourced V for delivery to the client.

I don’t know that we should build these risks into the core protocol. But what I dearly want to do, and I think the rest of the team feels the same, is to provide the primitives on which an operation like the one described here can be built.

So @spl_liff, maybe it looks a bit like this: You want to make a self-repaying loan product. We keep talking to figure out what primitives are required, what Jet needs to build, what tokens to onboard, etc. You (together with other interested people on the forum) create a business plan you pitch to Jet governance. Governance agrees to give your operation access to Jet debt markets on some terms. You raise money from investors (try ask Jet governance again, I think they’ll like the idea of growing the ecosystem). This money is used to collateralize your access to Jet’s debt markets under the agreed terms (it is not the money loaned out). Then you go out and write self-repaying loans for clients, and figure out how to generate high yields to pay them off and earn a profit for the investors. If you let the risk get out of hand and it all blows up, well the investors’ capital eats the losses before they spread into Jet’s debt markets. In this way the investors have to balance the reward of aggressively onboarding new business with the real risk to their own capital.

Hopefully, over time, there will be many such operations built on Jet, all playing their part in Jet governance because it’s in their interest to ensure the smooth, safe running of the protocol. Also paging @jrmoreau to help us think about the governance aspects of this structure.

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Welcome @spl_liff!

And yes I think this use case is quite compelling. I would be thrilled to help flesh this out further with you @spl_liff if you would be interested in taking it on.

I’m not going to be much help when it comes to risk parameterization but I can help you work through the necessary team members, ops and interfacing with Jet Governance.

2 Likes