Deposits in Yearn Finance’s DAI vault are rising after synthetic assets protocol Alchemix started using Yearn for its backend last week.
Alchemix deposits quintupled to almost $130M from less than $25M on Feb. 27, when the protocol launched. The surge pushed Yearn to raise its Dai vault limit to 300M from 100M.
The move shows Yearn Finance is becoming an effective building block for other DeFi protocols.
“It’s really cool to see protocol’s use Yearn as a backend,” Yearn core developer, Banteg said on Twitter.
Alchemix had initially put its own $50M cap on total alUSD supply in order to, according to a Medium post, “assess the stability of the contract,” but the team has already raised the debt ceiling to $100M to meet demand.
When users deposit DAI as collateral in Alchemix the protocol transfers the stablecoin to Yearn’s DAI vault, where the position will generate yield according to the vault’s strategy. Users can then mint up to 50% of their deposited DAI value in alUSD, the protocol’s synthetic ERC-20 token.
Users can then use alUSD as they wish, for example depositing it as part of an automated market market (AMM) pair like alUSD/DAI which Alchemix intends to incentivize with their governance token ALCX, or simply trading it to go long on another token, without, as DAI has a stable value, the risk of being liquidated.
90% of the yield generated with the DAI Alchemix deposits in the Yearn vault will go to paying down the alUSD debt (10% will go to the Alchemix DAO treasury). This means that, if the position in Alchemix is held long enough, a user will be able to withdraw their DAI, without having to repay their alUSD because Yearn’s yield will have done that on the user’s behalf.
This essentially means that the Alchemix protocol allows users to access their Yearn yield up front, in the form of alUSD.
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