As we all know applying for a loan from a legacy banking system involves alot of paper work, documentation & time. In order for an individual to get a loan it requires a significant amount of effort from the borrower and really lets face it very little effort on behalf of the bank. In return for this transaction the bank makes all the profit and zero to be made by the borrower.

The DeFi protocol Alchemix turns this on its head so that the person it transacts with also shares in the profit. Now because it sounds too good to be true many were calling this a "ponzi" scheme (1) and in most instances I'm the first to say "if its to good to be true then it probably is". However this immediate reaction comes from the lack of undertsanding of how this DeFi protocol really works and once you understand it, its easy to see how this is likely to revolutionise the banking system.

This is how the Alchemix magic works, the participant deposits their stable coin DAI (pegged to the USD i.e. 1 DAI = 1 USD) for an approximate 6% annual yield return (as of the date of publication) on their deposit. The participant may use their deposited stable coins as collateral to burrow against and the beauty of it is that no loan applications or ID documents are needed. Participants may burrow up to 50% of their deposited funds (2). 

Alchemix stakes the deposited funds with Yearn Finance, this generates a yield which is then used to automatically payback the loan. Depending on the length of time the participant continues to stake their funds, will determine how much or little is required to pay off the loan that is if the loan hasnt been paid off entirely. The participant also has the option of using the collateral to close the loan whenever they please or they can just pay it down at their own pace (2).  

The Alchemix magic doesnt stop there, if the participant wishes to boost their yield earning power further, they may use the burrowed money and stake it in one of several Alchemix's active farms. 

As you can see from the image above if you were to stake ETH the annual yield is an insane 121.86% (at time of publication) (3). So now that your intial deposit is staked and the burrowed funds are staked in yield farming you are earning returns from both sources. This is an incredibly incentivised system which encourages participants to get involved, save and grow their hard earned cash, there isnt a centralised banking system on the planet that operates like this, and thats why I strongly believe the legacy banking system is on its last breath, DeFi protocols such as this will destroy the private banking sector. Alchemix is such a stand out compared to the regular banking system and to be honest even most other DeFi platform's, as none seem to operate quite like this.