In just one random Spaces, just one, AlphBanX took all crypto bulls in awe. Kadena folks were stunned, and Alephians felt a local rush of euphoria.
In this episode of Behind the Code, we will take a deep dive into the intricate details and fascinating stories behind AlphBanX.
Just a quick refresher, AlphBanX recently unveiled their Asset Flow Diagram, which we thought was begging for an interview! We reached out to AlphBanX on Telegram, and they accepted it. Let me just put this on the record, the Team behind AlphBanx is amazing. If you are part of the first builder's meetup in Athens, you're in luck.
Back to the interview, here's another amazing thing: what was supposed to be an interview in written Q&A form turned into a real interview with voice notes! Our conversation was long, with lots of back-and-forth messaging and exchange of questions. So, instead of uploading our lengthy chat and voice messages, let me wrap it up for you and share my key takeaways from our conversation.
Let's start!
Introduction
AlphBanX aims to create a secure, decentralized over-collateralized stablecoin on the Alephium blockchain. Users can deposit ALPH as collateral and borrow against it with a collateralization ratio of minimum 150%. This model ensures that the value of the stablecoin remains stable and well-backed.
The Team
The team includes the core developers from Fantom, who were instrumental in creating its consensus mechanism, and some Advisors that worked partly on MakerDAO. All I can say for now is, this team knows their stuff.
Furthermore, our main guy here has a very strong presence in the BTC scene back in 2016. We would not disclose what that actually is as it will fully dox him. But honestly, I'm proud of myself that I get to chat with this person. Things could get really interesting in Athens tho. (can somebody book me there please?!)
The "WHY"
He said there is an ongoing need for decentralized finance (DeFi) projects that prioritize both safety and exceptional user experience. At this point, they've compared numerous projects and have consistently encountered shortcomings in either the user interface, user experience, or the underlying safety of the technology.
That has changed now. There will be one, and it will be leveraging the technology of what he calls "the perfect blockchain," and that's Alephium.
These are his words, not mine.
The Vision
AlphBanX aimed for the protocol to be decentralized and free from ownership by a single entity. With this arrangement, users hold ownership stakes in the ecosystem, providing them with a compelling incentive to contribute to the protocol's growth and sustainability.
This decentralized ownership would play a critical role. Let me explain.
Distributing ownership through token allocation allows the protocol to extend ownership to a wide range of users. As the saying goes, "If you want to go fast, go alone. If you want to go far, go together."
Allow me to quote our conversation:
"Our core vision is to redistribute AlphbanX Token (ABX) to the community, harness the ideas of every user, and collaboratively create a product that supports the entire ecosystem."
"As more users contribute to the protocol, the Total Value Locked (TVL) in AlphBanX increases, driving up the price of ALPH tokens. This mutual benefit creates a self-sustaining ecosystem where the prosperity of the protocol is directly tied to the active engagement and innovation of its community."
"The community's role is to continually optimize the protocol and generate new, innovative ideas to improve it. The decentralized structure of AlphBanX ensures that these collective efforts are rewarded, fostering an environment where users are motivated to contribute positively and think creatively."
Core Objectives
From our discussion, they have two key objectives:
Safety: He then emphasizes that the stablecoin must maintain its peg under any circumstances.
User Experience. This totally makes sense. The crypto space is already pretty complicated, and traditional finance isn't any easier. Combine the two (which is DEFI), and it's a recipe for a fried brain. It's awesome to know that these guys are working on something that will let users manage their loans and be able to keep an eye on potential liquidation risks in a much simpler way.
To achieve safety, they integrated three mechanisms.
Now, this is where it can get a bit tricky and could dive into some high-level stuff. But don't worry, for the next section, just think of it as the Whitepaper, but humanized! 😅
Safety Mechanism #1: Auctions
The first safety mechanism in maintaining the peg involves auctions with four different pools (5%, 10%, 15%, and 20%). Users can use AlphBanX Dollar (ABD) on the market and deposit them into these auction pools.
For example, if a user has a debt of $4,000 and their collateral falls below the 150% threshold, the smart contract will utilize their collateral to repay the debt by offering it to those who have contributed to the auction pools. This mechanism helps in orderly liquidation of collateral and ensures debts are repaid.
In the event of liquidation, the process involves multiple steps:
The first pool (5%) is used to repay a portion of the debt, with the depositor receiving 5% more in ALPH tokens.
This process continues through the 10%, 15%, and 20% pools, incrementally repaying the debt with additional ALPH rewards.
Fee Distribution and Earnings for Auction Pool Providers
Users who borrow ABD against their collateral pay a fee. This fee is divided as follows:
60% of the fees are distributed to liquidity providers in the auction pools, offering them interest on their stablecoins.
In bullish markets, where more collateral is deposited, the yield for liquidity providers can increase significantly, further incentivizing participation in the auction pools and enhancing the stability of the stablecoin.
The remaining 40% of the fees are allocated to AlphBanX stakers. As the Total Value Locked (TVL) in the system grows, the interest generated also increases. This growth incentivizes users to buy and stake AlphBanX, enhancing its value and aligning interests towards maintaining system stability.
Safety Mechanism #2: AMMs and DEXs
If there isn't enough liquidity in the auction pools to cover the debts, and the collateral ratio drops to 115% (subject to change, as they are still running the prototype and observing how the peg behaves), the collateral is sold through Automated Market Makers (AMMs) on a Decentralized Exchange (DEX). This immediate sale helps in repaying the loan and maintaining the stablecoin's peg.
Safety Mechanism #3: Redemption Option
The redemption option is a tested method to maintain the stablecoin’s peg. It allows users to redeem 1 ABD (the protocol's stablecoin) for $1 worth of ALPH, even if ABD is trading below $1. This mechanism works by repaying the lowest collateralized loans of other users, burning ABD, reducing the supply of ABD, and thereby helping to restore the peg.
In detail, users can profit by purchasing ABD on a dex at a discount (e.g., 97 cents) and redeeming it for $1. This action repays the riskiest loans of other users and reduces the ABD supply, aligning its market value back to $1. This mechanism ensures that even during supply imbalances, the stablecoin can re-peg effectively.
AlphBanX encourages users to maintain high collateralization ratios through the redemption mechanism. Users with lower collateralization ratios face the risk of their loans being redeemed, providing a strong incentive to keep their collateral levels high.
There is no Net-loss for users when being redeemed, they lose some ALPH, but have as well less outstanding debt to repay. It’s a win/win situation for all users of the protocol.
Now let's talk about their take on the second Core Objective.
User Experience
"A crucial aspect of decentralized applications (Dapps) is user experience. Many crypto projects struggle to help new users understand their actions and the associated risks in simple terms. That's why we will focus on delivering an amazing, simplistic user interface. This interface allows users to manage their loans, debt, auction, and staking positions seamlessly. Our goal is to attract not only experienced dApp users but also new users by minimizing the challenges of using a dApp. This ease of use will enable AlphBanX to bring millions of users to the project."
Final Thoughts
This dApp is being built not just for the ALPH users or ALPH bulls. It is for the entire crypto community. It will definitely onboard the next million users. This is great not just for the ALPH ecosystem, but for crypto as a whole.
If you want to learn more, I have another piece of material for you. Listen to this spaces from The Brother's Dao hosted by the Kadena community and co-hosted by our dear ambassador Ron.
Just a quick commentary: on this Spaces, you'll notice everyone just stopped to listen. HIGH-LEVEL discussion. Like Cheng Wang level AMAs. I'll leave it with you. You be the judge. (his part started 49:00)
Now it's your turn. If you want to dive even deeper, here's the link to their whitepaper: Link.
Follow their socials:
Twitter: https://x.com/alephiumbank
Telegram: https://t.me/AlphBanX
Discord: https://discord.gg/FcSUEcyj
Website: https://www.alphbanx.com/
(see how serious these folks are? They even took the .com domain extension)
Alright, fam and friends. Thanks for joining me. I'll see you on the next one.
https://www.tickcounter.com/countdown/5339590/rhone-upgrade-activation
***Disclaimer:***The information provided in this article is for informational purposes only. It should not be considered financial advice. You should consult with a financial advisor or other professional to determine what may be best for your individual needs. We do not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first conducting their own research and due diligence. To the maximum extent permitted by law, we disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Remember that investing in crypto involves risk, and past performance is no guarantee of future results.
