ICO Review: Alchemy
Alchemy is a blockchain-based peer-to-peer lending marketplace. Their platform aims to allow for instant, and direct lending between supply-side lenders and demand-side borrowers from all over the world using smart contracts. Furthermore, they note that their architecture analyzes and structures a credit risk-adjusted rate with the utilization of AI and Machine Learning.
As peer-to-peer lending has been within the blockchain community, the primary foundational aspect companies like Alchemy are going to need proving how they plan on scaling both sides of the marketplace. And with over 50 percent of their $62.5 million hard cap already raised, here’s what we think about their whitepaper:
The goal for Alchemy is to introduce a decentralized peer-to-peer system that will allow for more credit to become available. They believe that as borrowers have been seeking better and more efficient alternatives to banks, the P2P lending market could grow substantially, with the global appeal of blockchain potentially putting it at the forefront.
How Alchemy Works
Alchemy goes into how their product will work for:
- Alchemy’s P2P interface will allow borrowers to request a loan and for lenders on the system to directly fund it.
- Their AI system will run the credit underwriting process, including a credit check, home ownership, and other details.
- If a borrower makes it through this process, Alchemy will fund the loan from the pooled investment account.
- In closing, Alchemy will set up a monthly withdrawal of the payment.
- After a borrower’s loan is established, their debt is put into a debt pool.
- Debt pools are assembled in tranches and then sold to investors.
- Investors can purchase AFI tokens to buy into these tranches, taking an ownership stake in the pools.
Alchemy views using blockchain in pooling and tranching to have the following advantages:
- All parties must be part of this ledger.
- Blockchain will allow verification on data integrity in the different stages of the process.
- Allow verification in the mortgage area and pool.
- Allow verification in the other collateralized portfolios so investors can easily track back to the source, giving a better evaluation of the risks associated with their investments in tranches.
- AI will be used to evaluate the risk of each tranche and price accordingly appropriately.
Alchemy notes that their P2P Platform will facilitate transactions between all parties into a debt obligation into Tokenized Tranches Opportunity (TTO). Furthermore, Alchemy will take 4 percent origination fee and a 2 percent transaction fee (1 percent from each side).
Tokenized Tranches Opportunity securitizes all the debt obligations outstanding, whether it be credit and debt financing through their platform or third-party capital providers.
Credit Risk Analysis
Alchemy will use proprietary credit risk analysis tools to evaluate credit riskiness of debt and provide a sound system. Variables they’ll include are income, debt to asset ratio, geographical risk factors, and default probability risks.
Alchemy will utilize the transparent nature of blockchain to reduce risk, as well as authenticate different stages of the credit flow process, including credit and background checks, credit risk profile construction, and TTO debt ownership verification.
Collateralized Debt Obligations
Alchemy wants to collaborate with 3rd-party capital providers to securitize the credit facilitated on their platform through proprietary balanced riskiness profile analysis.
Lenders and Alchemy can divest balance sheet credit risk via the buying and selling of TTO-based tranches with interested parties while also offering borrowers the ability to possibly borrow at an interest rate lower than the current credit market.
Alchemy as an entity strives for top-level security by implementing the following strategies:
- Mobile security enhancement and cloud storage.
- Finger-Printed USB Technology.
- KYC and AML protection through Ocular.
Alchemy also goes through a few other components you can read at their whitepaper above, including how their wallet conversion and investment restrictions.
On the surface, Alchemy shows that they’ve done their homework. They have a pretty solid team behind their efforts and dive deep into the details of how their project will work. However, that’s not to say it doesn’t have its limitations.
Although Alchemy aims to create a peer-to-peer lending platform, users invest into a pool rather than individual deals. While this helps reduce risk, it ultimately leaves the faith of their AI and creditworthiness algorithm to if a loan should be awarded. The criteria for this still relies on central authorities, including credit rating agencies as well as changes or improvements Alchemy aims to make over time. Granted, that’s not to say this isn’t a project with potential, just one that relies on how they view a decentralized peer-to-peer lender.
Overall, the AI and proprietary creditworthiness tools that Alchemy are developing might be excellent steps for them to be successful. Furthermore, there’s a little bit of skepticism around their ability to onboard investors (especially considering everything is set by Alchemy). Granted, if these pieces don’t bother you, then Alchemy can be a solid project to keep your eye on.
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