Magnus Capital Report — Alkimiya

Welcome to the first Magnus Capital project analysis report. Today, we are analyzing Alkimiya Protocol, a robust crypto mining power exchange.

Within this report, we will outline:
- Foundational Background of Problem & Solution
- The Alkimiya Team
- Risks & Mitigations
- Investment Thesis

Let’s dive in!

Problem definition

Crypto mining comes with expensive upfront costs and uncertainty relating to sustained passive income. On any given month, Ethereum could process half the transactions and Ether could be worth half the price of the previous month. In this extreme case, mining rewards would total to 1/4th of the previous month. This volatility is concerning to some investors.

As seen in the graphic above, asset mining profitability can be more volatile than the asset itself yet there is no futures market for miners to hedge their risk. This makes it hard for the average individual to rely on mining for passive income.

On the other hand, Those looking to speculate that mining profitability will increase in the near future have no effective way of expressing that currently. With the cost of computing power ever increasing, it becomes more and more difficult for buyers to take on mining exposure. If only there was a way for buyers to generate mining income without purchasing the costly equipment…

Enter Alkimiya

Alkimiya introduces a futures type market for mining power.

Consider how futures contracts we’re invented for the purpose of a producer with the likes of a cattle farmer. Here, they would use the futures market to sell cattle that isn’t ready yet, securing profits at the current market price instead of hoping that the cattle’s value hasn’t fallen by the time their cattle is fully grown.

Alkimiya is essentially the same thing, but in this case, the cattle can be replaced with mining power. Picture a cryptocurrency miner that generates $6,000/month in average profit — on any given month, they could leverage Alkimiya’s Silica Swap to sell their mining power via a contract and secure an automatic $6,000 in profit. This would take away the risk of the miner performing poorly that month, or the cryptocurrency decreasing in value. Additionally, this allows more investors to join the mining business, as they can lock in more steady income, thus reducing their risk and volatility.

On the other side we have the buyers. Buyers benefit from Alkimiya by purchasing a mining contract, as the protocol enables them to earn mining rewards without the upfront cost that the original miner had to endure. Purchasing a contract enables buyers to receive all mining rewards for the contractualized month in exchange for an upfront investment that is paid to the seller via a contract.

Miners will claim locked rewards as they provide mining rewards everyday. The locked rewards are paid at an exponential rate, meaning most of it is paid out in the last few days. This, along with cross-collateralization, disincentives defaulting by the miner.

The hash vault is a collection of these silica contracts that voids the need for direct peer to peer interactions, but rather a pooled market. Just as a buyer in the futures market does not have to purchase contracts from a particular seller on that market, silica buyers will not have to contact miners directly to participate.

Team

Risks and Mitigations

Early in the Journey:

Alkimiya is pre-revenue, and there is limited validation of the idea. Though it sounds like something that would be of interest to the market, we can currently only assume that there will be demand for their product. The team has mitigated this to the best of their abilities by slowly launching, starting with the AVAX network. The early launch to AVAX will hopefully bring sight of whether there is demand for Alkimiya.

Project Assumptions:

The Alkimiya team is producing an innovative product. As this product is very unique, there is a risk that the teams’ assumptions on the basis of the coin are invalid. The product has not been tested in the market and is therefore still at risk of inaccurate concept assumptions. The team has mitigated this to the best of their abilities by slowly launching, starting with the AVAX network. The early launch to AVAX will hopefully bring sight of whether the teams’ assumptions about their product are valid.

Vulnerability:

The protocol is currently quite vulnerable to hacks, as it is relatively new. Security enhancements have not been made yet. Thus, this is something to be slightly aware of. The team plans to mitigate this risk by scaling up their security in the near future.

Investment Thesis

Alkimiya creates a novel solution to an issue that holds back layer 1 blockchains: cost of entry and future uncertainty. Fixing these issues will serve the participation of crypto from a retail perspective. Their service is already live and will be onboarding customers for over half a year before launching their token (Q3 2023). This is very bullish under one condition: the token adequately captures value corresponding to usage of the platform. One should keep an eye out for a declaration of tokenomics and utility. Until then let’s observe how the platform's user base grows.

Alkimiya Links

Website: https://alkimiya.io/

Twitter: https://twitter.com/alkimiya_io

Discord: https://discord.com/invite/ZgDWpXzeWw

Docs: https://alkimiya.io/documentation/

Blog: https://alkimiya.io/blog/

Magnus Links

Website: https://magnuscapital.com/

Twitter: https://twitter.com/Magnus_fund

Intern Twitter: https://twitter.com/MagnusIntern