Alpaca Finance Review

What is Alpaca Finance?

Alpaca Finance is a lending protocol that enables leveraged yield farming on BNB Chain and Fantom Opera. 

With Alpaca, lenders can earn stable yields, and farmers can increase their farming positions by borrowing additional assets without collateral. The assets are borrowed by increasing the leverage, and they do not leave the platform. Instead, they are automatically staked in a farming pool to multiply the yields. The borrowing interest is deducted from the total APR. 

At the DeFi ecosystem level, by connecting LP borrowers and lenders, Alpaca improves the capital efficiency of the integrated exchanges and multiplies their TVL as lending assets get deployed on the platform.

How does Alpaca Finance work?

The two main components of Alpaca are lending pools and farming pools. By depositing assets into lending vaults, lenders provide funds for the borrowers to open leveraged positions.

Each time users supply funds to the lending pools, they receive corresponding ibTokens. For example, if they deposit BNB, the issued token is ibBNB. The balance of the ibTokens is proportional to the amount staked in the lending pool, and the value of ibTokens increases over time as they accumulate interest.

Alpaca also offers staking opportunities to ibTokens holders, to reward their contribution to the growth of the ecosystem. The staking rewards are paid in the protocol’s native ALPACA tokens, which can be locked in the Governance vault. Locked ALPACA accrues more ALPACA tokens as well as the tokens of the Grazing Range partners, which are regularly announced on Alpaca’s Twitter account.

Additionally, Alpaca Finance lenders can collateralize their ibTokens to borrow Alpaca’s stablecoin AUSD. The stablecoin is overcollateralized by major digital assets including ETH, BNB, USDT, BUSD, BTCB, and TUSD. Borrowed AUSD can be used inside and outside Alpaca Finance to earn additional yields.

Alpaca farming vaults offer both standard farming with 1x leverage and farming with up to 4x leverage. Above 1x leverage, users will be borrowing assets, which allow them to multiply the positing and provide them with higher yields and ALPACA rewards. Of course, higher yield comes with bigger risks. Farmers opening leveraged positions can face impermanent loss or liquidation if their collateral drops below the amount of debt.

Farmers looking for a market-neutral strategy can invest in Automated vaults, which farm long and short positions simultaneously and rebalance them, thus eliminating market risk.

Liquidation involves calling a contract to liquidate positions with Safety Buffers below 0 (when equity collateral becomes too low). The Liquidation Bounty is 5%, 1% of which goes to the liquidator and 5% goes towards buyback and burn of ALPACA. Users who have a liquidation bot can apply for a liquidating role by emailing [email protected]

How to use Alpaca Finance?

Alpaca Finance wallet support includes Metamask, Coin 98, Trust Wallet, Math Wallet, Token Pocket, Coinbase, SafePal Wallet, and WalletConnect. 

Once a user is connected to the Alpaca app, they need to navigate to the menu on the left. If the user is planning to lend their assets, they need to go to the Lend page. After depositing the assets, the user will receive ibTokens. If they want to receive rewards in ALPACA, they need to go to the Stake page and deposit their ibTokens there. Alpaca’s stablecoin can be borrowed against ibTokens collateral on the AUSD page.

Users looking for higher yield options, need to navigate to the Farm page, where they can open a position with a leverage from 1x up to 4x. Positions with a leverage over 1x also receive ALPACA rewards.

The Governance page has the Governance vault where ALPACA can be locked for a period from a week up to a year. Users who lock ALPACA receive ALPACA emissions, protocol fees, and rewards from partnering projects (Grazing range).

Alpaca fees, including the perforce and management fees, are factored into the APY’s displayed on the platform. There is also a 0.2% withdrawal fee collected when users make withdrawals from Automated vaults.

The ALPACA token

Alpaca’s native token ALPACA has a two-year emission schedule and a declining rate of emissions over these two years. In total, there will be 188 million ALPACA.

Alpaca Finance had no pre-sale, no investors, and no pre-mine for the sake of fair token distribution. The only way to earn the project’s native ALPACA tokens is to be an active participant of Alpaca’s ecosystem. Thus, 87% of the total supply will be distributed to the protocol’s users, while the team received only 8.7% of the tokens, with a two-year vesting period.

Another 4.3% (8 mln) is allocated to a so-called Warchest for future strategic expenses, such as listing fees, liquidity for partnerships, etc. Each month, no more than 200,000 tokens can be withdrawn from Warchest.

ALPACA staking, lending, and farming with > 1x leverage are all rewarded with ALPACA tokens. By locking ALPACA tokens in the Governance vault, users receive the platform's revenue sharing and participate in governance discussion and voting. Besides, they can participate in the Grazing range section of the platform to earn the tokens of the partnering projects.

Is Alpaca Finance safe?

The Alpaca Finance team consists of people with deep background and expertise in blockchain and finance. James Strudwick, head of business development, is a former director of BD in TQ Tezos. He has five years of experience in blockchain, digital assets and DeFi Financial Markets, and nine years —  in financial markets. 

Pete Woodard, head of institutional growth, has four years of experience working in blockchain. Previously, he held the position of CBDO at crypto lending platform Nebeus. Rupert Douglas, head of institutional sales, has worked in finance for 25 years and raised around $2B for four different hedge funds. He has been working in digital assets since 2019.

Alpaca’s engineers are managed by SpicySquid168, head of engineering, who prefers to stay anonymous.  

Partners

Alpaca’s current partners include PancakeSwap, MDEX, and SpookySwap, whose DEXes are integrated into the platform to offer users farming and lending opportunities. 

The Grazing range partners are announced on the official Alpaca’s Twitter. The partners’ tokens are distributed among users who lock ALPACA. 

In its efforts to provide users with insurance, Alpaca established partnerships with insurance protocols InsurAce and Nexus Mutual.

What's next?

Alpaca is planning on adding institutional investment products to allow for large amounts of capital inflow into BNB Chain from traditional finance institutions. Their detailed roadmap can be found here.

Links

https://docs.alpacafinance.org/

Author:

Frank Stewskid

Last updated: Aug 14, 2023