Alpaca Finance

Fair-launch leveraged yield farming protocol on BNB Chain

Alpaca Finance is the largest lending protocol allowing leveraged yield farming on BNB Chain. It helps lenders earn safe and stable yields, and offers borrowers undercollateralized loans for leveraged yield farming positions, vastly multiplying their farming principles and resulting profits.‌

As an enabler for the entire DeFi ecosystem, Alpaca amplifies the liquidity layer of integrated exchanges, improving their capital efficiency by connecting LP borrowers and lenders. It's through this empowering function that Alpaca has become a fundamental building block within DeFi, helping bring the power of finance to each and every person's fingertips, and every alpaca's paw...

Furthermore, alpacas are a virtuous breed. That’s why, we are a fair-launch project with no pre-sale, no investor, and no pre-mine. So from the beginning, this has always been a product built by the people, for the people. Or as we like to say: by the alpacas, for the alpacas.

Welcome to Alpaca Finance 🦙

Alpaca — what a majestic animal! We can’t think of a better mascot to represent our ethos.

• Alpacas love to live in the mountains at high altitudes… They will make your farming yields sky-high once you become their friend.

Alpacas come in 22 gorgeous colors… We will offer many farming pools for you to choose from.

Alpacas are green animals; they have a very light carbon footprint, and 95% of their wool is usable… Sending transactions on BNB Chain is incredibly efficient and will cost you much less gas than on other chains, maximizing your yields.

Alpacas do not bite, and lack sharp teeth… Everything about our project is transparent and verifiable; there will be no rug pull!

Alpacas are a great investment; they're inexpensive to raise, require small acreage, and provide a regular supply of wool... Our protocol's leveraged positions will allow you to amplify your profit potential, providing higher yields on less capital.

Alpacas are truly an investment you can hug... you'll be glued to your screen watching your profits continuously grow!

What is yield farming?

Yield farming is an innovative DeFi concept where users stake or lend their crypto assets in order to receive returns.

What is leveraged yield farming?

Leverage results from using borrowed capital to expand your asset base and the potential returns on that asset base. In other words, you borrow funds so you can invest more, and as a result--earn more.

In the context of yield farming, leverage involves borrowing assets to multiply your yield farming position, resulting in you accruing larger yields. This is a general profit maximization strategy.

Why did we build Alpaca Finance?

Pioneered by Compound during the DeFi Summer, yield farming on Ethereum has become a widespread method for projects to bootstrap their liquidity and acquire new users. However, as of late, the rising costs of the process have become more and more prohibitive for the majority of people. In fact, Ethereum has become a whale game because the gas fees are just too damn high!

As a result, BNB Chain has experienced an exponential boom in popularity, and in this emerging ecosystem, we noticed a gap amongst the applications offered there compared to other chains such as Ethereum. To be specific, one of the largest missing pieces--was an on-chain leverage protocol!

Thus, Alpaca Finance was born, seeking to provide value to the BNB Chain community through leveraged yield farming.

Alpaca Finance Products

Alpaca Finance offer a diverse range of products for our users to participate in the decentralized financial (DeFi) ecosystem based on their risks appetite and expected return.

• Lending

• Leveraged Yield Farming

• Automated Vaults

• AUSD

Introduction to Lending

Whether you’re a beginner to DeFi or a professional institutional user, Alpaca Finance offers a way for you to earn substantial profits safely while doing something as simple as holding your favorite tokens. In our platform, this is Lend & Stake. With these two easy steps, you can deposit your tokens to start earning the highest yields in DeFi among lending platforms for single assets.

Such high APYs can be sustainably achieved because Alpaca’s technology offers uniquely high capital efficiency to borrowers, allowing them to open undercollateralized loans for yield farming. As a result, our utilization rates and lending interest rates are consistently 2x(or higher) than that of other protocols.

At the same time, this model is also very safe for lenders, because unlike other lending platforms, borrowers cannot withdraw the borrowed funds from Alpaca. So the use and return of the funds are tightly controlled by the protocol, ensuring lenders receive their funds back.

Our protocol has conservative and quick liquidation settings to make sure bad debt does not occur. What’s more is unlike other protocols, Alpaca has no deposit fees, no withdrawal fees, and no default lockup, so you can deposit and withdraw at any time.

Introduction to Leveraged Yield Farming

Leveraged Yield Farming is the core product of Alpaca Finance. The concept behind leveraged yield farming isn’t as complicated as it might seem at first mention; If yield farming with X yields you Y returns, then yield farming with 5X yields you 5Y returns. In other words, borrowing funds to ramp up your position X, aka using leverage, multiplies your yields. Of course, it’s not for free; Like any lending platform, you have to pay borrowing interest for the privilege to use borrowed funds. Yet, where leveraged yield farming shines is in its capital efficiency–the ability to borrow more than you put up as collateral.

If you are new to the concept of leveraged yield farming, you can read an intro article on the topic here.

Introduction to Automated Vaults

These are vaults that run complex strategies for you, similar to an on-chain hedge fund. We currently have two strategies for Automated Vaults, which are the Market-Neutral Strategy and the Savings Strategy.

Market-Neutral Strategy A pseudo-delta-neutral leveraged yield farming strategy where you can yield farm high APY pairs while minimizing your risk by hedging out market exposure. The Automated Vault eliminates the majority of market risk by farming long & short positions simultaneously, and rebalancing them for you to maintain neutral exposure. Or if we put it in alpaca language: high yield and low risk.

Savings Vault StrategyA 1xLong strategy similar to lending or staking the base crypto asset(ETH, BTC, BNB, etc.) but earns higher APYs than lending or staking because the underlying capital is deployed to earn yield in high-leverage yield farming positions with no liquidation possible. The Automated Vault achieves this by farming long & short positions simultaneously, and rebalancing them for you to eliminate liquidation risk and maintain 1xLong exposure.

🚩Automated Vault’s Key Features

• Higher max leverage(8x): Because the strategy is auto-rebalancing, and liquidation-free, it can run higher leverage profitably with a minimal increase in risk. We've thoroughly backtested 8x strategies on multiple assets and marketplaces to verify this. Thus, we'll offer 8x vaults as well as lower-leverage ones.

• Auto-rebalancing: The key challenges in executing this strategy manually are having to monitor the positions (to prevent liquidation on one of the positions) and calculating how to adjust the positions as asset prices move, in order to reset the net exposure back to the desired target. Our Automated Vaults take care of all this for you, so young and veteran alpacas alike can just sit back, relax, and enjoy the yields; auto-compounding, auto-rebalancing, auto-profiting.

• No liquidation risk: We are creating a specialized worker for this strategy that will remove the ability for keepers to liquidate the positions. This is because as mentioned before, liquidation is unnecessary for this strategy due to its setup; When one position drops in equity value, the other one's equity value rises the corresponding amount, making the aggregate change to equity value close to 0.

Yet, if liquidation was turned on, though very unlikely with automated rebalancing, it would be technically possible that if the price of the crypto asset moved dramatically, one of the positions could be liquidated unnecessarily (due to liquidation monitoring individual position health instead of the health of the aggregate strategy). With no liquidation, this risk will not exist within the Automated Vaults.

As mentioned before, it’s important to note that this implementation DOES NOT increase the chance of bad debt to lenders, because the debt ratio of the aggregate strategy will not materially increase. With this strategy, the Equity Value and Safety Buffer remain healthy at all times, which is why it is market-neutral. In fact, the volatile asset’s price could drop 90% and the aggregate debt ratio of the two positions would still not increase enough to trigger liquidation according to our current parameters for leveraged yield farming. Of course, this would never happen in practice because our rebalancing mechanism would kick in much sooner.

• Auto-compounding: To maximize the yields for our farmers, in addition to compounding the yield farming tokens - e.g., BOO, CAKE, MDEX, etc., ALPACA rewards earned from the two LYF positions in this strategy will be auto-compounded for you, maximizing the yields and reducing position maintenance even further.

• No lock-up: You are free to deposit and withdraw at any time.

Introduction to AUSD

AUSD (AlpacaUSD) is an auto-farming stablecoin that earns passive yields for you in the background. Now, instead of paying for loans, you can get loans while earning on your collateral.

AUSD is overcollateralized, decentralized, and reinforced with multi-layered pegging mechanisms so that it does the one thing stablecoins are supposed to do--remain stable at $1.

Lenders in Alpaca Finance can collateralize their deposits(ibTokens) to borrow AUSD, which they can use inside and outside Alpaca Finance to earn additional yields. Lenders are thus able to continue earning Lending APR and Staking APR, while also borrowing AUSD to use as they see fit, unlocking even higher profit potential and greatly increasing the flexibility and use cases of their capital.

• Some potential uses of AUSD include: Staking AUSD to earn additional yields

• Selling AUSD into lending assets to leverage up lending positions (can also borrow more AUSD)

• Selling AUSD into other assets to open high-yield leveraged yield farming positions

• Selling AUSD into other assets to deploy in external protocols

AUSD makes lending in Alpaca Finance more capital efficient and flexible than in any other lending platform, fortifying Alpaca Finance's place as a leading DeFi 2.0 protocol.

How does AUSD work?

AUSD is fully backed with robust risk management parameters. The stablecoin is overcollateralized by a collection of top digital assets including ETH, BNB, USDT, BUSD, BTCB and TUSD.

AUSD is a fork of the battle-tested MakerDAO, with many improvements. Some of the key features are:

Farmable Collateral Module

For most lending protocols, users have to choose between staking their assets to earn yields or staking their assets as collateral to borrow against. With AUSD, users no longer have to make this tradeoff. We have structured our AUSD smart contracts in such a way that while the collateral can be used to borrow AUSD, it can also earn Lending APR in our platform as well as Staking APR, which at the moment earns extra ALPACA rewards but can also compose with other protocols, meaning that in the future, the collateral can potentially earn additional yields for the users on external protocols.

Because the Lending APR alone is much higher than the stability fee for AUSD(2% for most collateral types), the loans are effectively better than interest-free, they are yield-bearing auto-farming loans.

Efficient pegging

Being overcollateralized is not enough to maintain a stablecoin peg. In the case of MakerDAO, they can also adjust borrowing interest on DAI up and down for the collateral assets. In a situation where DAI's price goes above $1, Maker can lower borrowing interest, incentivizing users to mint new DAI which creates selling pressure to bring DAI's price back down to the $1 peg. In the case where DAI goes below $1, Maker can increase borrowing interest, incentivizing users to buy back DAI to close their borrowing positions because they have become more expensive, which creates buying pressure to bring the price back up to $1. AUSD also has this mechanism.

Moreover, AUSD also has an internal Stable Swap Module, similar to Maker’s Price Stability Module (PSM), which allows users to buy and sell AUSD for BUSD at a rate of 1:1 with low fees. This facilitates arbitrageurs in maintaining the peg at $1.

Robust and Gentle Liquidation

AUSD uses gentle liquidation, meaning when an AUSD borrowing position faces liquidation, only a small portion of the position is liquidated until it is brought back to health. The max liquidation size is limited to the Close Factor, currently set to 25% of a position’s Debt Value. This gentle liquidation model results in lower associated costs and liquidation risk for AUSD borrowers, while still preventing the risk of bad debt.

AUSD also uses a robust atomic liquidation model. This has advantages over Maker DAO’s Dutch auction model, because AUSD’s model is simpler and better optimized for preventing bad debt.

Handling of Bad Debt

While we have made sure to set up the protocol structure and parameters to be very conservative, we will also have a backstop in place to handle the unlikely event of bad debt. When we launch our governance vault within the next 1-2 months, we will also launch an Insurance Plan. In this plan, in the case of a loss event such as bad debt, 50% of the Protocol APR going to the governance vault will be set aside as remuneration for this event, until the loss is covered. This way, the risk of bad debt will not only be minimized but also have coverage.

ALPACA Token

Alpaca Finance is a fair launch project with no pre-sale, no investor, and no pre-mine. Similar to many fair launch projects, we will reward various participants that help bootstrap our ecosystem. This will be the only way to earn ALPACA tokens.

❓ What is the ALPACA token used for?

The community decide how they want the economic incentives to be captured by the ALPACA token ; For example, it could be similar to Sushiswap where x% of fees generated go to perform token buyback and burn. At the moment though, there are already several mechanisms in place for both performance fee sharing and for making ALPACA deflationary in nature.

• 10% of the 19% performance fees for yield farming positions on the single-asset CAKE vault is distributed as Protocol APR to ALPACA governance vault depositors.

• 4% of the 5% of every liquidation bounty that any liquidation bot receives as a fee, goes towards weekly buybacks and burns of the ALPACA token.

• 10% of 19% of the lending interest that lenders earn goes towards buybacks and burns of the ALPACA token.

• Proceeds from occasional revenue generation events go to ALPACA buyback & burn, such as 20% of the revenue from the Alpies sales which summed to $1.25Mn.

• 2.5% of 5% royalty fees on Alpie NFTs sold in the secondary market go to ALPACA buyback & burn.

• 5% of 9% of Auto-Farming Performance Fee, which is from rewards earned from farming the collateralized assets in AUSD positions in Alpaca Staking (and potentially external protocols in the future), is used for buyback & burn.

• 1% of 2% of Stability Fee charged on each AUSD debt position will be used for buyback & burn.

• 5% of 9% of Farming Performance Fee, which is from yield farming rewards, is used for ALPACA buyback and distributed as performance fee sharing to Governance Vault stakers (as Protocol APR).

• 8% of 15% of AV Farming Performance Fee, which is from yield farming rewards in Automated Vaults, is used for ALPACA buyback and distributed as performance fee sharing to Governance Vault stakers (as Protocol APR).

• 8% of 15% of AV ALPACA Rewards Performance Fee, which is from ALPACA rewards on yield farming positions in Automated Vaults, is used for ALPACA buyback and distributed as performance fee sharing to Governance Vault stakers (as Protocol APR).

• 1% of 2% of AV Management Fee, which is the management fee on Automated Vaults, goes towards weekly buybacks and burns of the ALPACA token.

• .1% of .2% of AV Withdrawal Fee, which is the fee when withdrawing from an Automated Vault, goes towards weekly buybacks and burns of the ALPACA token.

Through adding mechanisms like these, most of the rewards from the ALPACA platform will soon be directly or indirectly shared with ALPACA token holders.

Why have we chosen to go with token burn in some cases instead of direct fee distribution?

Because burn is also a method of fee distribution, only it's more efficient at increasing token price. Burn directly lowers available supply which increases the value of the remaining tokens. Instead of giving out protocol earnings as yields that users can, and often do, dump on the market, through burn, these earnings embed into the token price itself, which discourages selling because users would have to sell part of their principal. This is a more effective way of both rewarding long-term holders, and creating them.

Deflationary Price Increase

ALPACA tokens are long-term deflationary. Emissions have a hardcap and are continuing to decrease, while burn is permanent and continuing to increase, and we burn quite a bit of tokens; A significant portion of protocol fees go towards token burn: 80% of all liquidation fees and 10% of all protocol lending interest earned by lenders. So as Alpaca Finance continues growing, more ALPACA will be burnt, leading to the value of each remaining ALPACA token rising continuously and permanently.