Below is the transcript from our Head of Strategy and Marketing Samsara’s AMA session with CryptoPAV on May 7th, 2021.
Could you please tell us more about what is Alpaca Finance?
Not a problem~ Alpaca Finance is the largest lending protocol allowing leveraged yield farming on Binance Smart Chain. It helps lenders to earn safe and stable yields, and offers borrowers undercollateralized loans for leveraged yield farming positions. So for example, if you had 20,000 USD to farm with, you could borrow up to 5x that much from us and farm with 120,000 instead, earning 6x the yields. In short, we allow you to maximize your profits.
Furthermore, within all of BSC, we’re a blue-chip project, one of the leaders across all metrics; We have 2 billion US dollars in TVL, tens of thousands of user wallets, and have always been top 5 in trading volume, even though we’ve only started to list on some small exchanges.
Please let us know about some of the distinctive features Alpaca Finance has over other yield farming platforms?
The key to understand about Alpaca Finance is we’re not just a yield farming platform or an aggregator. Frankly, these kinds of projects might be short-lived once their token values drop or another project comes along with higher APYs, such as us. 😉
However, Alpaca is different because we offer a unique utility that other platforms can’t match, not just to users, but to the entire DeFi ecosystem as a whole. What’s that? Leverage. Specifically, leveraged yield farming through undercollateralized loans, and I’ll explain why that’s important.
One thing most of you know is that within DeFi, the AMM model is the crux. Decentralized exchanges allow users to trade peer-to-peer in a non-custodial fashion, which made them popular over old-school centralized exchanges, leading to this DeFi boom we’re now in. Yet, in order for trading on decentralized exchanges to be possible, they need liquidity, which is where the current AMM + liquidity provider model came from.
Decentralized exchanges incentivize LPs through trading fees and yield farming rewards, and users add their assets as liquidity to enable the exchanges to have pools for trading. Without this relationship, most of DeFi would not be able to exist. Now, the reason Alpaca Finance is doing so well and will continue to do even better for a long time, is because our lending + Leveraged borrowing model amplifies the benefits from this AMM + liquidity provider model, which amplifies DeFi as a whole!
By offering leverage to farmers, users can farm with much higher APYs, creating stronger incentives for more of them to provide liquidity to AMMs. The exchanges also benefit, because they now have much more liquidity, allowing for lower price impact which makes for easier trading. This is the AMM model+++. This is DeFi boosted and magnified.
Yet, this can only happen with our tech, which is difficult to replicate, maintain, and grow, which is why we have so few competitors, and why Alpaca has grown so fast — because we build faster than others.
So, our model isn’t just yield farming. Alpaca is an amplifying liquidity layer for all of DeFi, and we aim to become an irreplaceable one. Right now, we have 2 billion TVL but we’re only on PancakeSwap. What’s going to happen if we integrate more exchanges? How about more blockchains?
When users were converting their Alpaca to sAlpaca through the Stronk vault, users had to finish the 3 steps in one go, otherwise they wouldn’t get their Alpaca or sAlpaca. Has this issue been resolved?
So since the conversions from ALPACA to sALPACA finished a couple of months ago, you must be asking about the reclaiming from sALPACA to ALPACA. As for that, it will be simpler. You will only have to reclaim through one step. Easy.
Has Alpaca Finance made improvements on the issue of having large slippage when entering/exiting pools for large amounts of funds?
Yes, for closing positions, we’ve added a minimize trading function, which substantially reduces price impact and trading fees. The partial closing feature we’ll be adding soon will improve this further, allowing users with large positions to close in multiple trades which will reduce price impact.
We’ve also increased education by releasing an article on this, showing users how to reduce price impact, especially with stablecoins. In essence, it comes down to opening and closing a position a portion at a time, and if the price moves off the peg from the trade, just wait for it to return and trade some more.
For opening positions, since we allow depositing with either of the tokens in the pair, the best way to avoid swap fees if you’re using leverage above 2x is to add the token that is opposite to the one you are borrowing. For example, for ETH-BNB, deposit in ETH.
Of course, there’s a more direct solution we’re examining which is routing stablecoin transactions through AMMs with lower price impact. This is something we’ve been studying and plan to introduce though I don’t have an exact timeline for this one.
Alpaca Finance has a pretty high TVL at the moment. Since TVL is an important indicator for defi projects, what other measures will Alpaca take to incentivize and increase its TVL?
I believe the most important thing to long-term success is for us to continue to have the best platform for users; to make it easy to use, customizable, and of course, the most profitable for farmers.
That’s why we just hired more developers and have a number of new features coming out: a BTCB vault, an API for other projects to build off us, double-sided borrowing so users can borrow from both sides of a farming pair So for pairs like ALPACA-BUSD, you’ll be able to borrow BUSD to go leveraged long on ALPACA. This will create a lot more buying for ALPACA.
We’re also working on partial closing of positions with the ability to customize leverage, which will decrease price impact for big orders. Then, we have a number of partnerships coming out.
However, I have to say our first focus isn’t on numbers like TVL, but on product. After all, we believe in the long-term, high TVL and price are the results of doing the right things. So we mostly try to focus on our community, understanding what they need and how to make the product better. We try to move faster than others, but to first make sure we’re moving in the right direction. We try to look further ahead than others but first make sure we’re not blinded by temporary success.
Will you consider adding more tokens to the Lend section later? Because I saw that you have some recent market partnerships and a lot of projects have been contacting you for cooperation, what are your considerations for selecting partners?
For adding tokens to Lend, at this first stage, our primary consideration is if that token has a lot of pairs available and can bring enough liquidity. That’s because to get high APYs for lending, you need borrowing demand to increase utilization. In our case, users can borrow undercollateralized. They can borrow more than they can anywhere else for the same amount of collateral, and that’s possible only because they need to use those funds for farming. So if the token doesn’t have enough pairs, there isn’t much farming to do.
That’s why, right now, only the top blue-chip ecosystem tokens fit the standard: BNB, BUSD, ETH, BTCB, and ALPACA because we also plan to develop it in this direction, as a common token for other projects to pair with. Once our ecosystem is mature enough, it won’t be difficult for us to incentivize this, similar to what Binance did with BNB before BSC existed.
Regarding selecting partners, our primary partnership model available right now is the Grazing Range/Featured Leveraged Pool Partnership. For this, and really all other types of partnerships, our primary focus is and always has been the safety of user funds.
That’s why we vet each project and create an internal security score based on factors like Audits, github activity, length of project existence, are there security mechanisms like a Timelock or multi-sig? Are there minting or migration functions? Etc.
Then, we put the project’s token data through our mathematical model to confirm whether adding leverage to that project would be safe for our users and also to choose the max leverage available. Here, we examine current liquidity on that token pair in the AMM we’d integrate with, historical price volatility, and whether the token has liquidity on other DEXes and CEXes.
So our requirements are pretty stringent, not that different from a high-tier centralized exchange. And even though we already have close to a dozen partnerships in the pipeline for this, we’ve had to reject many more projects than that for not passing some of these criteria at the level we require, where we can ensure safety for our users to the utmost degree possible.
The next question is about NFT, because we are all concerned about the release of Binance’s Market Place, and we all know that Alpaca has a very good design department. What do you think about NFT and Defi? Can you tell us what you think about the combination of NFT and Defi or what your plans are?
I don’t know if I can say the same for other companies in the NFT space, but Binance adding an NFT marketplace is great for us, because we’re not an NFT marketplace. We’re an NFT creator of exclusive, high-quality works. So having a large marketplace that will onboard a lot more retail users into NFTs is going to be great for the overall BSC NFT ecosystem, and for us because this can bring more users into Alpaca.
NFTs can have different uses, because in essence, it’s a technology centered around non-fungibility. This is useful in some areas in DeFi, which you can see now with UniV3 using NFTs as LPs for example. For the most part though, most projects have been approaching NFTs as collectibles. In Alpaca’s case, we think about NFTs differently.
Our primary focus with NFTs is engagement. Yes, there is a collectible aspect to all our NFTs because they’re only minted once, and people speculate on their value. In fact, even though we’ve only released two NFTs so far, I know some of our NFTs have been sold for hundreds of dollars, and I’ve heard of deals ongoing for over a thousand, and for the most part, the vast majority of holders seem unwilling to sell right now. However, the collectible aspect is really only the tip of the iceberg with our approach to NFTs.
When we decided to create NFT campaigns and to integrate NFTs into our protocol, we weren’t thinking, “How can we create some trendy collectibles?” We were thinking, “How can we build engagement, a brand, a universe?” That’s why our NFT animated series exists, because there is a story behind the designs, an entire world of lore to explore, and each episode will reveal a little more of that.
By the end of the fourth episode, people will begin to see the bigger picture. After that, this world will continue unfolding more and more in front of their eyes. And it’ll be something they can continue to explore not only through this animated series, but also other forms of media we have planned that will add additional dimensions to the Alpaca world.
Beyond that, we also thought, “How can we tie this into our lending platform through utility, so that the NFTs are more than just a gimmick, so they provide something tangible in the form of profits for users?” That’s why we’ll have NFTs that do certain things in our platform, that users can use to stretch certain parameters such as lowering borrowing interest, raising lending interest, boosting APY in Grazing Range pools, etc. Then, we even took it one step further — can we do this in a way that isn’t arbitrary?
This last part is hard but it makes the integration more meaningful, and we’ve started coming up with solutions. For example, lots of people ask for more leverage, but the max leverage is set to protect new users from exposing themselves to too much risk. For experienced users, it’s probably okay to offer them more leverage, but how can we tell who’s experienced and who isn’t?
Well, one way is if they own some particular NFTs. That would mean they’ve been using Alpaca for a while, long enough that they should understand the finer points. Even if they buy the NFTs on a marketplace, it shows they at least have more advanced knowledge of NFTs, BSC, and DeFi, and the drive to pay for such an item, suggesting that they should be more responsible in how they interact with leverage. In this case, you could say this NFT is like a license.
Of course, this is only one example. More information will come out gradually. Even though we’ve already done some unique things such as the first NFT animated series with a story, event-oriented airdrops for AMA, and introduced NFT farming, it’s important to realize it’s only been a few days since we’ve deployed our first NFT. The NFT arm of Alpaca is only in the very beginning.
Where did you find your art department?
Hiding, sketching behind trees at the magical Alpaca farm!
Ok, come on, we’re not going to give our secrets away so easily. Enemy llamas could be watching!