Alright everyone, let's do this! Please join me in welcoming @tascha_panpan to Crypto AMA!
Tascha | Alpha (won't ask for money)
Hi everyone, glad to be here 👋
Tascha: before we jump in, can you give us a brief background on yourself as well as Alpha Finance? Interested in hearing why you started it and how things are going!
Tascha | Alpha (won't ask for money)
Sure! A bit of background about myself - I graduated from UC Berkeley with a bachelor degree in Economics and started my career in Investment Banking in San Francisco then in London. Then, I joined Tencent in the product management team before joining Band Protocol as a Head of Strategy. Now, I’m leading Alpha Finance Lab with Nipun, who’s also the Co-Founder.
I've always been interested in finance and tech, and have been following crypto/blockchain/defi for quite some time. During my time at Band Protocol, that's when I dig a lot deeper in DeFi and found a number of market gaps that are yet to be addressed. Not only just market gaps on the product side, but also on the model defi projects were functioning, so I thought DeFi landscape as a whole could benefit a lot from a new model that we do here at Alpha Finance Lab.
So let me share a bit more on a high level what Alpha Finance Lab is building. We're building an ecosystem of DeFi products that will interoperate to maximize returns while minimizing risks for users. Alpha products focus on capturing unaddressed demand in DeFi in an innovative and user friendly way. Each Alpha product will address market gaps and problems in the sector the product is in. The various Alpha products will then work together to achieve the overarching theme of maximizing returns for users while minimizing downside exposure/risk.
The first product that we built is Alpha Homora (v1 and now v2) - leveraged yield farming/liquidity providing product. As an aggregate, Alpha Homora v1+v2 has total value locked of more than $1 billion.
Thank you for taking the time @tascha_panpan . Question: If I borrow 1 from A to park it in Alpha with max leverage is there any way for me to find out if the original funds themselves were borrow. For example if I borrow 100K from A and park it as a mortgage deposit at a bank for a mortgage , the bank wont let me as I have leverage on leverage. The ways banks do this is ask for source of funds and go through some DD process. It removes CDO-esque behaviour (showing my vintage). How does Alpha check for this on platform to prevent an over levered market dynamic ? in other words are there control mechanisms in place ?
The difference here is that users on Alpha Homora product do not get the borrowed funds back in their wallet. Alpha Homora is borrowing the funds and yield farming the supplied+borrowed liquidity on behalf of the users. As a result, the funds are always with Alpha Homora (in LP tokens). Given this mechanism, Alpha Homora can offer leverage (or under collateralized loans)
Understood. but how is Alpha Homora checking is the initial funds deposits are themselves a product of leveraged activity. I.e. If I borrowed 10 million from @spencernoon and went yolo on Alpha Homora where your platform is borrowing the funds and yield farming the supplied+borrowed liquidity . How does the return come back to me ? and how do you check if the initial funds I deposited were borrowed from spencer in the first place or not ?
While we build an innovative solution, our team also puts security and safety as the priority. This means that it comes do how the tech is implemented + math is calculated to make sure that the innovation we offer is still safe. We make sure that parameters are safe by doing several things.
1. use the concept of collateral credit and borrowing credit (note that this is different from loan-to-value concept in lending protocols)
2. even at liquidation point, there is another buffer layer allowing for more price volatility
Let me expand a bit more on the collateral credit and borrowing credit, because i think that's the key. Alpha Homora v2 uses the concept of collateral credit and borrowing credit to determine how much leverage a user can get given the asset(s) supplied as collateral and the asset(s) borrowed.
You can think of collateral credit = Each asset has its own collateral credit value. A collateral credit value determines how much credit is gained from collateralizing an asset.
And borrowing credit = Each asset also has its own borrowing credit value. A borrowing credit value determines how much credit (received from collateralizing an asset) is consumed from borrowing an asset.
The collateral credit and borrowing credit of an asset depend on the volatility of the asset price. If an asset is volatile, the collateral credit will be low and the borrowing credit will be high. For instance, if a user supply ETH as collateral to borrow DAI, he would be able to borrow more DAI than if he were to otherwise supply ETH to borrow YFI (or any less stable asset).
With this mechanism, Alpha Homora v2 can set parameters according to the volatility of each asset and set different buffer parameters for different assets to ensure the security of the protocol.
One user discovery hypothesis is that many long term ETH/BTC hodlers leave highly appreciated crypto dormant because most of the yield earning activities start with a tax event. The high amounts of ETH locked for staking might be a symptom of the importance of this use case since it doesn’t trigger a tax event to begin earning.
When looking for market gaps in DeFi, did you look into tax optimization opportunities to convert early hodlers of ETH and BTC into lenders? Any lessons learned there / potential future products to serve this market segment?
Alpha Homora doesn't check if the funds deposited are borrowed from someone else. How users open a leveraged farming/liquidity providing position is that 1. supply liquidity (either they have it or borrow from someone else, users have to manage this part, as this is treated as users' collateral)
2. determine what leverage user wants to open at + which asset user wants to borrow. Since Alpha Homora v2 offer multiple borrowing, users can borrow e.g. 50% of DAI and 50% of ETH in to do leveraged liquidity into ETH-DAI pool for instance
3. confirm the strategy
All the net gains/losses are realized when users close the position
Where does alpha (v1 + v2) source its capital for leverage? I know with the launch of Iron Bank the access to ‘zero collateral’ lending will allow for higher leverage (heard as much as 90x) but curious what sources are used as it currently stands
very good question, i think this depends on the regions as well - some have more rigorous/lax tax laws. The market gap that you mention is likely one of the causes of the one of the market gap that we saw and look to capture, namely
1) there are a lot of ETH holders in DeFi just bearing low lending interest rate on ETH. This has been taken as a fact since people accept that there are a lot more supply of ETH than demand of ETH borrowers (looking to short). However, if we can engineer/innovate on the borrowing side and generate a pure high lending interest rate on ETH, then this is one huge market gap that we can address and start to grow from here.
2) we also combined this with another market gap that we saw particularly in DeFi - yield farmers are still searching for higher yields, and I believe yield farming is an incentive structure that is not going to go away soon (unless all projects decide to end yield farming because if not that one project that still has yield farming will still attract more liquidity than the others)
so when combining the 2 market gaps, we came up with leveraged yield farming idea that could close the 2.
What's interesting and comes back to your question of what's the potential future product to serve this market segment is that now that users are opening leveraged yield farming/liquidity providing positions, while their rewards are amplified, their risks are also amplified. So in order to be a complete financial product suite that we want to be, we are building another product, AlphaX (a decentralized, non-orderbook perpetual swap product), to not only capture another huge user base but also to offer Alpha Homora v2 users to easily hedge their leveraged positions
Yes, gas fees are crazy high now. Alpha Homora v2 does multiple transactions for the users as well, as we want to make the user experience as smooth as possible. We are talking to several L2 projects, but adopting L2 for Alpha Homora is complicated, as Alpha Homora doesn’t operate as a standalone product. To achieve interoperability on a smart contract level for L2, it would take some time. So in the meantime, the team is working on near-term optimization solutions now
@FaxReturn (what a name lol) asks: What will be the role of the APLHA token going forward? AAVE-like safety module? Governance mechanics?
Narrator: this is @spencernoon channeling his Who Want to be a Millionaire host spirit and calling a friend
All in all, Alpha Homora helps maximize returns for the users. If the users were to provide liquidity on the AMM protocols (assuming that the liquidity pools don't have liquidity mining incentives), then the trading fees that they would get would be less than if they were to do leveraged liquidity providing.
Additionally, if they are providing on liquidity pool with liquidity mining incentives (or yield farming pools), then they will get the trading fees on leverage + more of the farmed tokens than if they were otherwise yield farming without leverage.
I think yields is one thing, but this also allows users to collect more farm token and be active community members of other projects quicker, as the farmed tokens have many utilities themselves (e.g. CRV, SUSHI, etc.)
Governance + AAVE-like safety module for the whole Alpha ecosystem (as we are building many Alpha products, and Alpha Homora v2 is just the first product) + another new utility that we came up with which is not similar to any of the models available yet (personally i'm quite excited for this, but will save more details for later)
while there are smart contract risks still, we mitigate by doing several things
1. we've worked closely with Quantstamp and PeckShield for a full and thorough audit
2. the collateral credit value and borrowing credit value concept that i shared more earlier (below) enables Alpha Homora v2 to set parameters according to the volatility of each asset on the collateral side as well as the borrowing side
3. We read through the contracts of the protocols that we are going to integrate with and make sure that they have been screened another layer by us (even though they have been audited)
@ABTestingAlpha asks: Tascha has talked about developers being able to build on $ALPHA at some point in the future. What does this mean? Will they be providing SDKs? What types of apps is she excited to see?
Yes, that's the goal that we are working towards to continue decentralize the whole project and not only drive innovation from within. We are going to ramp up our community initiatives (e.g. developers grants, non-developer grants) a lot this year. By the end of the year, what we hope to achieve is a streamlined process that allows developers in the industry to be able to build with Alpha and build new Alpha products together
Because Alpha Finance Lab is a DeFi lab, we're actively on the look out for new market opportunities and always trying to think of new innovative solutions that can capture these opportunities in a user friendly way. So I'm excited to see this DeFi lab grow to become a global and decentralized one
I'd like to take a tour of your most-used stratgies
The most used strategies in v1 are the ETH-stablecoin pairs in v1 (so ETH-USDT, ETH-USDC, ETH-DAI) and ETH-WBTC. In v2, the most popular strategy now is leveraged Curve 3pool because of the minimal risks that leveraged users bear.
Got it. So picking one of those well-known strategies, can you walk us through a user journey that ends in tears? 😢
2. supply liquidity. Here you don’t need to have equal value of both tokens in order to yield farm/provide liquidity on Alpha Homora v2, as Alpha Homora v2 will automatically and optimally swap the assets to arrive at equal value of both tokens before taking care of the yield farming process for our users. E.g., users can supply only DAI or only ETH or both in the ETH-DAI pool for instance
3. Select leverage, which asset you want to borrow, and in what proportion. Note that for some pools, you are allowed to only borrow 1 asset, but some pools you can do multiple borrow (e.g. Curve 3pool, you can do a mix of USDT, USDC, and DAI borrow)
4. Confirm the strategy and that's pretty much it
In the event the collateral value does not cover the borrow, what happens?
can you share more about the liquidation incentives?
The max leverage level that user can open the leveraged position at is the parameter that we've analyzed and made sure that this max leverage still allows for significant price volatility (hence the max leverage for each asset (not pool, but on an asset level) is different.
When position is at liquidation risk (when debt ratio = 100%), we make sure that this level can also tolerate more price swing in the event that liquidation doesn't take place right away. This means that at liquidation point, the position is not underwater yet.
If no liquidation takes place and position becomes underwater, then Alpha Homora v2 would tap into the insurance funds to cover the difference. Currently, Alpha Homora v2 collects 20% of the borrowing interest rate and set it aside as the insurance funds
Liquidators can choose which asset they want to repay —> then they repay that asset —> and get 5% of the position value back in LP token. After that the remaining position value is used to repay the debt. The remaining part then is distributed back to the user (original position owner)
If you are borrowing ETH to yield farm (e.g. in ETH-UNI pool), then liquidations are more likely when ETH price goes up significantly compared to the other token. So if the 2 tokens are correlated, then the rising ETH price can have less of an impact than e.g. ETH-stablecoin pool
will the params around max leverage and liq ratios be set by governance
What excites me the most about Alpha Finance is when all products provide synergy to each other and create a really strong Alpha ecosystem. I think that is a huge competitive moat that is hard to replicate.
What worries me the most, and I think similar to other founders as well, is smart contract hacks. While we make sure to mitigate in every way possible, there are still going to be smart contract risks there. I think DeFi still has a long way to go to create a more robust system in addressing this risk
Great answers. Alright folks, that's all the time we have for today. @tascha_panpan thanks a lot for coming on! Two parting questions:
1 - best way to keep up to date on all things Alpha? 2 - best way to get in touch?
Thanks everyone for tuning in ✌️
Tascha | Alpha (won't ask for money)
Thank you @spencernoon for having me :) and thank you everyone!