What is Alpaca Finance (ALPACA)?

The Alpaca Finance (ALPACA) protocol is a DeFi protocol that works on top of the BNB Smart Chain and Fantom network, and has emerged as one of the largest DeFi protocols on both networks.

EThe protocol is focused on the granting of loans (lending/borrowing), as well as the creation of yield farming strategies with the tokens supported by the BNB Smart Chain. In this way, Alpaca seeks that its users and liquidity providers can obtain safe and stable returns. And, at the same time, it offers access to unsecured loans for leveraged yield farming positions, which helps to multiply the resulting profits, in exchange for higher risk conditions.

With all this, it is clear that Alpaca seeks to amplify the liquidity of the DeFi sector within the BNB Smart Chain. Due to this, Alpaca is a fundamental part of its DeFi ecosystem and helps it to continue growing and generating an environment conducive to the development of the sector in said blockchain.

Origin of Alpaca Finance

The story of Alpaca Finance begins in the first quarter of 2021, by a group of developers interested in powering the BNB Smart Chain DeFi ecosystem. During the first months of Alpaca's life, the project was amassing a lot of support within the community, especially for its ease of use, the ability to generate staking vaults and yield farming with good rewards, the generation of synthetics and a series of services that were expanded over time, such as the arrival of AUSD, without neglecting its deflationary buy-and-burn strategy for the ALPACA token. All of this has seen the platform rapidly grow to over $1,8 billion in total value locked (TVL), while continuing to develop partnerships with other protocols and adding new staking vaults.

Thus, basically Alpaca Finance seeks to invigorate the DeFi space of BNB Smart Chain, with interesting options that attract its users and that transform the protocol into the largest DeFi reference of that network. In fact, perhaps one of the greatest benefits of the protocol is that it allows borrowers to access unsecured loans to increase their yield farming positions and therefore its performance. The nature of these loans also allows borrowers the ability to create synthetic tokens, known as ibTokens.

How does Alpaca Finance work?

Now, how does Alpaca Finance achieve all this? What is the formula of its operation? Well, among those elements we can mention:

Alpaca Token, the origin of the protocol's tokenomics

Alpaca Finance, as a good DeFi project, has its own token, the ALPACA token. The token had a launch without pre-sale or previous mining. Basically, the token began its history from 0, being that it has among its functions:

1. Offer economic benefits to platform users. For example, those who have LP within Alpaca, will receive the corresponding commissions of their LP in ALPACA tokens.
2. It serves as a tool for carrying out token buybacks within the protocol, which is essential for Alpaca tokenomics.
3. Finally, it is the token to be burned by the protocol, since said token has been thought to have a long-term deflationary nature.

These three points make it clear that, as the issuance of ALPACA tokens is carried out, a maximum will be reached and at that point, the burning will continue until it is reduced according to parameters decided by the community through decentralized governance. The idea of ​​this is to avoid the situation that has been replicated in other projects such as PancakeSwap, where the issuance of CAKE tokens has been so high that it has ended up diluting its value. However, Alpaca Finance's strategy seeks to minimize this risk by trying to maintain a good level of value for the ALPACA token, which directly affects the LP earnings and yield farming of its users, in addition to continuing to attract capital to the protocol.

To achieve all this, Alpaca Finance will issue a total of 188 million ALPACA tokens. These tokens will be issued following the following reward scheme:

And which will have a distribution as shown in the following graph:

Proof of Burn in Alpaca

The reduction of the supply of ALPACA tokens is in the hands of a Proof of Burn (PoB) process that has worked since the beginning of the protocol. This works as a deflation mechanism to increase the value of ALPACA tokens in the long term. The system is quite complex and takes into account the following points:

1. Settlement fees. Here, 4% (out of 5%) of all settlement fees are used for the buyback and burning of ALPACA tokens in the case of third-party settlement bots. In the event that the liquidation is initiated by the internal Alpaca bot, the entire 5% of the liquidation reward goes to buyback & burn.
2. Rates of return on loans. 10% (of 19%) of the loan interest rates is used for the buyback and burning of ALPACA tokens.
3. Sales of Alpies NFT. 20% of the sales procedure will be used for buyback and burning.
4.  Alps NFT Royalty. 2,5% (of 5%) of Alpies secondary sales go to repurchase and burn.
5. AUSD stability rates. 50% of the stability fee goes to buyback and burn.
6. AUSD Auto-Farming Rate of Return. 5% (of 9%) goes to repurchase and burn.
7. Automated vault management fees. 50% of the management fee is used for repurchase and consumption.
8. Automated Vault Withdrawal Fees. 50% of the withdrawal fee goes to buyback and consumption.

This whole process of buyback & burn has led to the burning of some 22.669.496 ALPACA, since the protocol was launched. That's about $4.760.594,16, at the current price (July 4, 2022) for the ALPACA token. All the information of the burnings so far can be seen in the following image:

Automated-Vaults in Alpaca

Alpaca Finance has a keen interest in offering top-tier DeFi products, and among them, Automated-Vaults are its most prominent product. Automated-Vaults or automated vaults are vaults that execute complex strategies for users, similar to a hedge fund. We currently have two strategies for Automated Vaults, which are the Neutral Market Strategy and the Savings Strategy.

a vault of Neutral Market Strategy, seeks to create a leveraged yield farming strategy where you can farm high APY pairs while minimizing your risk by hedging market exposure. The Automated Vault eliminates most market risk by simultaneously growing long and short positions, and rebalancing them so users can maintain neutral exposure. Or better explained in Alpaca language: high return and low risk.

For its part, a vault of Savings Vault Strategy, performs a lower risk strategy that is similar to lending or staking cryptocurrencies (such as ETH, BTC, BNB, etc.) but offering higher APYs. To achieve this, this strategy seeks to maintain and cultivate long and short positions simultaneously, rebalancing them in order to eliminate liquidation risk and maintain 1xLong exposure.

Although both strategies have their pros and cons, Alpaca has worked hard on its algorithms to offer the best of them, having great success in its implementation. In fact, part of the achievement of exceeding 1,8 billion TVL within the protocol is due precisely to these two products.

AUSD, the Alpaca stablecoin

Another big player in the operation of Alpaca Finance is the stablecoin AUSD (AlpacaUSD). AUSD is considered an auto-yield farming stablecoin that works thanks to the overcollateralization of vaults used for its issuance. Although the system is not as robust as that of DAI, AUSD is a stablecoin that has shown strength in the face of quite strong market events, such as the fall of Terra-Luna, which has practically not affected the value of this token and its anchor 1:1 with the dollar. For their overcollateralization, AUSD vaults are backed by assets such as ETH, BNB, USDT, BUSD, BTCB and TUSD.

AUSD principal occurs within Alpaca Finance itself, where lenders can collateralize their deposits (ibTokens) to borrow AUSD, which they can use within and outside of Alpaca Finance for additional returns. Lenders can thus continue to earn loan APR and staking APR, while also borrowing AUSD to use as they see fit, unlocking even greater profit potential and greatly increasing the flexibility and use cases of their capital.

Some potential uses of AUSDs are:

1. Stake AUSD for additional returns.
2. Sell ​​AUSD in loan assets to leverage loan positions (more AUSD can also be requested).
3. Sell ​​AUSD in other assets to open leveraged high yield farming positions.
4. Sale of AUSD in other assets to deploy in external protocols.
5. AUSD makes lending on Alpaca Finance more capital efficient and more flexible than any other lending platform, fortifying Alpaca Finance's place as a leading DeFi 2.0 protocol.

However, not everything is positive within AUSD. Its small market compared to other coins (such as DAI or USDT) makes it a little accepted token in other DeFi protocols. Furthermore, its APY yield is quite small in comparison and the 1:1 peg to the dollar does not remain as stable as other stablecoins, reaching lows like $0,86 (on April 4, 2022). Far from it, AUSD is a stablecoin that offers many possibilities within the BNB Smart Chain ecosystem.

Alpaca ibTokens

Another cool feature within Alpaca is the protocol's ability to create synthetics of other tokens, known as ibTokens. When a user supplies their assets (eg BNB) to Alpaca Finance's staking pools, ibTokens are used to track the funds they have deposited as well as the interest earned.

Every time a user supplies funds to the loan pool, a corresponding balance in ibTokens is issued to them. This balance of ibTokens is directly proportional to the participation they have in the loan pool, which accumulates interest for each block. Each loan fund has its own ibToken; for example, if a user lends BNB to the protocol, she will receive a corresponding ibBNB balance.

Furthermore, ibTokens accrue interest through their exchange rate; Over time, the value of each ibToken increases, becoming more of its underlying asset with each block, even while the number of ibTokens in your wallet remains the same. Each escrow fund has its own usage, which will also reflect how much the corresponding ibTokens will appreciate in value over time. The longer a user has ibTokens, the more those tokens will appreciate in value. This is accrual of interest. It is not necessary to stake ibTokens to enjoy this price appreciation, although you will earn it while your tokens are staked.

Decentralized governance

Another function within Alpaca is decentralized governance, where the ALPACA token is the central axis to participate in it. The governance mechanism is a DAO, which has been derived from the decentralized governance system applied in Curve DAO. The idea of ​​using this system is to incentivize users who participate in the governance to stay loyal to the protocol, staking and offer them additional earnings for it.

The system is simple, each user can take their ALPACA tokens and lock them in exchange for xALPACA tokens. These tokens will allow you to participate in the decentralized governance system of the protocol. The amount of xALPACA you will receive will be calculated based on the amount of ALPACA deposited and the remaining duration of the lock, where 1 ALPACA locked for a year = 1 xALPACA. Your xALPACA balance will decrease linearly over time and will reach 0 when unlocked.

The more lock time you have, the more xALPACA you will receive, which translates into more profit for the user, as well as more voting power within a higher multiple of your reward APY and governance voting power.

Alpies, the NFTs within Alpaca and its future GameFi

The Alpies are a collection of NFTs that have a limited issue of 10.000 pieces, and that will be launched on both the BNB Chain and ETH. Both pools are bridgeable between BNB Chain and ETH, so you will be able to trade them on OpenSea and other marketplaces.

The main objective of these NFTs is to encourage Alpaca users to become part of a future Play-2-Earn (P2E) game that will be built by the Alpaca team in an effort to incorporate and develop a GameFi theme within the protocol, similar to what the AAVE team has done, with their game, Aavegotchi. These NFT avatars are randomly generated from over 200 unique hand-drawn traits with three tiers of rarities: Common, Rare, and Epic. Rarer traits give higher in-game stats. There are also set effects between some features.

It is necessary to own 3 Alpies to enter the game, however, the game will not be limited to only 3.333 players. These Alpies will give access to the beta of the game. Once the game goes public it will be more inclusive because there will be a breeding mechanism that will allow these Alpies to produce more Alpies (different spawn, lower stats). Breeding will make Alpies holders earn income by allowing them to sell their newly spawned Alpies. This mechanism is similar to that of Axie Infinity.

However, please note that all the utility perks listed for the Alpies will be exclusive to this collection of 10.000 Alpies. Future Alpies that come from breeding will be playable in the game, but will not have these benefits.

Other exclusive benefits are:

1. Pre-sale allocation of the future token of the Alpaca project of the game
2. 50% more maximum leverage at Alpaca Finance
3. Future releases airdrops/NFT giveaways
4. Access to the Alpaca game beta
5. Biggest game stats
6. Free exclusive in-game items
7. High quality NFT breeding
8. Access to exclusive Discords (Illamanati for Dauntless, Knights Tempaca for Dreamers, and both can access The Paws That Be)
9. Exclusive access to physical Alpaca merchandise

Conclusions

As you can see, Alpaca Finance is a project focused on offering multiple reward options to its users. Thanks to the use of highly scalable networks and low commissions, using this protocol is not expensive in terms of commissions. In addition, its clean interface and the possibility that it opens with NFTs and GameFi elements that will soon be part of the protocol, will surely attract the attention of many within the ecosystem.

Thus, it is clear that Alpaca stands out not only for offering a solid, secure and decentralized product, but also for knowing how to listen to the community that is part of it. In this way, it is clear that the future of the protocol continues to be of great interest to users of the Fantom and BNB Smart Chains blockchains, and surely, with its arrival at GameFi, we will see how the protocol continues to reach other networks such as ETH or Polygon. .