ETH Deposit Vault and Leveraged Farming Pools + Interest Rate Adjustment

Dear Alpacas,

Rain or shine, we senior Alpacas will keep on delivering new product features for the herd. So today, we’re excited to announce that we’ll be adding something to our platform, an all-new — ETH deposit vault!

We know that in crypto, many people like holding ETH for the long term. Now, they’ll have an opportunity to do so, while gaining high yields!

Along with this, we’ll also open three new leveraged yield farming pools on ETH pairs:

• BETH-ETH (4x)
• COMP-ETH (3x)
• SUSHI-ETH (3x)

💲Benefits to ETH depositors:

• As ETH depositors, you’ll earn interest from borrowed ETH. The lending interest will vary between 0% — 150% APR(equaling 0% — 348% APY compounded continuously), based on the pool’s utilization level. Most of the time though, we expect the borrowing rate to be stable around 20% APR. You can learn more about our interest rate model here.
• You‘ll also be able to receive ALPACA rewards by staking ibETH(which you’ll get after depositing ETH) on the Stake page. We’ll be allocating 100 reward points (~ 1.7 ALPACA/block based on current emission rate) to ibETH stakers.

🕐Release Timeline

• ETH deposit vault & ibETH staking: Thursday, April 8th, 2021 at 8 AM GMT. You’ll be able to start depositing your ETH on our Lend Page and stake your ibETH (which you’ll get after depositing ETH) for ALPACA rewards on Stake Page
• Leveraged farming pools: Friday, April 9th, 2021 at 8 AM GMT. You’ll be able to start opening leveraged positions on ETH pairs on our Farm page.

🎁Rewards Allocations

• ibETH stakers: 100 reward points (~ 1.82ALPACA/block based on current emission rate)
• LYF positions on ETH pairs: 100 reward points. The amount of ALPACA you receive will be based on your debt size. (~ 1.82ALPACA/block based on current emission rate)

📈Interest Rate Model Adjustment

Since we launched leveraged yield farming two weeks ago, there’s been a massive demand for it, evidenced by the frequently high utilization rate on both the BNB and BUSD deposit vaults. During discussions in the barn, we Senior alpacas have analyzed how this has affected the system.

We’ve realized that while keeping these lending pools at high utilization is good for capital efficiency, their utilization rates have overshot to 95%+ more often than ideal, causing borrowing rates to become too high at times. Although these utilization spikes don’t last long, the change in APYs sometimes frightens some of the younger Alpacas…

Like shadows in the shape of llamas…

In addition, since leveraged yield farming is more effective as a long-term strategy, maintaining stable and predictable lending rates is important for all participants. As such, we’ll be making an adjustment to the borrowing interest rate model to improve the system’s efficiency.

We’ll be raising the borrowing interest rate on slope-2 from a flat 10% to a flat 20% (Slope 2 is the interest rate for 50–90% utilization). While at first glance, this may seem like a negative for yield farmers, we believe that after implementation, this will prove to be a positive for everyone involved, including farmers, for the following reasons:

• By raising the borrowing rate on slope-2, it will make the borrowing rate on slope-3 more prohibitive, which is the essential function of the steep curve on slope-3, to act as a counter-force pushing utilization down. This is best for everyone because long-term high utilization is inefficient. When utilization stays above 95% for a long time, although the lending APY increases, it also makes it difficult for lenders to withdraw, decreasing the appeal of lending in general, leading to fewer people willing to lend in the future. Fewer lenders -> a smaller lending pool -> higher utilization -> higher borrowing rates for farmers. This is a negative cycle, which as you can see, is no good for anyone. Thus, by raising the interest rate on slope-2, utilization will stay away from the steeper slope-3, spending more time on slope-2, leading to a more stable borrowing rate where everyone can make money.
• By raising the borrowing rate at typical utilization, we expect to attract more capital, increasing the lending pool size, which will also result in lower utilization and thus lower borrowing rates; a positive cycle.
• With a larger capital pool, we’ll likely see less volatility in utilization rate fluctuations due to individual lenders having a smaller percentage of the pool when withdrawing.
• With higher and more predictable yields, lenders would be more willing to deploy capital in our vaults for longer periods of time rather than jumping back and forth, increasing the stability of the lending rate for everyone.
• This rate is more in line with the lending rates of competing protocols. Right now, many of our farming APYs are far ahead of competitors, but with such a large gap, there are diminishing returns. By adjusting the lending rate to optimize for overall protocol efficiency, it will lead to Alpaca Finance being more competitive as a whole, improving the value of the protocol and its representative token. Then, since everyone receives ALPACA rewards, a higher price of ALPACA -> higher APYs for everyone.

Thus, we believe this adjustment will be beneficial for the entire ecosystem, leading to greater long-term profits for everybody. No matter how you participate, you’ll be able to lend or farm in peace, knowing your APYs are more stable. In addition, we’ll continue to monitor the dynamics of this change and keep improving the parameters one step at a time, seeking optimal efficiency and balance.

This change will go into effect on Friday, April 9th, 2021 at Midnight GMT.

The chart below illustrates our updated interest rate model.

🌞A Bright Future

So, you can look forward to all these updates this week. We’re especially excited about the BETH-ETH pool because we believe it’ll likely bring many new participants into our protocol:

• New lenders, that want to simply hold ETH and gain high APYs doing so.
• New leveraged farmers, that want ETH exposure, without having to worry about IL. In fact, there are very few farming pools where one can do this. After all, ETH and the typical tokens it’s paired with are volatile. However, the BETH-ETH pair is similar to the stable-stable pairs in that it possesses the like-kind property, due to BETH being pegged to ETH. That means that with a high degree of certainty, you can expect their prices to move together! In addition, BETH is not a new speculative pegged-token. It’s a token backed by Binance that has seen a large amount of adoption, having maintained a relatively high correlation to ETH historically. Hence, you can farm this pool without having to be overly concerned about volatility!

Well, we hope you enjoyed this newsflash. Yet, these are only a few of the updates we plan to release soon. At the moment, we’re working on additional features, UX improvements, new pools, and much more! So don’t forget to regularly check our socials!