Alpha: The DeFi Trojan Horse created by the masters of the Math Olympiad Hall of Fame

This article is from ChainNews, authored by Kay Feng, Managing Director of NGC Capital.

Let’s start with a few seemingly unrelated points: Aave appears to be the unshakeable leader among DeFi lending platforms, but the Degen veterans still remember the days when Aave was called ETHLend, a lonely child with no one to favor it. After introducing features like flash loans and striving for compliance, it gradually made its way into the top three DeFi lending protocols and is now one of the potential Grayscale trust fund products.

Sushi is also one of the best-performing protocols recently. Influencers often compare it to Uniswap using various metrics. It is well-known that its trading volume has reached the same magnitude as Uniswap. Nevertheless, the number of users on Uniswap remains far ahead. Therefore, many on Cryptoticker still believe that Sushiswap is a whale game, where individuals like DeFi whale SBF might somehow beautify platform data (similar to traditional manipulation techniques) while driving up coin prices.

Aave is impressive, but like Uniswap, it is not complete enough.

Alpha may share some traits with Sushiswap, but that won’t hinder Alpha’s rise.

Math Olympiad Hall of Fame Master

Alpha's chief engineer Nipun Pitimanaaree ranks fourth in the history hall of fame of the International Mathematical Olympiad IMO. Nipun has participated in the International Math Olympiad five times, winning four gold medals. For reference, another legendary participant, Terence Tao, has a historical record of just 1 gold, 1 silver, and 1 bronze. Although Terence Tao is the youngest gold medalist in the history of the International Math Olympiad, he has not made it to the first page of the hall of fame.

This means that the CTO of the ALPHA project is undoubtedly one of the smartest people on Earth. If calculated by IQ, it certainly exceeds 150. As the Chinese say, "How can a sparrow know the ambition of a swan?" An ordinary person with an IQ of 100 will never understand the ambitions of a genius with an IQ of 150.

The protagonist of this article, Alpha, is often categorized as a yield aggregator. Many attribute this to Alpha's TVL exceeding that of the yearn protocol.

If one thinks that this math genius only wants to make minor improvements on the shoulders of another genius, Andre Cronje, that would greatly underestimate the lofty ambitions of this hall of fame master.

IQ MEME

Trojan Horse

As an ordinary person with an IQ of 100, I can only understand simple plots: Almost no one realizes that Alpha Homora is a Trojan horse threatening Aave, which is very different from Sushi's lower liquidity utilization:

1. If Alpha wants to create a lending product similar to Aave, it can launch a direct attack on Aave similar to Sushi without needing to use aTokens for yield farming.
2. In fact, Alpha's "lending" product has already been launched through Alpha Homora, with a capital utilization rate much higher than its competitors.

Alpha is a lending product; does that leave you confused? Let’s start with the product design of Alpha Homora, assuming you are a farming farmer named Alice:

1. Alice has 100 ETH and wants to farm UN through the ETH-USDT liquidity pool of the Uniswap protocol, which usually has a 30% annual percentage yield (APY). Typically, she can exchange about half of her ETH for USDT, then provide it to the liquidity pool and earn 30% APY (for information on how to achieve this best, see Alpha's blog).
2. With Alpha Homora, she can borrow 200 ETH from the Alpha Homora bank (with interest to be paid), and combined with her original 100 ETH, she can now invest 300 ETH (3x leverage!) into yield farming, earning 90% APY based on her original investment amount, three times!
3. As long as the value of her position does not fall below 250 ETH, she can continue to yield farm without adding more deposits.

Note: Alice needs to pay corresponding interest based on the amount borrowed, depending on the utilization rate of ETH.

If you still don’t understand, that’s okay. Just remember that Alpha Homora has integrated borrowing/lending functions. The current version, Homora V1, only supports ETH borrowing. How much ETH is currently locked in Homora?

Source: Alpha Homora --- Earn

Although this statistic seems overly simplistic, every number is worth noting:

1. A total of 258,000 ETH has been deposited, with 225,000 ETH loans issued.
2. APY 7.89% (unstable), utilization rate 87.64%.

Yes, 230,000 ETH, based on today’s market price (January 25, 2021), the total loan amount (200,000 ETH) is approximately equivalent to $260 million. Let’s take a look at the data of "DeFi blue chips":

Source: Debank

Since DeBank still lists Alpha under the "EARN" category, there is no Alpha-related information in the "Total Loan Amount" image above. Based on earlier data, we can conclude that Alpha Homora has actually surpassed Aave V2, ranking fourth on this list.

The upcoming Alpha Homora V2 will support stablecoin lending, including USDT, USDC, DAI, and even market-making tokens. Therefore, the total lending amount of Homora V2 is very likely to continue growing, reaching the scale of Aave V1, and even surpassing Aave V1 and V2 in the coming months.

Alpha has reached a total locked value of $600 million in just three months, which has consistently amazed me.

Source: DeFi Pulse
Even compared to Maker and Compound, Alpha Homora still boasts the highest capital utilization rate and APY.

This level of APY is currently even more attractive than ETH 2.0 Staking. Data from Binance ETH 2.0 Staking shows that its APY has dropped to 9.3% and continues to decline. Although I have not backtested the relevant data, over the past few weeks, every time I opened the "EARN" page of Alpha Homora, the interest rates have mostly remained around 7% to 8%.

This is not a coincidence. Thanks to the genius-level borrowing rate model designed by the Math Olympiad hall of fame master, when the capital utilization rate is in the range of 80%-90%, the interest rate remains around 7% to 8%, and when the utilization rate exceeds 90%, the interest rate curve rises almost linearly.

The genius-level parameters and market incentive mechanisms provide users with more competitive rates than other lending platforms, roughly equivalent to the yield level of ETH2 staking (but the convenience of deposits and withdrawals for ETH2 staking cannot compare with Alpha Homora).

At the same time, the recently collateralized lending platform Cream Finance announced that Alpha Homora V2 would be one of its first partners, meaning that many small-cap assets on the Cream platform may also be introduced to Alpha Homora. Personally, I think this is more like (a feigned retreat to advance secretly??) Meinertzhagen's Haversack, where Meinertzhagen was a British officer who successfully "accidentally" lost a bag filled with false intelligence during World War I, helping the British successfully capture Gaza. Alpha needs Cream's help to launch a small-cap asset lending pool, while eventually owning its own such asset pool in the future.

When discussing the total locked value of Alpha's ibETH, we cannot overlook the famous whale 0xb1, which has made a significant contribution to Alpha's total locked value. If you closely observe the address directory, you will find that Alpha is one of the protocols with the most interaction from whales. 0xb1 has deposited a total of 67,000 ETH in Alpha Homora (this number was only 30,000 to 40,000 ETH a few weeks ago), showing that this whale highly recognizes the security of the protocol. Additionally, 0xb1 has also invested significant assets in Alpha Homora for leveraged yield farming.

Activity of 0xb1 on Alpha (DeBank)

Some might say that if the proportion of whales in the total locked value is large, is this a temporary false prosperity? I believe such doubts are absolutely unnecessary. These statements may have been correct in the comparison between Sushiswap and Uniswap in September. At that time, the Sushiswap protocol only had zombie users coming to farm, and there were not many real transactions. However, the competitiveness of lending platforms is not about the number of users, but about total locked value and depth, just like many people dislike BitMEX or OKEX exchanges, but unfortunately, unless a black swan event occurs, the Matthew effect is the reality in this field.

AlphaX and Asgardian: Hidden Derivatives Unicorns

Many people think that the product AlphaFinanceLab is equivalent to Alpha Homora or merely another leveraged yield farming Degen project forked from Yearn, which is almost like thinking that Adobe Photoshop is the only product of Adobe.

After reading the previous content, you should have understood that Alpha is not just another Yearn fork project; its true ambition is higher than Aave.

But Alpha actually holds another big weapon, AlphaX, which is not yet time for valuation.

Why?

AlphaX (currently in the second round of beta testing) is an on-chain perpetual contract product similar to DerivaDAO, Perpetual Protocol, and Injective Protocol. Except for Perpetual Protocol, which has already launched on the mainnet, other projects are planned to launch in the first quarter of this year (it will be another grand spectacle lol). Compared to the market capitalization of these projects, Alpha will not be much higher. In fact, until this week, almost no users on the Cryptoticker platform mentioned products related to AlphaX, which can be seen as a signal that it is too early for valuation.

Alpha Homora (leveraged yield farming) is just the first product of Alpha. Homora may be similar to Adobe's early products; we have yet to see the shadow of its flagship product, Photoshop.

AlphaX is a decentralized, order book-free perpetual contract trading market. Similar to the vAMM of Perpetual Protocol, it is an improved version of the automated market maker (AMM), different from the traditional x*y=k function model of Uniswap.

AlphaX Testnet
Twitter user @YieldFarmerJoe has made excellent comprehensive comments on AlphaX. As the saying goes, don’t "put new wine in old bottles," the following content mainly comes from his recent tweets.

A decentralized trading market (users hold the keys), without an order book (not interacting with buyers when selling, and vice versa).

In simple terms, unlike other futures (put and call options) that have settlement dates, perpetual contracts (as the name implies) exist indefinitely. Therefore, they are very similar to purchasing spot. But the buyer does not hold the underlying token asset.

Perpetual contracts are permanently anchored to the underlying asset through funding rates. At regular intervals, the trading side with more popularity pays a premium to the other side (the less popular side) to incentivize the less popular side to increase its popularity.

Thus, if you are on the dominant side, the longer you stay, or the higher the popularity of your side, you will need to pay a considerable fee.
The first unique selling point of AlphaX:

It doesn’t matter how long you hold it—even if you are on the more popular side—there are no funding rates.

Instead, it is included in the buy and sell prices. Therefore, the timing of your buy and sell is very important. The premium or discount on the buy or sell price provides incentives/obstacles, making the price closer to the spot price of the asset.

This simplifies a lot of work and reduces a lot of spot custody work. You only need to pay attention to the timing of buying and selling, rather than worrying about fees rising and falling every 8 hours or daily (or when your exchange settles funding).

The second advantage of AlphaX, which I believe is even more exciting, is: tokenizing perpetual contract tokens into an ERC-20 token. You don’t need to open it on AlphaX. After anyone operates it, they can trade it on any secondary market (Uniswap/Sushiswap).

Therefore, you can hold a leveraged perpetual contract token without worrying about or considering funding rates on high-popularity decentralized exchanges (DEX) and old-for-new swaps; you only need to check its current price to make a decision. Imagine easily purchasing a leveraged contract token for BTC on the Uniswap protocol.

Keep in mind that, unlike spot, there is increased risk, and when the price reaches a certain point, it can lead to the token being liquidated and becoming worthless.

The liquidation price is clearly written in the token name; the higher the leverage you choose, the closer it is to the current spot price.

Because AlphaX's product will utilize Ethereum's monetary Lego blocks, it will attract more users.

You don’t need to register or log in to AlphaX or Perpetual Protocol or Injective Protocol. The potential market size (TAM) or demand for the product has already been covered in the DEX market scale.

In addition to AlphaX, if you have been following AlphaFinanceLab's Github account, you will see another Easter egg. A GitHub repository named Alpha Asgardian. Another potential big weapon.

Alpha Asgardian

From the product prototype, it seems that users can customize options, and connecting to a wallet can reduce the impermanent loss of tokens provided as liquidity providers (LP) in the pool, simply by clicking MAX, and its user interface (UI) is very elegant.

(Note: Alpha Asgardian is not on the official roadmap or website of Alpha Finance Lab; it may be similar to an internal hackathon. Therefore, there is still a long way to go before release.)

Very promising.

What is meant to come will always come.