Add borrow feature to lending tab and simple margin

I have been jumping from one defi project to another in the BSC, after a while I found Alpaca Finance and fell in love. The team is quite efficient, there are updates every while and the community is listened a lot.

The feature that most attracted me was leveraged farming, borrowing in Defi is not like borrowing in a normal bank, you cannot borrow more than a 100% because then the person in question could leave with the money and the bank can’t demand the person because this is the crypto world. So I thought what and incredible solution to the problem, you can borrow more than 100% but only if you use it inside the platform, that way they get more commissions then revenue.

The thing that shocked me was why they only allow borrowing inside liquidity pools and not simple margin and why they let you lend your coins but not borrow them in a simple manner too. Maybe there is something I am not understanding but I believe sometimes simple is better and although I think leveraged farming is better than normal leverage there are a lot of people that still would use normal margin over leveraged farming.

Going to the point, I believe this two simple features should be added to Alpaca Finance to attract more TLV and revenue.

Normal Borrowing:
Venus has at the moment of writing this 2,458,322,647$ in TLV and is a simple lending/borrowing protocol. They use a Risk Assessment Framework to determine the amount of borrowing allowed to each coin so the more volatile the coin the less you can borrow in other coins with it.

They also use two types of interest curves so the the % given to lenders increases as borrowers borrow more of the coin in question. The linear rate is linear meanwhile the jump rate model maintains % low and then jumps when the amount borrowed starts to exceed the amount provided by lenders. (They give XVS as a rewards to lenders and borrowers to lower borrowing costs and increase lending % to incentivise borrowing and lending)

See more here:

Although the Venus Protocol is supported by Binance I believe the team is not very efficient and smart, they have had a lot of problems getting things done lately and security is also a concern. Meanwhile the Alpaca Team is extremely efficient and the project is a lot more audited. I believe the team can solve the problems Venus actually faces and create a better product. And if you say that we are coping our neighbour this is a free market and the best wins.

I believe they were also partnering to create their own crypto card but seeing how slow they go we probably won’t see it in a few years.

Simple Margin:
As I was saying in the introduction borrowing inside the crypto world is complicated, especially if we are borrowing more than 100%. Alpaca Finance has already solved the problem using leveraged farming but you have to enter a liquidity pool to play with margin.

The protocol could add normal margin using different tokens as a collateral allowing users to play simple margin inside the protocol.

For example, Jeff has 1 BTC and want to play 2x, he goes to Alpaca Finance and locks his BTC as collateral opening a 2x position, of course if BTC goes down 50% he loses all his position.

Advantages and Disadvantages:
I believe this two additions would attract an enormous amount of TLV for the product and increase the lending % combined with normal margin and leveraged farming. The problem I see also comes from this same point. If rates go up then leveraged farming would get more expensive because the % to borrow money would be higher of course this is only speculation and market forces could stabilize the interest simply bringing more TLV.

All of this is my own opinion and maybe there are a lot of problems I have not considered yet, please I encourage you to question me and improve the proposal, thank for your time

1 Like

You mean make ALPACA became a borrowing platform?
Well, I think it may be a good way to against bear market. Because DEXs’ Apy will be lower and lower during the bear.
But it’s obviously not the first option to ALPACA. We still have many ways to let profits fly.

Thanks for your proposal. In order to introduce compound-type lending, we’d have to create a new product. It could not share the same contracts with LYF lending pools, nor would the same interest rate model work. Perhaps in a V2 down the line.

As for allowing what’s essentially margin trading, let’s say a user did a margin trade. If they wanted to hold the token for a long time, they’d be better off LP’ing it to earn yields, which is what they can do in Alpaca now. If it was a short-term position, it would not make sense to open it using an on-chain DEX because the swap fees are much higher than using a perp(typically no swap fees). This problem becomes greater as margin increases.

In fact, some LYF competitors tried creating margin trading products and have failed without exception so far.

P.S. The original team of Venus was the Swipe team and they left Venus some months ago.

Thanks again

1 Like