[AIP-9] Deposit Liquidation Treasury Funds into Lending Pools while waiting to be used for buyback

Alpaca Improvement Proposal (AIP)
1

Summary: Deposit a portion of liquidation treasury funds into Alpaca lending pools while waiting to be used for buyback

Motivation / Rationale: Liquidation treasury can build up to high value after a big market move, such as now. (mostly in stablecoins) sitting in the liquidation treasury. By depositing a portion of them in the lending pools, liquidation treasury can earn roughly $70 per day (using the current APRs for each stablecoin), and increase the TVL of our protocol by almost $1 million.

This proposal does not require any development effort, while providing a small increase in TVL and daily income to grow the liquidation treasury. It will also marginally reduce interest rates especially for low liquidity coins like USDC, which may also encourage more LYF users, further increasing TVL.

This strategy incurs small additional risks vs. just holding the fund. If bad debt occurs in the lending pools, the principle for buyback will be reduced.

Implementation:

  • Deposit all stablecoins in liquidation wallet (minus the required amount for current’s week buyback) into the lending pools
  • Stake ibTokens for ALPACA rewards which will be used for additional burn
  • Withdraw the necessary amount for buybacks at the end of each week
  • At the end of each week, withdraw the necessary amount for the planned buyback of the following week, taking into account leftover stablecoins or new liquidation funds in the treasury. If there is a surplus, deposit the surplus stable coins into the lending pools and stake the ib tokens.
  • The same can be done with crypto such as BNB, ETH and BTC if the market picks up again and shorts are liquidated

Voting:

This proposal will be a simple YES or NO vote.

YES would start implementing the plan above while NO would keep the fund in the liquidation treasury as is.

16 Likes
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Does it include staking the ibTokens for alpaca rewards, which would then be used to burn additionally? Or just purely into lending?

1 Like
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Yes, we can also stake the ibTokens to receive ALPACA rewards which would be included in the burn.

However, the portion of the yields that comes from ALPACA rewards will be small (e.g, 0.2%) and wouldn’t make much impact.

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AIP-9 is now live for voting. You have until 11.59PM UTC, Friday July 1st to vote.

Vote now:
https://snapshot.org/#/alpacafinance.eth/proposal/0xb0178d17b7accd319622d4a0246d4a5affb570d2006f7aff8014158fc722cff2

1 Like
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@huacayachief Could you please outline how big the impact on the stablecoin lending pools will presumably be? I’m especially interested in how much the lending APR and staking APR for lenders ($ALPACA rewards) will suffer from this proposal should it be implemented. Thank you!

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Hi Grecks,

The impact will be minimal. Here are the balances in our liquidation treasury vs. the lending supply.

BUSD: 300k vs. 74 Million = 0.40%

USDT: 122k vs. 66 Million = 0.18%

USDC: 300k vs. 14.5 million = 2.0%

The impact will be smaller over time as amount is withdrawan for buyback.

1 Like
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To add this will eventually balance out by borrowers naturally.

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That’s true, too. It still depends on the size of the deposit, though. But together with the figures HC provided, I see no problems. Then let’s go for it.

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What is the real purpose of the liquidation treasury anyway? You don’t just use it just for buy-back and burn, or do you? I hope it is also used to cover bad debt in case that ever happens to the protocol. (I hope never needed.)

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It is only for buyback and burn. The Alpaca Insurance Plan exists as a backstop for potential bad debt: https://docs.alpacafinance.org/our-protocol-1/security#e8ee