Concentrated liquidity and dropping TVL

Hi all!

First time poster here, but I’ve been following Alpaca on and off since it started.

I can understand the pain of holding Alpaca and that it lags at the back of the herd when it comes to rewards or price. The discussion designating extra rewards to the governance vault did trigger me to write this post. I do have questions that concern me, but I don’t think the answer to those has much to do with the Alpaca token.

  1. How to deal with concentrated liquidity?

    a. I’ve been playing a little bit with Trader Joe’s liquidity book on Avalanche and for me it’s mostly an invitation to pay transaction fees and eat IL. It takes some practice and thinking to get the hang of it.

    b. Concentrated liquidity on PCS v3 works a bit different than Trader Joe, but it’s there and I assume that it already takes quite a bite out the yield of regular lps and I assume savvy traders will take bigger and bigger bites. Which is not very good for Alpaca, because it doesn’t concentrate liquidity (yet?). (Even if concentrating liquidity is not as profitable as it might seem at first sight, it still takes a lot of profits away from everybody else.)

    c. It also might be very good for Alpaca because the opportunity to play with concentrated liquidity begs for automated strategies. It also offers new ideas for how to use leveraged yield farming.

    d. It would be nice for there to be an Alpaca perspective on how concentrated liquidity does/will impact the platform.

  2. Why is the TVL dropping?

    a. I don’t know why it is. Wasn’t the TVL about 400 million a few months ago? With the bull market one would expect that TVL to increase, but the opposite has happened.

    b. I see how the perps are successful in the sense that they utilisation of the liquidity pool is high. But, for example, the 99% utilisation of the Eth might also be an indicator that a lack of liquidity is hampering the perp’s success.

    c. I did quit an automated usdt-bnb vault because the apy was negative again which I assume was because temporary high lending rates. (The other reason was that the one and three month apy are annualised and it kind of feels like a kick in the teeth when, because that apy is annualised, it matches at all with my balance.)

    d. Alpaca’s TVL is still very respectable and as I understand it the liquidity market on BSC is very competitive, but it does seem to me that a lack of liquidity is impeding Alpaca’s growth in the perps and AVs.

  3. Another thing that would worry me, certainly if I were to consider buying more Alpaca tokens, is the development of the game. It’s not so much that a financial platform is developing a game, it’s crypto after all. However, the game seems to be lacking in progress and I do wonder how much of a distraction is for the Alpaca team and developments on the finance side.

I’m most of all curious about your thoughts on the future of concentrated liquidity, but also on thoughts about the dropping TVL.

Let’s be clear, even though I don’t have a very big bag of Alpaca’s, they’re locked in the government vault and I don’t mind keeping them for a year or much longer. I like to think of Alpaca as a project that’s not meant to boom, but to survive, which to me makes it very special.

Cheers!

Thanks for your post and welcome to the forum.

  1. The dev team is working on V3 integration within our AVs, and we also brought in an external team to help speed it up.

  2. The TVL is dropping because Pancake recently launched their V3 and is reducing rewards on V2. Since all our products are currently built on V2, that affects their prospective APYs. So a temporary TVL drop is inevitable until we launch V3 integration of our AVs, which we believe will be more compelling than the current AVs built on V2, because manual LP’ing is not feasible in V3. Automation is necessary and there are few, if any, automated products for V3 that are actually profitable outside of stablecoin-stablecoin pools.

  3. The gaming venture is handled by a separate team. Game development has had 0 resource drain on the dev and product teams at Alpaca Finance.

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So, in short, v3 LPs are a complete mess for yield optimizers?

To add to Sam’s comment on point#1, we will have an article that explains our work on V3 integration out to the community soon.

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There are many projects working on managing V3 LP, but base on our research, no one has demonstrated a track record of sustainable profitability.

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