[For Discussion] Limiting Access to Automated Vault

151

Isn’t the liquidation risk balanced by the auto rebalancing strategy ?
I don’t understand why there is more risk of liquidation with 1 billion or 2billions TVL than with 200M ?

It’s true the analogy with Luna isn’t perfect you’re right.

other question : what is the point of an AV x3 when an AV x8 has the same fee structure ?
Sure everyone will want to use the better AV with more leverage.

I understand there is a limited lending market,
And I understand more TVL means lower APY.

But, what I don’t understand is, why don’t we let the demand fix those limits by letting people pay for the additional capacity until they don’t want more ?

If the vaults are sold out it means there is some people willing to pay to enter.
Not letting those people paying to enter, Alpaca renonce extra money.
I don’t understand why ?

If it’s because it’s not secure to let the TVL going up, ok. It’s sad but I could understand. Let’s go with quotas…

But if we don’t let people enter because we want to keep high APY and low borrowing rate, it’s a really short term strategy in my opinion.
Everyone would won more letting the free market pay for the additional capacity it wants.

152

Why not implement a dual type of system that would make users being able to put funds into the AV.

The xALPACA suggestion is good but I think it is way too steep. In the suggestion it states currently that you need 200k xALPACA which is like 500k at the moment for a 100k investment in 1 vault. if the Alpaca price goes up 10x that will be extremely steep. Lets say you can jump into 3-4 vaults, its still very steep.

Another issue with this many xALPACA is that there might not be enough in circulation in the end for more people to join.

And another one is that if all the ALPACA are locked into the vault the LPs will be sooo small and so weak to price movements, making it actually hard to even get 200k xALPACA without paying ABSURD slippage.

I think we should lower the caps by quite a bit like 50-75% and also have another great option.

Why dont we create a point system if people lend out or borrow funds on Alpaca in the normal lending protocol? if you have large lending/borrowing positions - whatever benefits Alpaca the best you gain points somehow and are able to invest in the AVs. This would make the TVL much much much larger and would automatically raise the price of Alpaca.

Imagine people who have very large lending/borrowing positions on other protocols and its close between that protocol and Alpaca, now they will move all the funds to Alpaca because they know they can get into the AV

Best
120k xALPACA holder and 61 Alpies holder :wink:

2 Likes
153

It feels like same questions are asked and answered here. It would be beneficial to first learn how the product works in and out before making “suggestions” and “proposals” to enhance what was suggested by people who understand how it works. Furthermore, all those questions and suggestions were already answered in previous comments in this very thread, so please scroll up. As it feels the discussion is going nowhere, people just showelling same “ideas” that are not feasible from fundamentals of product.

Why is there more risk of liquidation you ask? Lets see on examle: You have a pool USDT/BNB on pancake where there is 100 million tvl locked and APY is 20%. If you lock there another 100 million, the APY would be 10%, unless the trading fee income doubled as well ( which is not very likely at the moment, but could happen eventually with adoption if BSC is favoured). If you would put in 1000 million (1billion), there would be 1.81% APY. This might be okay for if you deposited there money without leverage thus 1x, or via classic leverage lets say 3x. Why? Because if the underlying pool doesnt generate enough yields, and your asset fluctuates your position might get liquidated, and lenders will receive their money.

However, if you would do it with 8x AV, where there is no liquidation as you are hedged to volatility what would happen you ask? Well, you are paying fees for keeping your position neutral as well as paying borrowing interest on capital borrowed daily, if you pool is generating 1.81% with 8x leverage (if we ommit fees) lets count 1.81x8=14.5%. However your borrowing fees per 1x your investment is 5%. This means that you pay “lenders” 40% APY for capital deployed. This means that even with low 5% borrowing interest you are generating -25% APY thus each year you lose 25% of your equity. What if the borrowing fees jump to 8%? well that would be extra 3x8=24% negative APY on top, thus -49% APY per year. You get the idea what would happen with even higher lending APYs… Eventually there would be nothing to be returned to people who borrowed you money. Would Alpaca need to close all positions? to avoid generating bad debt? who would pay the lenders? which lender would want to keep money somewhere where his deposit is in danger? That is why dillution cannot be unlimited and should be controlled. There are outer implicators as well, anybody can deploy more money into the pool and cause dilution not just Alpaca AV investors. Trading fees are not constant and can contract, or temporarily even become zero. If your model is not self sustaining during normal market condition, well than you are in for a big trouble during recession or periods of drought. That is why your sugestion is not good and why it needs to be monitored and unlocked slowly as and if the market condition allows.

There is simply no upside, and all the downsides. Investing is about managing your risks not running it wild, in chaos, and see world burn :smiley:

Edited: It would not be bad only for lenders, for borrowers too. Who would want to deposit money in such AVs?

2 Likes
154

I don’t think anyone IN the governance is against the idea. Those against it mostly seem to have no skin in the game.

155

200k xALPACA is closer to 120k USD at the moment. Not sure how you got 500k.

Also, you could invest in ALL future vaults as long as you meet the xALPACA requirements.

156

We can always change the ratio of 2xALPACA:$1 in AV. We don’t need to discuss the ratio now. We can see how the demand is and then adjust. That’s a lot easier than creating multiple smart contracts and tiers to allow entering 8x vaults for multiple types of users.

1 Like
157

I’m a big fan of Alpaca too, and I totally support your idea. :+1: :+1:

I also believe we should abolish the 3x vaults to simplify the management of the AV. 8x vault only is enough.

158

alpaca2
alpaca21536×864 34.6 KB

not sure if the upload worked but basically I got 341k alpaca locked that gets me 112k xAlpaca.

But yes so your right its not 500k. its like 300k, still.

2 Likes
159

I read the whole thread and didn’t especially see any answers to my questions, but whatever.

You took the time to answer me, I thank you for that and I think I understand your arguments.

I don’t have the same numbers as you, I have more like $333M of liquidity in the BNB-USDT vault on PCS and 23.5% APY (Estimate Automated Vaults Capcity - Google Sheets).
And in terms of borrowing rate I don’t understand your 5% either, for me borrowers borrow at 12.5% but it doesn’t matter.

You are talking about liquidations because depositors would leave their capital in a AV with a negative APY until their equity deposit has been destroyed entirely and they can no longer pay back the lenders generating bad debt as a result…

Is this a realistic assumption?

Do you know anyone who is going to leave their capital, millions of it, in a vault offering negative APY?

Don’t you think that if the APY of AV is no longer competitive, people will simply stop depositing and/or withdraw ?

I understand your caution and the desire to free up vault capacity little by little to be able to monitor everything peacefully.
But by what criteria do you set the target?
Why 15% APY of target ? why not 14% ? 13% ? 10% ?
And my question is why not let people decide up to what APY they want to deposit?

Otherwise let’s talk about quotas.
We agree that as it stands, if the estimated additional max TVL is 200 million all xAlpaca holders will not be served?
Personally I fall on something between 23/24M xAlpaca required for sold out with the assumption of 200M additional TVL, of which 50% allocated to AV x8 and 2xAlpaca required for 1$ allocation.
Knowing that if the xAlpaca constraint is strengthened to allow all xAlpaca holders to come in, it will become difficult to sell out the x8 vault.
Which is another way to limit the capacity of the vault…

In short, with these quotas, all xAlpaca holders will not be served or the vault will not be filled.

Finally, these quotas strongly limit the value proposition of Alpaca’s best pseudo delta neutral strategy.
To benefit from Alpaca’s best risk-free strategy, you will have to block an equivalent or even higher amount in a risky asset…
a remark that has already been made by others in this thread, which I did not understand at first but which I now agree with.

I don’t have much to add, as it stands I will vote against this proposal, but I will participate in the AV x8 deposit war if this proposal passes.
The main beneficiaries of this measure will be those who will have succeeded in depositing, Starting with the lucky ones who didn’t have to block Alpaca to participate and who will never withdraw their money from this blessed vault.

Good luck to all the others.

160

I was assuming a 1 yr lock time.

161

I completely agree with you and have also said in another topic about not limiting the TVL in the AVs, but the team is against it apparently.
Market dictating prices always worked better imho, both for lending and borrowing as well as LPs. It is pretty much the same with stablecoin pools, they pay next to nothing so very few use them.
If people need to be liquidated so let them be, it is a LP is a risky investment, trying to make it not risky is not a viable solution imho.
Maybe in a few months we will see the returns of the 8x AV becoming near to 20% (and that is A LOT more realistic with the demand we are seeing)

3 Likes
162

After further discussions with the development team and community feedback so far, I would like to make some adjustment and clarification to the original proposed implementation.

1.) Investment Allocation Condition:

In the original post, the allocation is described on a PER VAULT basis. However, dev has done further research and found a way to implement the allocation across all high-leverage vaults. We believe this set up would be more fair. The the new mechanism would be:

  • 2xALPACA = $1 allocation across ALL high-leverage vaults combined (not each vault)
  • The allocation above refers to the EQUITY value (i.e., supply assets) that users can invest (not the TVL.)

Example:

  • Alice has 2,000 xALPACA. She can invest up to $1,000 in high-leverage automated vaults. This means her total TVL in the vault would be $8,000 (if the vault is 8x)

2.) What happens if my xALPACA balance decays below my investment value?
Your existing investment in the pool will continue on with no issue. However, you will need to top up your xALPACA balance if you would like to make additional investments

3.) Will Alpies holders get allocation in high-leverage vault?
Yes, we can discuss as well how much $ allocation each Alpie should receive. What I have in mind is ~$1k allocation / Alpie.

4.) Should the amount of xALPACA required per $ allocation be fixed or dynamic?
We think making the ratio dynamic makes sense and we propose that the ratio be adjusted on a monthly basis at the beginning of every month to keep the ratio roughly equivalent to “$1 worth of ALPACA locked for maximum duration” for $1 allocation

xALPACA required = Roundup( 1 / ALPACA_Price, 1 )

E.g.,

ALPACA Price xALPACA required for $1 allocation
$0.6 1.70
$0.8 1.30
$1 1.00
3 Likes
163

This sounds much better as original, as it could create an xAlpaca inflow and aswell affect people who already invested in first vaults while those vaults were without restriction. Thus it would be more fair across the spectrum.

Based on some quick calculation, if no new xAlpaca would be locked in vault and at price of 0.6 $ as of now, each respectively almost each xAlpaca holder would be able to ape in on 200million additional capacity. 200 / 8 = 25 Mill, while we have 40mil xAlpaca in governance vault thus 40x0.6 (alpaca price) = 24 Million. I say almost each due to Alpies, as they can take up to 10million but when checking the wallets holding Alpaca big number also holds Alpies aswell.

165

Thanks for the clarification,

I’m sorry to be a wet blanket. But as it stands including Alpies is at the expense of xAlpaca holders.

The ratio is incredibly better for Alpies, and they are not locked in…

On the one hand to invest 1k$ in an AV x8 you have to invest 1k$ to buy Alpacas, block them for 1 year to have xAlpaca and pray to get in before the sold out

Whereas on the other hand to put 1k$ on an AV x8 you just have to buy an Alpie on the floor at 250$, try to get into the AV x8 and then sell it back…

Who is going to buy Alpaca and block them in these conditions?

Other than pumping the floor of Alpies to $1k by diluting the value proposition of xAlpaca, I don’t understand the point of the move.

And I’m not even sure it’s safe.
How do you prevent an Alpie from being used multiple times to enter a AV x8 ?

Let’s say you track its ID and as long as the corresponding $1000 is in an AV x8 that Alpie no longer qualifies for entry.

Ok… now on the secondary market you find yourself with Alpies that give the right to invest $1000 in an AV x8 and others that don’t because they have already been used… and both are difficult to distinguish on the different marketplaces… hello scams and Alpaca customer support.

At the very least, we should block the Alpies as we block the Alpaca to get xAlpies and that doesn’t solve the problem of arbitration.

And above all, it aggravates the problem of capacity shortage of AVs x8.
What do these Alpies have to do with it?
The play to earn is not enough?

xAlpaca holders have everything to lose by seeing Alpies holders who do not necessarily own xAlpaca accessing the AV x8.

Unless we let the market decide on the APY target, as estimated, the max equity deposit is $23.5M for the AV x8 provided that Alpaca only open AV x8 which does not seem to be the will of the team.

Taking 50% of the max capacity for AV x8, which seems generous to me. That’s $11.8M max equity deposit for AV x8, which really isn’t much.
10k Alpies, at $1k allowances is the equivalent of 10M equity deposit…
With 48M xAlpaca in circulation it’s already going to be tight, with 10k more Alpies… it doesn’t help.

Last but not least, what we all want is for new entrants to buy Alpaca and lock them, ideally for one year.
We need to give them some space in these AV x8 imho, not reduce it with the Alpies.

3 Likes
166

Ben has a valid point here. I also believe the best solution would be to not mix Alpies into the AVs. If we really want to mix them in, 1000$ entry position per alpie sounds too much and maybe 400$ would be more appropriate, to avoid stimulating alpies much more than xAlpaca, while there is no locking in place for Alpies. If we dont have a locking mechanism for Alpies they shouldnt be allowed to take/block AVs TVL.

If you have a mechanism in mind, how would such mechanismus work in order to prevent wallet jumping? @huacayachief

167

Another very important point:

Regardless of the x8 VA access conditions that will be voted on, Alpaca should imperatively announce in advance the date, time, amount and participation conditions for the next VA increases.

These increases are planned in advance by the team and announcing them to the public at the last minute without giving xAlpaca holders time to organize only favors the insiders who are the only ones who have time to prepare.

A week of delay between the announcement to the public and the increase of the TVL of the AV seems to me to be a minimum.

This is probably the most important point of all.
It’s a question of ethics.

168

Good feedback, we’ll consider this. Also, the Alpies vote would be separate.

1 Like
169

This won’t be necessary if this proposal passes because there won’t be 8x vaults for the public. The 3x vaults have historically taken 1-5 days to fill.

170

I think the only way to do so is to have separate vault, one for Alpies (with lower TVL) and another for xAlpaca
And use the same dynamic price technique to the floor price of those Alpies and count only Alpies registered until the AV is opened.

171

To be clear, assuming 10 existing high-leverage vaults with capacity remaining, 10k xALPACA would let you deposit 5k total across all 10 vaults, rather than 5k in each vault for a total of 50k?

I also want to express my disagreement with alpies being involved in any way with AVs. I hope this will be a separate vote like @Samsara said and not an automatic inclusion.

1 Like