Proposal to Give xAlpaca and Alpies Utility in Automated Vaults

Community Discussion & Proposal
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Simple Summary: The upcoming automated vaults are a great place to give Alpies and xAlpaca stakers additional utility, especially since there is a capacity restraint on the farms.

Rationale: Since x8 vaults have much higher APYs (albeit lower Sharpe ratios) from backtesting, it’s likely users will prefer to use this one. Based on the screenshots provided in the documents, there will only be a $20 million capacity which means some users may miss out.

Implementation: Personally, I do not want any further delays in the auto vaults, so I suggest this to be implemented later on in a “Premium Farms” section (or maybe a name more creative), where there are reduced fees, leading to higher APYs and higher Sharpe ratios.

xAlpaca can be used to measure how much a user can deposit and Alpies can be used to unlock higher leverages.

Future automated vaults could have a normal + premium version released each time, creating utility and demand for Alpies and staking Alpaca. For example, if a new BUSD-BTC automated vault were to be created, we could release a normal farm with the usual parameters with $20 million capacity, and also another farm with $2 million capacity with 0 or heavily reduced fees, only available to Alpaca stakers, and the higher leverage 0 fee option requires an Alpie + Alpaca staked.

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The 20Mn capacity is per aggregate position. Once it’s reached, a new 20Mn capacity position will be opened.

Regarding unique utility for Alpies holders, that’s something we only consider when it makes sense to offer something to a limited group of users, such as higher leverage on LYF vaults(which would be unsafe if anyone could do it) or private access to game alpha/beta.

It doesn’t make sense to limit supply when it lowers platform revenue and as a consequence–lowers ALPACA buyback, such as in Automated Vaults.

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Hi, thanks for explaining what the $20mil capacity means. Just to clarify, there is basically an unlimited capacity for the automated vaults? Is so, it might be worthwhile noting that with a one-liner in the docs as the screenshots alone are a little misleading.

In regards to Alpies utility, I understand the philosophy of only giving additional utility when a select group can do something, like the two examples you gave, and not just random features for the sake of benefitting Alpie holders as it will hurt protocol revenue.

Since you clarified what the $20mil refers to, this whole proposal is kind of redundant now. However, I would appreciate if you could keep this idea in mind if there are more features down the road that do have a “capacity” or “limit” to it, cheers!

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I agree we should create xAlpaca exclusive vaults along side vaults available to everyone. I’m not a fan of making it exclusive to Alpies holders.

Users with more xAlpaca should be able to create larger positions to prevent people staking 1 Alpaca just to use the vaults. Maybe a tiered system like this:
0-500 = max. 500USD
500-2500 max. 2500USD
2500-5000 max. 10000USD
etc. etc.

or a system based on the dollar price of Alpaca e.g. for every USD in Alpaca you can borrow 10$.

I’m not sure if this is technically possible, though.

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Since launching AV, it’s become clear that there is a cap to the amount of liquidity AV can support in a short time. So I’d like to contradict what I previously said, because limiting AV access to xALPACA and/or Alpies holders will not necessarily reduce platform revenue, and thus, may be a good idea.

However, the dev team is still reviewing the technical feasibility of this.

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this is absolutely a good idea
if Automated Vault is exclusive to alpaca holders, this will bring 10x buying power to alpaca.

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Hi,

as the AVs have limited availability due to their nature (dillution of trading fees, available capital, utilization/borrower fees…), it would be good if people were able to invest into AVs based on their xAlpaca holding thus providing premium utility. Each automated vault would open first for xAlpaca holders for lets say 24 hours, where the possible entry position would be determined by following formula:

AV Pool Size / xAlpaca locked in governance (snapshoted either by epoch system thus weekly, or new one prior to release of given AV) x xAlpaca amount

This would render each holder of xAlpaca eligible for entry based on percentage of xAlpaca to total xAlpaca locked. So if you hold 1000 xalpaca and there is 40 milion xalpaca token locked in governance vault on the day of AV release and AV has 20 milion cap you would be able to lock into AVs: 20 000 000/40 000 000*1000= 500$ . After the 24h “premium” period for xAlpaca holders would pass, everybody (broader public not just xAlpaca) would be able to put money into them, if there is still any amount left for investing.

As the xAlpaca holders would only have “priority” in access, this wouldnt limit inflow of capital as Sam suggested as broader public would still have access to AV just a bit later than actual Alpaca supporters.

This could stimulate/incentivize Alpaca locking, thus further decreasing fluctuation while rewarding loyalty. The decreased fluctuation combined with high desire for AV would likely to lead to increase in price of Alpaca, which means leverage emissions would have higher value/higher APYs thanks to the higher Alpaca price which is good to offset the dilution on trading fees itself, thus it further enhances the AVs APY at least for the remainder of alpaca emissions.

Furthermore, on marketing side, I would suggest to not release all AVs the second they are ready, but announce the release time prior, possibly even with some countdown so people can actually track it. Tracker is psychological incentive of waiting for something to come. Example: Tomorrow 13:00 new AV will be released. If we decide to take the approach above, it might be even desirable to release on a weekly basis, not multiple times per week ( as previously) . Which could further stimulate/incentivize the longer length for which Alpacas are locked into the governance vault as its xAlpaca amount that is decisive.

Based on the above model it feels like a win-win situation for both xAlpaca holders and Alpaca Finance.

For Alpies, I dont feel they should be taking part in this. The cost of implementation might be too high compared to added value. There are other ways to increase intrinsic value of Alpies and drive demand, but that should be discussed in different topic.

Note: I am saying this as big Alpie hodler :slight_smile:

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Purpose:
Create new use of Alpaca so new demand of Alpaca will be created as well.
Lock huge amount Alpaca for months and years. As a result, Automated-Vault will drag alpaca go up.

Rationale:
Create a xAlpaca requirement as “entry threshold” of Automated Vault deposit.
This xAlpaca requirement also is “Automated-Vault position mantainance requirement” as well.

There is a cap to the amount of liquidity Automated-Vault can support ,
so introduce a xAlpaca minimum number requirement as “entry threshold” of Automated Vault will not impact popularity of Automated-Vault.

Implementation
1: user must holder a certan number of xAlpaca before he deposit in Automated-Vault.
2: xAlpaca market value can be used to measure how much size of Automated-Vault a user is allowed to deposit
there is a ratio between Automated-Vault size and xAlpaca value , ratio can be 10 , or 50, or any number appropriate.
I use ratio 10 to explain:
if a user wants to deposit value 1000$ Automated-Vault , he must hold 100$ market value xAlpaca
3:if his xAlpaca value rises to 120$ , then he can deposite further 200$ Automated-Vault, altogather 1200$ .
4:if his xAlpaca value rises to 120$, then he can withdraw up to 20$ xAlpaca, so he still has 100$ xAlpaca to mantain his 1000$ Automated-Vault .
5:if his xAlpaca value drops to 80$, then he can still hold his existiong 1000$ Automated-Vault. but he is not able to deposit any new Automated-Vault.
5:if his xAlpaca value drops to 80$, then he is not allowed to withdraw any xAlpaca.

Further explanation
1:There is a cap to the amount of liquidity Automated-Vault can support , and Automated-Vault demand is much higher then supply(maybe 10 times higher)
so this “entry threshold” will not impact AlpacaFinance income, because any Automated-Vault pools will be filled up anyway.
2: This “entry threshold” will bring much higher purchase demand of Alpaca due to high popularity of Automated-Vault.
3:When Automated-Vault mining, user must lock his xAlpaca, he is not able to withdraw his xAlpaca, so Automated-Vault help lock alpaca.
4: Users usually mine Automated-Vault for months or years. Nobody use Automated-Vault to mine just a couple of days . This will help lock our alpaca long term.
5: TVL (total value lock) of Automated-Vault will go up in the future dramatically. if we set Automated-Vault to xAlpaca value to 10, then this feature will lock xAlpaca worth of 10% of Automated-Vault TVL, and more importantly— it is a months or years long term lock.

Benifit:
This is a fundemental change of alpaca’s value. it will lock huge amount of alpaca for a long term (years or months).
Currently alpaca price is low and only 75M but it will go up quick to meet the “entry threshold” requirement.
Automated-Vault will drag alpaca’s price go up, to meet high TVL in Automated-Vault.
Imagine: if Automated-Vault TVL reach 1 billion dollar in a year, then xAlpaca locked must be at least 100M billion( due to that Automated-Vault value to xAlpaca value ratio).
This might be a game-changer.

— Automated-Vault value to xAlpaca value ratio can be any number we think is appropriate.

copy that post into this.

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I am going to give my idea about how this could work.

First, I do not believe other ideas proposed previously are 100% feasible because you are following the principle of “the first wins”, if you are counting xALPACA on locking then when AV go up you have less xALPACA and then other people that would want to enter with more xALPACA could not, then if you do a xALPACA first week priority people that earn a salary or have to move money have a difficult time even if they are xALPACA holders.

Then, my idea is this: You always need 10-15-20% of xALPACA-ALPACA as percentage of your AV position, this could be done converting part of the rewards to xALPACA-ALPACA, and locking them automatically or giving them as ALPACA rewards and letting the user decide. If the user does not have the xALPACA-ALPACA required then the rewards go to the protocol.

This may seem a bit forced and demanding but seeing the popularity and rewards of the AV I thing is only fair for the protocol and ALPACA holders as shareholders of the protocol.

Even if all vaults are not full I think the benefits outweigh AV always full, also I believe that the product is so good that it will be full even with these requirement, I even believe it would be full with a 40-50% ALPACA-xALPACA requirement.

This would bing enormous value to the protocol and xALPACA holders and would create a constant influx of money to the ALPACA token as AVs are sure to go up.

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Changing the contract to convert the rewards at this point would be a large undertaking so when considering the implementation cost, it isn’t worth it when compared to other options that are similar and much easier to implement. In general, developers are very resistant to modifying smart contracts when they’re in production.

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Thanks for everyone’s responses and support for this proposal. As Samsara said, since the launch of the AV it has become clear new ones do not automatically open once the old ones are full, hence this proposal may not be redundant after all!

After reading through everyone’s thoughtful and elaborate posts, I really do like the idea of not necessarily gatekeeping AVs to xAlpaca holders, but simply giving xAlpaca holders an early bird advantage (amount proportional to xAlpaca) to deposit, maybe 24 hours, before the general public can. This will give utility to xAlpaca while also ensuring it has minimal impact to the revenue of the platform.

On a side note - at the time of posting (pre-AV launch) I had no idea there would be this much interest in AVs, kudos to the team for delivering yet another great product!

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I understand. If we force users to have a percentage of ALPACA they would have to go and buy more ALPACA every time it goes up and do manual rebalance and that would defeat the purpose of AV.

Maybe we could set a fixed number of xALPACA per vault, for example, Vault A needs in total 250000 xALPACA, if you own 10% of the vault you need 25.000 xALPACA locked.

I still do not like the idea of a “early bird advantage”.

In any case I am excited to see how the team solves the problem. Thank you for being so good!.

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Thanks for sharing, I shared it with the team because I think it’s worth keeping in mind. But I want to be clear that if we implemented private instances, them going public later is not something we’d consider until we saw that demand for capacity was limited. Given the speed 8x vaults are filled, there has been no indication of limit to demand so far

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I think it is a good idea because there will be more utility for the alpaca token.

Another unrelated idea:
You should also add BTC, ETH and BNB neutral automated vaults.
I mean to be neutral on these assets instead of just on stablecoins. Are you planning to launch this product?

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We’re looking into it