Reduce barriers to 8x AVs + add mechanisms to get 8X allocation

PURPOSE

  • Reduce some of the barries to entry that 8X AVs have
  • Add mechanisms for investors to participate in 8X AVs
  • Create compounding value for investors of the whole Alpaca ecosystem, intended as people utilizing multiple features of the protocol
  • Give loyal and long-term investors (those that are still active on the protocol) the opportunity to get a first-mover advantage on improved AVs

BACKGROUND INFORMATION

  • Several months ago the community voted to restrict access to the 8X vaults to higher-value investors (intended as those who were willing to lock their alpaca for a year in the governance vault)
  • Furthermore, the community voted that - on top of locking your alpaca - the $value you could invest the 8X vaults would be proportional to the $value of your locked alpacas
  • The community voted that the ‘proportion’ determining your allowance would be of 1:1, meaning - in practical terms - that you’d need $1000 in locked alpaca, in order to invest $1000 in the 8x AVs

PROBLEM STATEMENT

Over the past few months, we’ve observed an outflow of capital from AVs. I believe it’s fair to say that two key contributing factors have been:

  • The bear market - which forced people to withdraw liquidity to protect their positions or simply to exit the market
  • The unexpected negative ROI of AVs - which made people withdraw their money

Right now, AVs are still being used but not to the extent we were hoping for when we first launched them.


This takes us to today.

Without jinxing it, it looks like the new improvements are working and so we can expect that overtime the performance of AVs will start going up again and - with it - their attractiveness.

On this note, comes this proposal:

  • I believe the current barrier to entry for 8x AVs is economically prohibitive for anyone who wants to deploy a significant amount of money into the vaults. By ‘prohibitive’ I mean that the main selling point of delta-neutral AVs is to ‘remove risk’, but we’re asking people to buy $1000 of alpaca to deploy $1000 fiat in the vaults. This is not attractive for serious investors
  • I believe the current allocation system severely discriminates those investors who are LONG on Alpaca but prefer to use LYF rather than governance.
  • I believe Alpies could do with more utility, and their utility shouldn’t be limited to increasing LYF leverage
  • I believe that we can do more to give long term investors a fair advantage before other people get attracted to the platform when we start doing marketing

PROPOSAL

All in all, I believe we can do more to get people to break some of these barriers, relook at some of the existing mechanics and attract more people to AVs.
I would like to invite the community to brainstorm ideas. Here’s a starter for ten:

1. Reduce the governance vault allocation requirement to {0.4}:1, i.e. $2000 in Locked Alpaca for $5000 in AV allowance
2. Make {60%} of your equity in Alpaca-BUSD LYF pool count towards your allocation (provided that you are borrowing BUSD) For example, if you had $10,000 equity, you’d get $6000 in AV allowance
3. Make Alpies count as a multiplier towards your existing allowance. For example, 1 staked Alpie gives you 20% more allowance, and then 20% more for any additional alpie (5 alpies give you 50% more allowance)
4. Make the lent amount count towards your existing allowance. For example, 10% of your lent amount is added to your allowance. E.g. I lend $10,000 worth of CAKE to the protocol and I get $1,000 for 8X AVs

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I approve this message.

1 Like

Talking for myself, not the team

  1. I think it’s way too early to change the current numbers to access the AVs, we first need to see how attractive they become after the optimization is up and running in all of them. I would say that if in a couple of months 8x AVs didn’t get more attention that it could be time to work on the ratio.

  2. this is unfeasible because you need to add some type of lock system, otherwise people could simply open a lyf position, access the AVs and then close the position

  3. same for alpies, to make it feasible they would need a lock period. It can be done but I’m not sure that this is what we want. Also multiplicative bonuses are quite dangerous to balance, it would be better to have an additive bonus or just count alpies as standalones to grant access to AVs.
    In that regard I made a proposal some time ago to give a specific access to the alpaca busd pool only to alpies owners because it’s a low liquidity pool and it needs to be limited in access.

  4. i like the idea of giving access also to lenders but we would need a locked lending system for that

Thanks for the feedback. My comments here:

  • Re: attractiveness - it’s a fair point. I suppose my point is that, regardless of attractiveness, the current barrier makes the 8x AVs more of ‘bonus/added feature’ on top of governance rather than a targeted proposition.

  • Re: LYF - good shout. We’d then need to put some sort of control in place e.g. “only available if the LYF has been opened for at least 30 days”. Another mechanism which can help is to put a control…think of it this way “You have to remove $1000 from 8x AVs before you can close this position”…somewhat like that error we currently have for “partial closures” where it tells u u first need to pay your debt…Wdyt?

  • Re: alpies - fair point again. See point above about locking. This is i suppose easier because we’d have the same issue with the 4.5x on LYF?
    On Multiplicative bonus…I’m easy, I’m trying to point that we could tier it someway…another mechanism i didn’t put here is to use bands…e.g. 15% more for 1 Alpie, 25% for 2-3 Alpies, 40% for 4-5…Wdyt

Also adding here a similar proposal that was created a while back. Similar point of increasing access to AVs to contributors to the broader ecosystem

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Once we are done with the AV rebalance I plan to make a full proposal about alpies staking, especially now that with the repurchasing system the ALPACA-BUSD pool would become extremely more profitable.

Thanks, Gianni for taking the time to write out a detailed discussion.

Here are my thoughts:

1.) Reducing allocation requirement is certainly something that could potentially voted on if it gets support from the community. I agree with Bibendus though that we should wait for the repurchase optimization to finish the pilot phase and see the performance and the demand it gets at current setting.

2.) We are also working on some other improvements such as reducing the swap fees when investing / withdrawing from AVs. This will also help make the 8x vault much more attractive. We should be able to share details on this very soon.

3.) As for allowing other method of access -e.g., Alpies, lenders, etc., I think Bib provided a good point already on having to make sure we have a lock mechanism to prevent people from gaming the system.

with Alpies and LYF, if they unstake, their liquidation threshold would automatically come down to normal value which would mean their position would be liquidated, so they can’t game the system.