Strengthen $ALPACA on-chain liquidity before it dries up

Community Discussion & Proposal
1

Background:

  1. BUSD may no longer support redeeming to USD after February 2024.

  2. PancakeSwap has migrated most of the CAKE reward emissions from V2 to V3

  3. AF2.0 is officially launched and AVv3 will be launched soon, resulting in less usage on AF1.0

  4. ALPACA has 90% of the on-chain liquidity on PCS ALPACA-BUSDv2, and 93% of that are from AF1.0

  5. ALPACA is officially deflationary

Situation:

With the launch of AF2.0 and Alperp, we have used most of the available ALPACA. At present, we have 175K ALPACA from the remaining February emission, 148K ALPACA in liquidation treasury, and 354k ALPACA from early withdrawal fee, which make a total of 677K ALPACA available, as well as $42.8K worth of assets in liquidation treasury.

In AIP15.3 and AIP15.4, around 850K to 900K ALPACA ($225K - $250K) are needed for each new product launch. That is to say, there is only enough incentive for one more new product as for the current amount available, and we are still taking out more ALPACA from liquidation treasury for weekly burn.

Given the reduction of CAKE emission for the ALPACA-BUSD pair continues, the APY of ALPACA-BUSD has not been able to cover the borrowing interest of BUSD for a long time. Though the borrowing interest of ALPACA is lower, only 26.7% of positions are opened borrowing ALPACA on AF1.0. The liquidity of ALPACA-BUSD PCSv2 will decline as the adoption of AF2.0 increases in the near future, and worst case, the on-chain liquidity could decrease by 90% when people can’t redeem BUSD to USD, which will eventually lead to invalid buyback.

We’ve spent $15.71M for the weekly buyback and burn according to Proof of Burn; however, the market cap to date is only around 23M. It’s obvious that the token price hasn’t been supported by burning. Instead, if we keep the fund, we will have the ability to provide basic liquidity for new products, even without further incentives.

Considering the current ALPACA emission schedule has ended and therefore ALPACA is officially deflationary unless new tokens are minted from warchest, it’s very unlikely for the ALPACA holding of token holders to be diluted.

Proposed implementation:

Instead of burning, I propose that we use our weekly revenue to establish liquidity on PCSv3. This contributes to ALPACA’s on-chain liquidity and in the meantime it can also act as a treasury for future needs. When we need incentives to launch a new product or to go cross-chain, we can remove a part of the liquidity provided by narrowing the LP range on PCSv3; of course, it’d be through Governance Vote. By implementing this, there wouldn’t be severe reduction of liquidity at once, and the trading fee revenue can be distributed to Governance Vault.

I’d love to invite the herd and the team to have more discussion and I’m open to any suggestions.

背景:

  1. 2024年2月後BUSD可能不再支持換回美元

  2. PancakeSwap已將大部分CAKE釋放從V2遷移到V3

  3. AF2.0正式上線，AVv3也即將上線，使用AF1.0的人會越來越少

  4. ALPACA的鏈上流動性有90%在PCS ALPACA-BUSDv2上，其中93%來自AF1.0

  5. APACA釋放結束，永久通縮

目前情況:

AF2.0和Alperp在推出的時候已經使用了大部分現有的 ALPACA，目前的ALPACA剩下：二月釋放量剩餘的175K、清算金庫148K、提前提領費用354K，一共677K個ALPACA，以及清算金庫的$42.8K其他資產。

AIP15.3, AIP15.4 對每個新產品發布的激勵做出估算，大約需要850K($225K)~900K ($250K)個ALPACA；也就是說，目前的金庫只剩下一次激勵機會，而目前每周都還需要從清算金庫拿 ALPACA 進行銷毀。

因為PCSv2持續減少 ALPACA-BUSD 的CAKE獎勵釋放，ALPACA-BUSD的APY長期都無法覆蓋BUSD的借貸利息，雖然借ALPACA利息比較低，但是借ALPACA的倉位只佔AF1.0的26.7%左右。隨著未來AF2.0使用率的增加，ALPACA-BUSD PCSv2 的流動性會逐漸減少；並且在BUSD停止兌換USD的時候，最壞情況是鏈上流動性會減少90%，這將會導致無法有效的進行回購。

根據燃燒紀錄來看，我們已經花了$15.71M美元進行回購銷毀，但是目前的市值卻勉強維持在$23M左右，大家可以明顯發現燃燒並不能有效支撐幣價。相反的如果這些錢保留在金庫，甚至可以不對新產品進行激勵，因為金庫本身就能為新產品提供基礎流動性。

目前ALPACA釋放已經結束，除非從戰略資金印新ALPACA，否則ALPACA已經確定永遠進入通縮，所以持幣者的ALPACA份額被稀釋的機會已經非常低了

建議實施:

我建議不進行每週銷毀，改為將每週收入在PCSv3上面建立流動性，這有助於ALPACA的鏈上流動性，還可以作為未來需求的小金庫。當我們有新產品或是跨鏈需要激勵的時候，可以選擇縮小PCSv3上的價格區間並提取部分資金來進行激勵，這也能避免流動性一次性就減少太多，而交易手續費收益可以選擇發放給治理金庫。

歡迎大家一起進行更多討論，多多給建議

Reference:

  1. Wallet address

    Feb Emission
    Liquidation Treasury
    Early Withdrawal Fee

  2. 93% of the liquidity are from AF1.0

    $1.46M ALPACA-BUSD in PancakeSwap
    $1.36M ALPACA-BUSD from AF1.0

    1019×490 127 KB

  3. 26.7% of ALPACA-BUSD positions are opened borrowing ALPACA on AF1.0

    $364K ALPACA-BUSD(Borrow ALPACA)

    1001×228 50.5 KB

    $998K ALPACA-BUSD(Borrow BUSD)
    991×233 47.4 KB

  4. 90% of liquidity on ALPACA-BUSD PCSv2

    1280×700 245 KB

7 Likes
2

Good.
Just I prefer v2 lp if there was a choice.

3 Likes
3

Many details can be discussed, I think we can build one or two pools.
Main pool will be v2 LP or v3, and the price range should be through Governance Vote.

After ALPACA incentive decision, we can rebalance the remain USD to main pool, or I have a idea that we can use the remaining USD to add liquidity to v3 with price range is min price to current price at that time, then we can avoid the reduction of liquidity below current price at that time

4

I cant judge whether i’m in favour or not as Im struggling to understand or quantify the benefit of what you are proposing vs what we currently have.

I also think that right now the burn doesn’t add a lot of buy pressure because the revenue is fairly low. With more products and revenue it should go back up.

I also think burns have an “optics” value that your proposition doesnt have

2 Likes
5

Thanks for putting together your thoughts, Chin. Here are some of my thoughts to build off from your suggestions. Would love to hear what others think.

1.) With UNIv3, we could do something interesting with the buyback execution.

  • For example, instead of using the revenue to buy ALPACA in open market each week for the burn, we could convert all the revenue first into a stable token which ALPACA is paired with in the UNIv3 pool (e.g. USDT) Then, we can add these tokens as LP at the price below the current market price in a desired range. This liquidity now acts like a “buy wall” to support the ALPACA price.
  • The immediate benefits would be that we have no price impact and won’t be front run for the buyback.
  • The burn scheduled might have to be adjusted to less frequent / once the liquidity has been converted to ALPACA.

2.) With your suggestion, a similar approach could be taken but instead of the proceeds going to burn, we could continue to keep it in LP positions as reserve for future incentives

3.) Lastly I would like to point out that we do have been using a professional market maker service running on Binance to help increase top-of-book liquidity for ALPACA. So, regardless of what happens on-chain, we should continue to have liquidity on CEX.

6 Likes
6

I would very much like to suggest at least considering moving Alpaca liquidity somewhere other than Pancakeswap if we’re going to go to the trouble to move it. Thena is a partner now, that might be a good option. But Pancake has really become worrisome over the last three months. They wrecked their tokenomics while trapping users in their locked pool, they proposed revenue sharing for Q2 and then completely went silent on it, and their price has been reflecting those things. I think if we’re going to be looking to reset the liquidity situation we should be considering opportunities elsewhere.

I’m already pretty worried that the next set of development here is going to be pretty PCS specific and vulnerable to their shenanigans, but I don’t know that there’s a lot to do about that. The best location for our own liquidity though doesn’t really depend on overall TVL and could be on a smaller DEX.

7

I suggest migrate LP to Thena cl pool. Meanwhile, just replace BUSD to another stable coin or maybe just alpaca/wbnb pool. You can use alpaca profit for liquidity and treasury and use trading fee to burn.

8

The LP with UniV3 seems like a great idea.

9

I just have two concerns.

  1. Who will manage the liquidity? CL does require some form of active management.
  2. I think using 100% of the revenue dedicated for burns is unwise. Maybe something like 40-50% will be better.
10

I like the idea of allocating the weekly burn funds towards liquidity.

I am no whale, but the small on-chain liquidity is even hurting my alpaca trades. The market maker @binance is not in reach in my jurisdiction. We should act and not risk on chain liquidity drying up further.

As to how, I propose that we use the AV3 technology. A closed pool to which only the Alpaca protocol can deposit would be ideal. Probably without leverage as it would not be profitable, but profitability would also not be the main aim of this pool.

11

Withdrawals of Binance-Peg BUSD tokens via BNB Chain, Avalanche, Polygon and Tron networks will cease at 2023-09-07 00:00 (UTC).

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