What is Alpha Homora? With the rise of DeFi and Yield Farming over the past summer of 2020, the total transaction volume of DeFi for Q3 2020 surpassed $123 billion! These astronomical numbers represent how crucial DeFi is to the crypto community! One platform hopes to further advance DeFi to the next stage by providing leverage services. By providing leverage services with Yield Farming, more and more users are able to better leverage their yields to earn more profits!
A Little History
Now you may ask, how did all this begin? Alpha was incubated by Alpha Finance Lab, an ecosystem of DeFi products that focuses on the building of an ecosystem of automated yield-maximizing Alpha products that interoperate to bring optimal alpha to users on a cross-chain based level. The team hopes to drive cross-chain DeFi and cross-chain liquidity through building interoperability among Alpha products and integrating it with leading ecosystem partners to further advance DeFi to the next stage.
On October 8th of 2020, Alpha Finance Lab officially launched Alpha Homora. The name of the protocol was actually inspired by Alohomora, a spell from Harry Potter. In the case of Alpha Homora it means unlocking “your alpha through yield farming with leverage”. Before the deployment of Alpha Homora, Alpha Finance Lab deployed its “Alpha Lending” product on Binance’s Smart Chain back in September. Furthermore, Alpha is backed by three major venture capital firms: Multicoin Capital, DeFinance Capital, and Spartan Group, Alpha Homora is now looking to break into Ethereum’s DeFi to attract new investors.
So what is Alpha Homora?
Alpha Homora is a protocol for leveraging your positions in yield farming pools or “dYdX for yield farming”. So you can basically think of this being similar to leveraging in normal finance where you use debt rather than equity to purchase assets. This technique involves a lot of risk, so before you make a leveraged position, be sure to know what you are doing or else you may be in for a roller coaster ride!
Some of the supported pools on Uniswap and IndexCoop:
- And many more… check out their website for more
The Four Distinct Actors of Alpha Homora
The Alpha Homora features four very distinct actors. This includes yield farmers, ETH lenders, Liquidators and Bounty hunters. We will discuss each of these actors thoroughly.
Let’s talk about Protocol Users:
Users can participate in the Alpha Homora network as Yield Farmers, Liquidity Providers, ETH Lenders, Liquidators, and Bounty Hunters.
Farm with one token
Users in the network can select a pool and farm with just one token. So Alpha Homora will automatically and optimally swap tokens to make sure that users will have an equal value of both tokens they are looking to farm in the pool.
Up to 2.5x leverage
Users can borrow ETH with up to 2.5x leverage to yield farm on supported leveraged yield farming pool to earn higher trading fees APY and farming APY.
The Alpha Homora platform will automatically stake LP tokens to get farmed tokens for users.
All the farmed tokens will also be automatically converted to add onto users’ positions every 24 hours or it will also be automatically reinvested when reinvestor takes action. This helps to ensure all yields are reinvested to further maximize the user’s profit.
High Debt Ratio Solvency
All positions stay solvent as long as the debt is worth less than killFactor of the position value. The Liquidation takes place when the debt ratio exceeds the killFactor. Make sure to monitor your positions closely and refill/close when your ‘Kill Buffer’ is in the red zone.
At any time, users can choose to add more ETH or another token. Note here that users cannot withdraw some without having to close a position with the current design.
Provide liquidity with one token
Once a user selects a pool, they can then start providing liquidity with just one token. Alpha Homora will also automatically and optimally swap the tokens to make sure that the tokens will have equal value.
Up to 2.5x leverage
Users can borrow ETH with up to 2.5x leverage to provide liquidity on supported leveraged liquidity providing a pool to earn a higher trading fees APY.
High Debt Ratio Solvency
The positions on the platform will stay solvent as long as the debt is worth less than killFactor of the position value. Moreover, the liquidation will take place when the debt ratio exceeds the killFactor. Make sure to monitor your positions and refill/close when your ‘Kill Buffer’ is in the red zone.
At any time, users can choose to add more ETH or another token. Not here that users cannot withdraw some without having to close a position with the current design.
Interest Bearing ETH (ibETH)
When depositing ETH to Bank, users will receive a proportional amount of ibETH token, a tradeable and interest-bearing asset that symbolizes the shares of ETH in the bank pool (similar to cToken in Compound).
The interest paid by ETH borrowers will be distributed to ETH lenders (will follow the triple slope curve). Lenders’ interest rates will depend on ETH utilization rate; the higher the utilization, the higher the interest rate. Note here that 10% of borrower’s interest will go into Bank Reserves, this will be used as an insurance fund for lenders in the case of unexpected scenarios. So in the future, the Bank Reserve may transition into community governance.
Liquidators will earn 5% of the position value for liquidating positions at risk (debt exceeding killFactor of the position’s value).
Bounty Hunters can call in the reinvest function to sell all yield farmed tokens in the Alpha Homora portfolio for ETH, and then reinvest into the yield farming pool. They will earn 3% of the total reward in the entire process!
The Alpha Token
The Alpha token is the native governance token of Alpha Homora. The token not only works on Alpha Homora but also works on other Alpha Finance products. The token is also the first project to launch on both Binance Launchpad and Launchpool.
The use cases of Alpha token include providing liquidity, staking Alpha to receive shares of protocol fees, and unlocking interoperability features among Alpha products.
In the case of governance, Alpha token holders can govern key metrics of specific products which include interest rates, value ratios, liquidation penalties, and more. The second level of governance concerns the protocol level. Furthermore, Alpha owners will be able to determine how different Alpha products can work together seamlessly in the future.
So why should you use Alpha Homora?
Alpha Homora introduces a new and innovative way of engaging in yield farming. The platform allows users to earn higher APYs without having the need to use any middlemen. Alpha Homora’s smart contracts are also audited by Peckshield, making Alpha Homora one of few projects in the industry that has a proper security audit. Additionally, with the Alpha token, it introduces a newborn synergy to the Alpha Finance ecosystem. The tokens are also a part of the governance of the Alpha Homora protocol. By involving the community into the platform, it shows that Alpha Homora is taking an important step towards achieving long-term sustainability.
What you should be careful of?
Despite all the benefits Alpha Homora can bring, the platform contains leverages which you should always play carefully with. You should also only deposit funds if you fully understand the risks of liquidation. In Alpha Homora, the yield farmers can take the risk of being liquidated. And even though Alpha Homora’s code is audited, it doesn’t mean that using the platform is risk-free. There are still possibilities of bugs and vulnerabilities to the software, so make sure to DYOR before interacting with any smart contracts.
The Alpha Homora platform shows a lot of potential and it is definitely a significant milestone for the Alpha Finance ecosystem. Having the ability to enter leveraged liquidity mining positions plays an important innovative role in the broader DeFi space. And while yield farming is the main selling point of the platform, the interest-bearing Ethereum accounts can also attract more advanced users. So in combination with the option to become liquidators or bounty hunters, there are many ways for the community to interact and utilize this platform to their liking. In a future article, we will go through the step-by-step guide to using the Alpha Homora platform.