Author: Andrey Sergeenkov
TL;DR
Yield farming in the DeFi industry is often done by providing liquidity to a decentralized exchange (DEX) like Uniswap. In return for doing so, users can earn a share of the fees generated by the trading pair they are providing liquidity for.
Alpha Homora makes it possible to leverage your yield farming position up to 2.5x. It also allows you to earn based on your personal preferences and risk appetite. This way, you can increase your overall liquidity mining earnings. However, as it’s usually the case with using leverage, the risks are amplified as well. Let’s see how this all works.
Introduction
The more successful projects in DeFi allow users to engage in yield farming by providing liquidity. Most of these efforts revolve around the Ethereum ecosystem, as historically, that has been the main network for decentralized finance tools and applications. BNB Smart Chain (BSC) also supports this type of functionality, which is why the Alpha Finance Lab team decided to build its DeFi ecosystem both on BSC and Ethereum.
What Is Alpha Homora?
Alpha Homora is the second working product developed by Alpha Finance Lab. It’s designed to let users leverage their liquidity mining exposure. More specifically, those engaging in DeFi yield farming can “amplify” their positions. This is probably the first time that leverage comes into the picture for DeFi yield farmers, which makes Alpha Homora a unique project in Decentralized Finance.
Yield farming is not the only option to explore, either. Alpha Homora supports ETH lending and also lets participants become special users called liquidators and bounty hunters. We’ll get into what these mean later on. The bottom line is that all of these options let users earn money depending on their personal preferences and risk appetite. All of these options can allow for high APY rewards, making Alpha Homora appealing to DeFi enthusiasts.
Alpha Homora Yield Farming Options
The first option to explore in Alpha Homora is yield farming. Once a user connects their wallet, they can deposit funds, determine their leverage, and begin farming immediately.
Currently, Alpha Homora supported pools include:
WETH/WBTC (Uniswap)
WETH/USDT (Uniswap)
WETH/USDC (Uniswap)
WETH/DAI (Uniswap)
WETH/DPI (IndexCoop)
One crucial aspect of yield farming through Alpha Homora is how all farmed ALPHA tokens are reinvested every day. According to the team, this will yield higher profit potential in a completely passive manner.
The ALPHA Token Explained
ALPHA is a utility and governance token. Not only for the Alpha Homora protocol but for other products within the Alpha Finance ecosystem. The ALPHA token is also the first project to launch both on Binance Launchpad and Launchpool.
Use cases include providing liquidity, staking ALPHA to receive a share of protocol fees, and unlocking interoperability features among Alpha products.
In terms of governance, there are two aspects to consider. First of all, ALPHA token holders can govern key metrics of specific products, including interest rates, value ratios, liquidation penalties, and so on. The second level concerns broader protocol-level governance. According to Alpha Finance Lab, ALPHA owners will be able to determine how the different Alpha products can work together more seamlessly in the future.
Benefits of Alpha Homora
Innovation
Alpha Homora Introduces new ways to engage in yield farming, which is beneficial to both yield farmers and the broader DeFi industry. Alpha Homora allows users to earn higher APYs without having to trust any middlemen.
Security audit
Smart contract audits are a major point of concern for investors. There have been numerous DeFi projects that launched without a proper security audit. In contrast, Alpha Homora’s smart contracts have been audited by Peckshield. You can find the Security Review Report for Alpha Finance here.
Governance token
The addition of Alpha Homora to the Alpha Finance ecosystem introduces additional synergy for the ALPHA token. As with other Alpha products, the tokens are used as part of the governance of the Alpha Homora protocol. Involving the community is an important step towards achieving long-term sustainability.
Risks of Alpha Homora
Liquidation
Just like with any other strategy that includes leverage, be extra careful. You should only deposit funds if you fully understand the risks of liquidation. In Alpha Homora, yield farmers take the risk of being liquidated. As long as users remain above 80% solvency for Uniswap and 60% solvency for IndexCoop, positions won’t be liquidated. This means that a leveraged position can be liquidated on Uniswap once the debt is worth more than 80% of the position value (not counting slippage).
Potential Vulnerabilities
Note that having the code audited doesn’t mean that using the contract is risk-free. Bugs and vulnerabilities will always be a part of any software, and you need to keep that in mind when interacting with any smart contract.
Interest-Bearing Ethereum Vault
Through Alpha Homora, it’s possible to earn interest on your ether holdings through an interest-bearing position. You can deposit ETH to the Alpha Homora Bank and receive ibETH tokens in return. These ibETH tokens are tradable assets that continually earn interest and represent your share of the ETH in the Bank pool.
Interest paid by ETH borrowers is paid to ETH lenders, proportionally to their share of the pool. The interest rate is determined by the utilization rate of the Bank. The higher it is, the higher the interest rate will be. In simple terms, the higher the demand is for borrowing, the higher the interest rate.
A portion of the interest paid gets stored in a treasury that acts as an insurance fund to protect against black swan events.
Liquidators and Bounty Hunters
The Alpha Homora platform offers some other unique features. Special users called liquidators can liquidate positions at risk. This occurs when a user’s position value drops below the liquidation ratio for the respective platform. This means that positions that are below the liquidation threshold are at risk of being liquidated manually. The liquidator gets 5% of the liquidated value as a commission.
Bounty hunters are another type of special user. They can call a function in the contract that sells all yield-farmed tokens in the Alpha Homora portfolio for ether. In doing so, bounty hunters reinvest the collected ETH into the yield farming pool, netting them 3% of the total reward. This, in turn, decreases the amount of ibETH tokens lenders earn, as their overall stake in the total pool value decreases. You can find more details here.
Closing thoughts
The launch of Alpha Homora is a significant milestone for the Alpha Finance ecosystem. The ability to enter leveraged liquidity mining positions is an important innovation for the broader DeFi space.
While yield farming is the main selling point, its interest-bearing Ethereum accounts can also be appealing to more advanced users. Combined with the option to become liquidators or bounty hunters, there can be many ways for the blockchain community to interact with this platform.