Welcome to this post, where we are going to see what Alpaca Finance is and everything you should know before using it.
What is Alpaca Finance?
Alpaca Finance is a platform for yield farming with leverage, which allows you to generate a higher percentage or annual return, while assuming more risk. Alpaca Finance is located in the binance Smart chain and is the main platform for staking and farming using leverage. Currently the platform has a TVL or total locked value of over $1 billion, which shows that there are many people already using alpaca finance.
Now let’s take a look inside the platform. The first thing we see is lend, where you can convert your tokens as bnb, in ibnb to stake it and provide liquidity to the protocol. This is how the platform gets liquidity for users to use leverage. To provide liquidity click on deposit, for example usdt, indicate the amount and click on confirm, confirm in your wallet and you will have iusdt. With this iusdt, let’s go to stake. Here, you will be able to staking your token that you have passed to the alpaca version, such as the iusdt, or any other that you find inside. Keep in mind, that the staking you will receive rewards in alpaca and not in the token itself.
If you want to get the token back without the i version, go back to lend. This time instead of deposit, go to withdraw, indicate the amount you want to transfer to the original token, click on confirm and confirm in your wallet. With this, you will have the original token back without the i version. This is the main way to add liquidity, using the method of creating the i-version of different tokens, and stake them to get rewards.
Farm Alpaca Finance
Now let’s go to the most interesting part, in farm. Here, you will see farming of LP Tokens using leverage. And as you can see, the annual % or roi are quite high if we compare them to other platforms, thanks to being able to use leverage. You will see different pairs. Here the most relevant aspects, is to see the leverage level, it usually shows you the highest that you can use. You can lower it to see how the annual percentage changes. In yield APR, you will be able to see where these annual % come from, to know better where each aspect comes from. In addition, you can see the % you are charged for using leverage, and the total return once you subtract the % for borrowing tokens for leveraged farming. In some pairs, you will be able to borrow two tokens, such as binance usd and bitcoin, where you can choose any of the two, and see the % you will be charged. In others, you will only be able to borrow one token. Keep in mind that borrowing stablecoins is more favorable, as it does not have so much volatility and avoids possible liquidations of your farming.
You will also see a % of alpaca rewards, given by the platform to encourage the use of alpaca finance, which you can withdraw in stake, by clicking on claim.
Farming with Leverage
Note the difference between APR and APY, where apr is the annual % generated without reinvestment of what you are generating, while APY, refers to the % if the profits generated every day or every few hours, are reinvested in the same farming. From what I understand, alpa finance does auto compounding on farm, minus the % you receive from alpaca rewards. These, you will have to claim them, and if you want to exchange them for the LP TOKEN you are farming to generate a higher annual %.
If you are new to the world of farming and LP Tokens, in the description I will leave a video about the impermanent loss, as it is something you should know before creating a lp token to avoid surprises.
Also, in each lp token, you will be able to see the TVL or total locked value, usually, where there is a higher tvl, it means that more people have invested in that lp and trust that it will have good results, although it is not always the case.
The platform makes use of pancakeswap and wault to achieve these returns on farms. At the top, you will be able to filter by name, or different cryptocurrencies. You can also sort by default or by the most liquid farms.
In alpaca finance you will find different farms with a lot of variety and some that really surprised me for their high %. For me, one of the best farms they have are binance coin and usdt with over 500% APY using x3 leverage, cake binance coin with over 400% apy using x2.5 leverage and ust and binance usd with 63% apy using x4 leverage. You can rarely see more than 60% apy in stablecoins, despite using leverage, the risk is very low as their value usually hardly fluctuates. The only problem is if one of the two stablecoins becomes unleveraged. This is something that rarely happens but it is important to know that this risk also exists.
To make staking of any farm, click on farm of the one you are interested in, indicate the cryptocurrency you want to put. Here, it is not necessary to create the lp token, you can only use one cryptocurrency and it will automatically balance and have 50% of each one. Once you indicate the cryptocurrency you want to use or you can indicate the same amount of both, the leverage level and which asset you want to borrow. In some farms you will be able to choose between 2 and compare which one has more commission. If we scroll down you will see the % calculated before accepting. Once you have checked everything, click on farm and confirm in your wallet. With this, you will have your tokens farming.
Keep in mind that you are using leverage and it can lead to liquidity of your assets if their price drops too much. Therefore, it is best to borrow a stablecoin as binance usd, because if you borrow for example, binance coin and its value soars, you must add collateral to alpaca not liquidate your cryptocurrencies. My recommendation is to be well informed and read alpaca’s documentation before using the maximum leverage level if you don’t know the risks involved. Also, alpaca has very clear documentation about how it works and the possible risks.
In AUSD you will be able to use your ib tokens that you have gotten by depositing in Alpaca Finance in lend, like ibBNB could be, and use them to borrow their stablecoin, AUSD. The best part, is that you’re not going to have to pay to borrow. Since the platform uses your cryptocurrencies that you deposit to continue farming, and therefore generate an annual % of your cryptocurrencies.
In the meantime, you can withdraw AUSD and use it to get even more profitability on other platforms, use it as leverage when exchanging your AUSD for another cryptocurrency, or other uses.
AUSD is an overcollateralized Alpaca Finance stablecoin, and with mechanisms to prevent its value from falling below 1$. In APY you can see the % you will get for depositing your ib tokens and borrowing AUSD, so it is a great improvement and functionality they have added in Alpaca. Click on open position, select the token you want to deposit, the amount and the amount of AUSD you want to borrow.
Note that there is a risk of being liquidated, because if you place volatile tokens like BNB, and it drops in price they can liquidate your position. Therefore, borrow a reasonable amount to avoid such situations. At this moment, the minimum is 500 AUSD that you will be able to borrow, so if you have a smaller amount, you will not be able to use this feature yet until they modify it.
In graze, you can do staking of ibaplaca in exchange for tokens from other projects. A very interesting option if you have alpaca or you want to use the alpaca you receive from farms, to stake it in new projects or projects that may seem interesting to you. Here, the pools vary over time, and as you can see, they have a timer that indicates how much time is left to finish the staking of ibalpaca to get the tokens of that platform.
Finally, security is a fundamental aspect in this type of platform where you are depositing your funds and connecting your wallet. To verify that it is a secure platform, we have the audits. Alpaca has been audited more than 4 times, with some of the biggest auditors such as certik. Keep in mind that they have been audited does not mean that it is 100% secure, but it does give more security than a platform without audits. Another aspect that I mentioned before, is the tvl or total locked value, having more than 1 billion dollars, gives more peace of mind as there are many investors who have relied on this platform.
Remind you that using leverage has a high risk, and that you should be aware of it despite being able to get more profit. Therefore, I recommend that you first learn about leverage and liquidation processes in alpaca’s documentation.
I hope this video has helped you to learn more about alpaca finance and how it works. Remember, if you don’t have an account with binance, you can create one just below.