Author: Andrey Sergeenkov

Résumé

Yield farming in DeFi is often done by providing liquidity to a decentralized exchange (DEX) like Uniswap. In return, users can earn a share of the fees generated by the trading pair they provide liquidity for.

Alpha Homora allows you to apply leverage of up to 2.5x your yield farming position. It also allows you to earn money based on your personal preferences and risk appetite. This way you can increase your overall liquidity mining gains. However, as is typically the case with leverage, the risks are also amplified. Let's see how it works.


Introduction

The most successful DeFi projects allow users to participate in yield farming by providing liquidity. Most of these efforts center around the Ethereum ecosystem, which has been the primary network for decentralized finance tools and applications. Binance Smart Chain (BSC) also supports this type of functionality, which is why the Alpha Finance Lab team decided to build its DeFi ecosystem on both BSC and Ethereum.


What is Alpha Homora?

Alpha Homora is the second already functional product developed by Alpha Finance Lab. It is designed to allow users to apply leverage to their liquidity mining. More specifically, those who engage in DeFi yield farming can “amplify” their positions. This is likely the first time leverage comes into play for DeFi yield farmers, making 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 allows participants to become special users called liquidators and bounty hunters. We will see later what this means. In summary, all of these options allow users to earn money based on their personal preferences and risk appetite. All of these options can achieve high APY yields, making Alpha Homora attractive to DeFi enthusiasts.


Yield farming options offered by Alpha Homora

The first option to explore in Alpha Homora is yield farming. Once a user connects their wallet, they can deposit funds, set their leverage, and start farming immediately.

Currently, pools supported by Alpha Homora include:

  • WETH/WBTC (Uniswap)

  • WETH/USDT (Uniswap)

  • WETH/USDC (Uniswap)

  • WETH/DIY (Uniswap)

  • WETH/DPI (IndexCoop)

One of the essential aspects of yield farming through Alpha Homora is the daily reinvestment of all ALPHA tokens generated. According to the team, this will produce higher profit potential in a completely passive manner.


The ALPHA token explained

ALPHA is a utility and governance token not only used by the Alpha Homora protocol, but also by other products in the Alpha Finance ecosystem. The ALPHA token is also the first project to launch on Binance Launchpad and Launchpool at the same time.

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 take into account. First, ALPHA token holders can control key indicators of specific products, including interest rates, value ratios, liquidation penalties, etc. The second level concerns global governance at the protocol level. According to Alpha Finance Lab, ALPHA holders will be able to define how different Alpha products can work together more easily in the future.


Benefits of Alpha Homora

Innovation

Alpha Homora introduces new ways to engage in yield farming, which is beneficial for farmers and the DeFi industry as a whole. Alpha Homora allows users to enjoy higher APYs without having to trust intermediaries.


Security audit

Smart contract audits are a major point of concern for investors. Many DeFi projects have been launched without a proper security audit. On the other hand, Alpha Homora's smart contracts have been audited by Peckshield. You can find the security report for Alpha Finance here.


Governance tokens

The addition of Alpha Homora to the Alpha Finance ecosystem introduces additional synergy for the ALPHA token. As with other Alpha products, tokens are used as part of the governance of the Alpha Homora protocol. Community involvement is an important step in achieving long-term sustainability.


Risks of Alpha Homora

Liquidation

Just like any other strategy that includes leverage, be very careful. You should only deposit funds if you fully understand the liquidation risks. In Alpha Homora, farmers take the risk of being liquidated. As long as users remain above 80% creditworthiness for Uniswap and 60% creditworthiness for IndexCoop, positions will not 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 (without taking slippage into account).


Potential vulnerabilities

Note that just because the code is audited does not mean that using the contract is risk-free. Bugs and vulnerabilities will always be part of any software, and you should keep this in mind when interacting with a smart contract.


Interest-bearing Ethereum Vault

Through Alpha Homora, it is possible to earn interest on your ether positions through an interest-earning position. You can deposit ETH to Alpha Homora Bank and receive ibETH tokens in return. These ibETH tokens are tradable assets that continually earn interest and represent your share of ETH in the Bank's pool.

Interest paid by ETH borrowers is paid to ETH lenders, in proportion to their share of the pool. The interest rate is determined by the Bank's utilization rate. The higher it is, the higher the interest rate will be. Simply put, the higher the borrowing demand, the higher the interest rate.

Part of the interest paid is stored in a treasury which acts as an insurance fund to protect against black swan events.


Liquidators and bounty hunters

The Alpha Homora platform offers other unique features. Special users called liquidators can liquidate risky positions. This happens when the value of a user's position falls below the liquidation ratio for the respective platform. This means that positions below the liquidation threshold are at risk of being liquidated manually. The liquidator receives 5% of the liquidated value as commission.

Bounty hunters are another type of special user. They can call a function from the contract that sells all yield farming tokens in the Alpha Homora wallet for ether. To do this, deal hunters reinvest the ETH collected into the yield farming pool, which entitles them to 3% of the total reward. This in turn decreases the amount of ibETH tokens that lenders earn, as their overall stake in the total pool value decreases. More details can be found here.


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To conclude

The launch of Alpha Homora is an important milestone in the Alpha Finance ecosystem. The ability to enter liquidity mining positions is an important innovation for the DeFi space as a whole.

Although yield farming is the main selling point, its interest-bearing Ethereum accounts may also be attractive to more advanced users. In addition to the possibility of becoming liquidators or bounty hunters, there can be many ways for the blockchain community to interact with this platform.