Alpha Finance Lab is a development team for DeFi products, and its most famous product is Alpha Homora.
Alpha Homora serves two types of users: DeFi farmers (Yield Farmers) and liquidity providers (LP).
Generally, if users want to earn mining rewards or LP fees, they need to prepare two types of tokens and provide liquidity to a trading pair in a protocol. For example, providing liquidity for ETH-USDC in Uniswap with an annualized yield of 10%. Can LP tokens be used as collateral to borrow more tokens and provide liquidity to earn profits?
Alpha Homora has created a lending market where LP tokens can be used as collateral. The basic steps are as follows:
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Have a certain amount of LP tokens from the asset pool as collateral. If liquidity has already been provided, existing LP tokens can be used. Alternatively, any asset from the asset pool can be provided, and the protocol will convert the assets into LP tokens according to the asset pool ratio. For example, using 6000 USDC to obtain the ETH-USDC LP tokens in Uniswap, with the price of Ethereum being 3000 USDC, the protocol will convert 6000 USDC into 3000 USDC + 1 ETH and inject it into the liquidity. There will be impermanent loss, so Alpha Homora is suitable for users who already have LP tokens and are not sensitive to impermanent loss.
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Choose the desired leverage ratio for borrowing. Alpha Homora has different leverage limits for different assets. For example, the leverage limit for ETH-USDC in Uniswap is 3x, so in the previous example, at most 6000 USDC + 2 ETH can be borrowed.
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Finally, the protocol will calculate the final yield, which includes LP fee income (3x leverage in this case, so the yield is 3 times the original), mining rewards (if any), minus the borrowing interest rate.
Due to the use of leverage, the protocol also has position management functionality, which calculates the ratio of debt to position value. If it becomes too high, the protocol will force the position holder to liquidate and impose a liquidation penalty.
Alpha Homora has a lending feature where specified idle tokens can be deposited into Alpha Homora and wait for leveraged investors to borrow and earn interest. At the same time, the protocol also collaborates with other protocols to obtain more sources of funding, such as obtaining credit limits from Cream's Iron Bank feature in the lending protocol.