BNB Chain Spotlight: Alpaca Finance

2022.5.11 • 4 min read

After some time we're bringing you yet another BNB Chain Project Spotlight interview, and it's one of the most popular DeFi protocols on BNB Chain.

Alpaca Finance is an OG to the BNB Chain ecosystem, and we talked to them about their recently launched Automated Vaults.

Without further ado, let's jump into the interview.

Spotlight on Alpaca Finance and Automated Vaults

IMPORTANT: Please note the following content does not constitute an endorsement or approval of any of the products or services of the project, organization, or individual.

It’s great to be talking to you, Sam. As this is your first time under the Spotlight, let’s start with a brief introduction. Tell us what you do and what’s unique about Alpaca Finance and its new product line–Automated Vaults?
Hello, thank you. I’m the Head of Strategy and Marketing at Alpaca Finance. Our DeFi platform is unique in that it allows users to invest in hedge-fund-grade products that deliver high APYs at low risk. Specifically, our Automated Vaults run complex yield-earning strategies at high leverage and with no liquidation risk.

We have a line of Market Neutral Automated Vaults that have been oversubscribed since launching one month ago. These Market Neutral Vaults allow users to earn yields in all market conditions, bull or bear. Soon, we’ll also be launching Savings Vaults, which are similar to lending or staking single-asset crypto such as BNB, ETH, BTC, because their exposure is 1xLong, but what’s different is Savings Vaults earn you much higher APYs than lending or staking because they operate high leverage(up to 8x) strategies with the capital underneath, again with no liquidation.

How did you come up with the name Automated Vaults, and when was the whole idea born?
Well, one of our philosophies at Alpaca is to make DeFi as simple as possible. So we had conversations with lots of institutions and funds to learn what strategies they were operating on the market and learned that many of them were running market-neutral strategies but with complex operations such as perp swaps or options.

We wanted to make such strategies available to the everyday DeFi investors, and as far as possible, to allow investing in them easily and provide a passive income in an automated fashion, without any management required on the part of the user. Hence, the name Automated Vaults was born.

Can you briefly introduce us to your team? What’s your team's experience?
Sure, rather than reiterate already great work, Binance Research did a writeup on our team that can be found here.

Can you tell us how Automated Vaults work and what are the typical APY ranges of these products?
Market-Neutral Automated Vaults work by opening long and short positions simultaneously and then rebalancing them when market prices change to maintain neutral market exposure.

Through a similar method, Savings Vaults maintain 1x Long exposure to the underlying crypto asset by managing two positions such that the long position is slightly larger than the short position. Because of how Alpaca automates risk management, these positions can operate at leverage up to 8x without liquidation, providing very high risk-adjusted returns. You can find more info on Automated Vaults in our docs.

The typical APY ranges for Market Neutral AVs are 20-100% APY. For Savings Vaults, we’re targeting 10-25% APY.

How reliable are Automated Vaults?
Very reliable. The Automated Vault strategies have been thoroughly backtested with real-world data and proven profitable. The data is available publicly for anyone to review.

You have to protect a lot of funds and user data. What is your security strategy?
Alpaca is a safety-first DeFi platform. We’ve had 20 security audits, have the Alpaca Insurance Plan, don’t allow flash loans, and integrate some other security features.

Why did you decide to build on the BNB Chain?
We’ve been on BNB Chain since it became huge in early 2021. We decided to build here because of the large user base and the opportunities of being early to a growing network.

What’s next for Alpaca Finance?
We will continue building innovative DeFi products that make it easier for users, both retail and institutional, to invest in high-yield DeFi strategies. However, our target is not to have only the highest APYs but the highest risk-adjusted APYs. At Alpaca, you’ll never have to worry about security risks or unexpected market swings wiping out or liquidating your positions. That’s the main differentiator between us and other platforms.

So, we’ll be releasing more Automated Vaults and more types of Automated Vaults. Also, we’re working on a cross-chain institutional DeFi platform that will provide products for further risk mitigation and segmentation for large funds and institutions that care as much about things like compliance, fault tolerance, and predictability as they do getting high yields.

And as we’re getting to the end of the interview, let’s talk about the future. What do you see as the main challenge for the future of DeFi? What new features can we expect from you in the upcoming months?
One of the DeFi challenges we’re hoping to address is that the long-only nature of most DeFi platforms is unsustainable. As we clearly are in a sideways market, or even arguably bear, investors need ways to earn yields that don’t force them to swim against the current by holding long exposure, making it not only impossible to earn profits but even difficult to avoid losses.

That’s where our leveraged yield farming and Automated Vaults come in. We’ll continue rolling out products that allow investors to customize their exposures and earn yields in any market conditions.

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