2022: A Look Back at the Past and Into Alpaca’s Future Ahead
2021 was a long and crazy year, for us at Alpaca, and also the communities of BNB Chain, DeFi, and crypto as a whole. Above all, we want to express that we’re eternally grateful to everyone in the Herd for being on this fantastic journey with us.
As a community-driven, fair launch project that started with a small team and no investors, we didn’t expect to receive the huge level of support and love from our community that we did. Yet, we were blessed by all of you, and it’s that support that kept us working tirelessly in both the good and tough times. Now, we’d like to take a look back, in order to better examine some of our plans in the year to come.
In late February 2021, Alpaca Finance exploded onto the scene like a meteor from out of nowhere, reaching the top 20 of DeFi platforms with over $1 billion in TVL almost overnight. Then came the massive challenge of living up to everyone’s expectations — shipping product and ultimately, launching our platform.
We succeeded in launching, and have continued developing and innovating despite various ups and downs. Despite market conditions though, many of the questions users ask us even today are related to the price of the ALPACA token, but ironically, inside team conversations, short-term token price is not one of our main focuses — our daily discussions are centered around how to build the best products and company strategy. Why is that? To answer this question, let’s look at another company as an analogy; it’s one most of you have doubtlessly heard of — Amazon.
Impatient Investors Care About Price; Patient Investors Care About Fundamentals
The stock is not the company. And the company is not the stock. And so, as I watched the stock fall from $113 to $6, I was also watching all of our internal business metrics — number of customers, profit per unit … every single thing about the business was getting better.
And so, while the stock price was going the wrong way, everything inside the company was going the right way.
— Jeff Bezos
Below is the period Bezos was talking about for Amazon. The chart didn’t look very good, did it?
There was quite a bit of selling on the way down and when Amazon was at the bottom after that big drop. However, some people surely held. Below is Amazon’s stock price since then.
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffet
Luckily, some AMAZON holders had patience. It wasn’t until 9 years after that drop that Amazon reached a new ATH. However, since then, it’s gone from $10 at those lows, to $3400 now. It’s not difficult to understand who were the ultimate winners over these past years. It was those who were patient, the people who believed in the sector, the company, and the team, and as a result — were rewarded for it.
At Alpaca, like those Amazon investors, we keep our eyes on the product and the long-term future. We don’t stare at the charts every day. We monitor fundamental metrics.
Alpacas Always Gaze Deep Into The Distance
Instead of trying to pump price tomorrow, we make sure our decisions have the maximum benefits for the long term.
At Alpaca, the questions we ask ourselves are, “Are we building a great product? Are people using it? Do we have competitive advantages? And is our platform sustainable for years to come?”
As long as the answer to all the above questions is yes, then we believe we are moving in the right direction. Instead of a short-term pump, by improving the product and increasing the user base, we can create mechanics to continuously grow the price of $ALPACA, which has a much larger effect over time. These mechanics include increasing the buyback&burn amount, revenue sharing, and building more platform utility for $ALPACA. As more users participate in the Alpaca Finance platform, these metrics go up and reward ALPACA holders sustainably. Unlike other projects, these reward streams will not evaporate as soon as hype is gone.
In the meantime, we invest in the long-term by growing and improving the efficiency of our team, and by improving the quality of our products, even when some of these improvements aren’t treasured until users feel the pain of their lack in other platforms; most notably security and transparency. It’s unfortunate but true that most users don’t appreciate these two things until they take a major financial loss from a hack or rugpull, and there have been billions of dollars of total losses from such events this past year.
Yet, no matter what, one thing holds true — you’re only safe until you’re in danger, and by then, it’ll probably be too late. As such, though unappreciated and unmatched, we continue to put security first. Why do we go to such lengths? Because we believe it’s our duty to our users to protect them even if they don’t understand the dangers, and we also believe that in the long-term, platforms that don’t do this will eventually take major hits which could potentially end their businesses, as we’ve seen time and time again this year.
No protocol can cut corners on security and be permanently immune to losses when there is so much money for attackers to grab. It’s just a matter of waiting until statistical probability catches up with them. And for us, though not always producing short-term results, our strategy has been working.
After all, it’s by focusing on quality and long-term investment that we were able to grow a business from nothing to $100 million in revenue in its first year.
Finally, one area we also place tremendous importance on is conceptualizing new products and investing in R&D for them. Some of these R&D cycles are long, but building well-functioning tech companies with sustainable product pipelines, which can keep innovating instead of dying as soon as their cash-cow product stops being competitive, usually takes a long time. This goes back to the old adage that people acclaim overnight success once it happens, but they conveniently ignore the lengthy period of earlier work put into it; DAI, UNI, and AAVE are prime examples of this.
More importantly, short-term results are also called get rich quick schemes for a reason, which is that they usually end with most users, who are not project insiders, suffering.
Of course, it’s understandable for people to get distracted. There are too many inefficiencies within human psychology, with even a vast number of industries profiting purely off the existence of such imperfections. In bull markets, when there’s always some new sector or project booming, it can seem like there are so many better opportunities, and users flock to the new hot thing. However, hot things get cold, and new things get old.
It’s been interesting to watch users forsake DeFi projects for these shiny new tokens, ignoring the fact that DeFi was the first major sector validating crypto’s use cases, which started this recent bull run, and that most major DeFi projects have significant and stable revenue streams, with huge untapped upside on legitimate narratives that have clear advantages over the much larger, antiquated traditional financial industry. These fundamental advantages include how DeFi utilizes crypto’s core properties of sound money, anti-inflation, financial decentralization, financial transparency, censorship resistance, and much more efficient financial infrastructure.
What are the fundamentals of the 3rd ape-themed NFT collection you just bought? Or the play-to-earn game of which 100% of the users will only play as long as they can earn from it, aka net-draining capital from the ecosystem?
So many users were excited for various projects like these until many recently tanked, and we haven’t even seen the bear market yet. How will those projects survive with no revenue in a bear market? Hype can’t exist without profits.
If you stop to think about why users are investing in these projects, in most cases, it’ll trace back to having been influenced by a few sources, namely — media and popular crypto influencers. In case you’re unaware, these influencers, individual and media, are usually paid by, invested in, or owned by stakeholders of the project. In other words, they’re insiders. They already bought the tokens way before you did. They don’t need to care about fundamentals. They just need to motivate someone to buy after they did. They will know when to sell the top. You won’t.
So don’t be a sheep led to the slaughter. Become an alpaca that gazes into the distance. Think about where you’re going and why you’re going there. Invest in the long-term, and be willing to HODL as long as the project’s fundamentals are solid. That’s how the first cohorts of crypto investors got rich. They held BTC, ETH, and other solid projects through year-long bear markets despite the FUD. They didn’t dump, and they didn’t sell tokens from solid projects to ape into one of the sh*tcoins that’s dead now. Don’t be the guy who sold thousands of bitcoins for pizzas. Keep your hands diamond.
Remember, patience is a virtue. After all, no one can predict what will happen one day later unless you’re an insider, and it takes a long time to create diamonds. The most successful people tend to be those with a long-term outlook, and such is also true for companies.
A Look at 2021’s Network vs. Network Dynamics
While we want to look towards the future, it’s also important to analyze the past. One different element of this current crypto cycle vs. past ones is there’s been a major decoupling of valuation in sectors(ie. DeFi, NFT, gaming) and networks. It used to be the case that all crypto assets were highly correlated. Now, it’s often the case that certain sectors or even networks within a sector can boom in isolation.
As you can see from the above diagram, a DeFi market share breakdown by network, newer networks specializing in DeFi have emerged one after another in the last year, and made the landscape more competitive. Some of these networks have received lots of hype and quick growth, usually due to token reward sponsorships from the networks to pump metrics like TVL. However, such quick growth has often been short-lived.
At a certain point of saturation, APYs on new networks have become comparable to incumbents. Then we’ve seen the exploits and rugpulls arrive, making it clear all networks have similar risks, followed by lots of sideways movement in TVL, or even shrinkage as artificial token emissions from the networks reduce over time.
You could say some of these networks have had initial periods of major hype, which has often created massive differences between market cap multipliers between essentially identical projects just based on the network they are on.
However, much of this growth has been driven by media and influencers rather than technology. While some networks have certain advantages over others in scalability, this isn’t the only factor in the competitive equation. Bitcoin is even growing in DeFi TVL despite having the worst scalability.
We bring this up because it’s crucial to realize that tokens on networks like BNB Chain have been temporarily oversold as hype has pulled capital into other areas(new chains, NFTs, play-to earn). But as mentioned before, many of these sectors are currently priced more on speculation than fundamentals. So as investors on networks like BNB Chain, it’s important to control your emotions during these periods. After all, downtrends are exactly when smart money finds the strength to buy the dip. Of course, we know it isn’t easy for everyone, because times like these can test people’s emotional strength.
In addition to eating big paper (or real) losses, you’ll see people have breakdowns, go bankrupt due to overleverage (or poor tax planning), quit otherwise promising projects, turn nasty, depressed, or apathetic, and generally lose sight of the longer term potential of crypto.
— Ryan Selkis, Messari Crypto Theses for 2022
For builders or investors that have had significant exposure to BNB Chain in the second half of this year, during which time the attention has been pulled into other areas, some of these sentiments may sound familiar. This is exactly what some holders and community members have gone through and there’s nothing much that can be done about it. It’s human nature to have such negative feelings when others are doing better than you, and one of the reasons why besides intelligence, emotional control is just as vital in separating the winners from the losers in financial markets.
As mentioned before, hype is temporary and capital is fluid. Moreover, DeFi is still in its infancy, with lots of room for growth across the board and across all chains. Though BNB Chain has lost market share, the total network TVL has not dropped that much.
In addition, BNB Chain as a network has strong fundamentals and is not going anywhere; Binance is still the largest CEX by far and regularly onboarding new users onto BNB Chain.
Furthermore, TVL is only one area, BNB Chain has recently shown growth in other meaningful metrics.
Finally, BNB Chain is the only one of the newer networks that is already economically sustainable, not taking losses on operations. Meanwhile, other networks are incentivizing growth using token rewards that are dependent on speculation and are operating at a 90%+ loss. Such speculation-dependent growth will not cause anyone to bat an eye in a bull market, but when a bear market comes, token prices and transactions sink, and incentive programs dwindle, it won’t be so easy to attract users.
That’s not to say BNB Chain doesn’t have its issues, but unlike some other networks that will come and go, BNB Chain will be sticking around. Why does that matter for Alpaca? Because it means there is a strong long-term foundation for us, and Alpaca is the only leveraged yield farming project operating at scale on BNB Chain. Other projects have come to BNB Chain and tried to compete with us, and all have dwindled — to the point of not having 1/10 of our market share.
Alpaca’s Multi-Chain Future
Alpaca Finance is not limited to being a BNB Chain project. At the protocol level, network limitations are mostly non-existent. Projects can move to new chains, change their products, or launch something completely new. In our case, we can and will expand to other chains, as is the plan within this quarter.
Right now, BNB Chain projects’ market caps are all undervalued compared to projects on any other chains, as is the case for $ALPACA, but when we are on another chain, we will cease to be a BNB-Chain-only project. So what does that say about how our current token price is valued?
What can the above contradiction be called except a temporary irrationality in market pricing?
With all that said, you might ask one question that users often ask us, “Why haven’t you gone multi-chain yet to capture this new growth?”
It’s a good question, and we do plan to go multi-chain pretty soon, but there are multiple good reasons why we have not yet.
1 — Complexity has its limitations but also powerful advantages
Building a platform that utilizes leverage in a safe way isn’t easy. It requires setting up infrastructure for oracles, monitoring, liquidation, various automation systems, and more. This is why there are no major leveraged yield farming platforms that have successfully launched their up-to-date versions on more than 2 chains.
However, despite the scaling limitations of this complexity, it is also a strategic moat for us. Security and sound structure are more important for a system that utilizes leverage than any other, since such a system is essentially built on stilts, where any issue can lead to cascading failures. This kind of security is not easy to copy, as opposed to pasting a UniV2 or Compound or OHM fork onto a new chain. When something is easy to copy, there is no limit to the inevitable competition, which over time, will weaken the value propositions of these types of business models until they approach 0 and become commodities.
And although the negative impact of not abiding to this level of safety enforcement won’t be felt until a massive downwards price move, one thing that crypto has never been short of is huge volatility price moves. Greed is commonplace before a crash, as in the Dot-com crash, but when the inevitable large correction or black swan event comes, as mentioned before, users won’t have any time to regret it. So it’s unfortunate that many users don’t bat an eye to using centralized or closed source protocols that don’t have audits or bug bounties; with code-bases that are running completely wild, for which you may not even learn there was a security loss until it’s so massive that the project team is forced to admit it.
2 — More chains leads to more maintenance and less innovation
For every chain a protocol launches on, that carries increased maintenance and operating costs. More importantly, if they want to update any feature or add something new, they now have to make sure it will be compatible with the infrastructures of every single chain and then carry out the update on each deployment. The difficulty of this can scale exponentially.
That’s why if you look at the protocols that have focused on spreading multi-chain as fast as possible, they have one other thing in common — they have nearly stopped innovating. A couple are market leaders, but most are commodities, which are desperately trying to grab market share until their business models become obsolete due to increasing competition from low barriers to entry.
At Alpaca, we are investing in the future, by building new products, and trying to reach new customer segments and verticals. This is how growth happens. This is how you build and maintain an edge. This is how conglomerates are built.
So as previously mentioned, slowing down our innovation in exchange for temporarily boosting token price and vanity metrics has not been our first priority.
3 — DeFI protocols that have scaled multi-chain have not done very well
Despite a few notable outliers (which happen to be market leaders like Curve), and projects that are natively multi-chain, the vast majority of DeFi projects that have put their main focus on scaling to as many chains as possible have not performed very well. The negatives of increasing their maintenance & operational costs, and hampering innovation as discussed in point 2, have not been compensated for with huge TVL gains.
Moreover, having multiple user bases on so many chains has created conflicts within their communities and governance, complicating their structures. The inevitable result was leaving dead deployments on multiple chains with few users, which are no longer receiving updates. This is what being overextended looks like.
4 — The new networks aren’t ready
From repeated network outages to a lack of infrastructure and lacking user bases, the scale of competing networks last year was not yet so compelling that we couldn’t keep ourselves from building there.
5 — Ethereum is still king
Although much of the media narrative has focused on a “multi-chain future” and the growth of competing L1s, if you go back to Diagram 1, you’ll see that even though so many new chains launched, Eth’s market share has barely decreased since April, still at approximately ~2/3 of all DeFi TVL. What does that imply?
It implies Ethereum is still king. Developers, institutions, and users are still using and building mainly on Eth, despite the high gas costs. That’s also despite the current L2s not having sufficient scale due to not lowering gas costs enough. Yet, that’s set to possibly change with zk-rollups, which should lower Eth gas by a factor of 100x, making it much more affordable and potentially providing Ethereum with the ability to compete with other L1s in cost.
The mainnets for these zk rollups are set to launch this year, and are some of the key targets we’ve had our eyes on for scaling into the only current major leagues of Ethereum. Of course, there are a couple alternative L1s we feel have a lot of potential as well, but they’ve only recently gotten to the point where we feel it’s the right time to build on them.
The above are our reasons and our plans. We’ve discussed much of this during our Twitter Fireside Chats, AMAs, and in our social networks, but felt it would be good to bring everything together for those that may have missed those. Hopefully, the entire Herd is on the same page now. Of course, it’s never possible to please everyone.
“But my tokens are down in price from my entry. This all sounds great but I’m looking for a quick 10x moonshot. How about doing something to pump the price tomorrow?”
Well, maybe Alpaca is not the project for you. We’ve always been a project that will provide compelling long-term rewards for loyal Alpacas, not day-trading llamas 😉.
We’re playing a long game. The moves we’re making now are intended to give us major competitive advantages within late 2022 to 2025. This isn’t a game for the short-term minded, and it isn’t for the weak. Ups and downs are inevitable.
When the larger bear market comes, and other project teams are no longer able to keep their lights on because their rewards relying on inflated token prices become insignificant, long-only yield farming becomes unprofitable, ponzinomics protocols usher in the final acts of their magical performances, and projects that can’t handle downside volatility or security attacks are exposed, our Herd will be doing just fine 🦙🦙🦙.
At Alpaca, when a bear market hits, resulting in crypto prices dropping and liquidations happening:
- Liquidation fees will go to buyback&burn to keep $ALPACA price relatively healthy and fuel the protocol
- $ALPACA will naturally appreciate in price because it has entered a deflationary cycle 2.5 months ago and this trend will only become stronger over time as emissions continue to approach 0 over the coming year.
- Users will learn to yield farm profitably during bear markets; and
- We’ll gain market share as a yield farming platform because long-only competitors will become unprofitable to use and close up shop.
Recently, we’ve launched AUSD and the Governance Vault in their early stages. This year, we’ll be fully releasing and growing those, going multi-chain, releasing new platforms for institutional capital, NFTs and GameFI, and more.
We believe that as long as we have a laser focus on building the best products, that in the long-term, it’s inevitable that our user base will keep growing, the revenues will keep increasing, more $ALPACA will be burned, and — our token holders and users will make large and sustainable profits.
We thank you once again for being a part of our Herd. We love you all as much as we love grass…and we hope you’ll all continue with us on that journey throughout 2022 and beyond.