Alpaca Finance
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Alpaca Finance

Announcing the Launch of Alpaca’s Auto-Farming Stablecoin — AUSD!

Dear alpacas,

Many of you have been waiting for this, and we now have a launch date for AUSD. We’re proud and excited to announce that AUSD will go live on the 14th of December at approximately 10 AM UTC!

AUSD will unlock even higher profit potential for capital within Alpaca Finance and greatly increase the flexibility and use cases for your funds. There is currently no lending platform or stablecoin that has this level of composability and capital efficiency, which will firmly position Alpaca Finance as a DeFi 2.0 pioneer.

In this article, we’ll go into the details of AUSD’s features, the launch plan, and the various ways you’ll be able to earn more yields with this new stablecoin product.

🎁The Benefits of AUSD

AUSD (Alpaca USD) is an auto-farming stablecoin that earns passive yields for you in the background. While most platforms that allow you to mint stablecoins force you to borrow while paying interest (MakerDAO, Liquity) or at best borrow while foregoing earning lending APR on your collateral (Venus), Alpaca will allow you to borrow AUSD while earning yields on your collateral!

What’s more is AUSD’s mechanics are robust, secure, and transparent. AUSD is overcollateralized, decentralized, and reinforced with multi-layered pegging mechanisms so that it does the one thing stablecoins are supposed to do — remain stable at $1.

AUSD is a fork of the battle-tested MakerDAO, with many improvements. Some of the key features are:

Farmable Collateral Module:
When borrowing stablecoins on other platforms, users typically have to choose between staking their assets to earn yields or staking their assets as collateral to borrow against. With AUSD, you will no longer have to make this tradeoff! Because you will be using ibTokens as your collateral, you will continue earning lending APR in at Alpaca(10–15% in the case of BUSD, BNB, USDT), as well as Staking APR, which at the moment earns extra ALPACA rewards but can also compose with other protocols. This means that in the future, your collateral will potentially be able to earn additional yields for you on external platforms.

Because the Lending APR alone is much higher than the stability fee for AUSD(2% for most collateral types), the loans are effectively better than interest-free, they are yield-bearing auto-farming loans.

Efficient Pegging:
Being overcollateralized is not enough to maintain a stablecoin peg. In the case of MakerDAO, they can also adjust borrowing interest on DAI up and down for the collateral assets. In a situation where DAI’s price goes above $1, Maker can lower borrowing interest, incentivizing users to mint new DAI which creates selling pressure to bring DAI’s price back down to the $1 peg. In the case where DAI goes below $1, Maker can increase borrowing interest, incentivizing users to buy back DAI to close their borrowing positions because they have become more expensive, which creates buying pressure to bring the price back up to $1. AUSD also has this mechanism.

Moreover, AUSD will have an internal Stable Swap Module, similar to Maker’s Price Stability Module (PSM), which will allow users to buy and sell AUSD for BUSD at a rate of 1:1 with low fees. This will facilitate arbitrageurs in maintaining the peg at $1.

Robust and Gentle Liquidation:
AUSD will use gentle liquidation, meaning if an AUSD borrowing position would face liquidation, only a small portion of the position would be liquidated until it was brought back to health. The max liquidation size will be limited to the Close Factor parameter, currently set to 25% of a position’s Debt Value. This gentle liquidation model results in lower associated costs and liquidation risk for AUSD borrowers, while still preventing the risk of bad debt.

AUSD will also use a robust atomic liquidation model. This has advantages over Maker DAO’s Dutch auction model, because AUSD’s model is simpler and better optimized for preventing bad debt.

Insurance Plan:
While we’ve made sure to set up the protocol structure and parameters to be very conservative, we will also have a backstop in place to handle the unlikely event of bad debt. When we launch our governance vault within the next 1–2 months, we will also launch an Insurance Plan. In this plan, in the case of a loss event such as bad debt, 50% of the Protocol APR going to the governance vault will be set aside as remuneration for this event, until the loss is covered. This way, the risk of bad debt will not only be minimized but also have coverage.

AUSD’s code is completely open sourced and can be reviewed in our Github repository here: https://github.com/alpaca-finance/alpaca-stablecoin

⏰Launch Sequence

AUSD will be fully backed by top digital assets such as BNB, BUSD, BTCB, USDT, and TUSD, with robust risk management parameters. Still, to make sure that the launch is as safe as possible for our users, we will first start with only one collateral pool (ibBUSD) and limit the maximum amount of AUSD that can be initially borrowed to 30Mn. For absolute safety, we will closely monitor the activity, as we add more collateral pools & increase the debt ceiling over the next few weeks.

Phase I (December 14th)

  • AUSD Module
  • Farmable Collateral with ALPACA Staking Pools
  • ibBUSD Collateral Pool
  • Stability Fee Module
  • Flash Liquidation
  • Staking Pool for AUSD-BUSD LP (ALPACA rewards)

Phase II (Week of December 27th)

  • Stable Swap Module
  • Flash Mint Module
  • Additional collateral pools

Phase III (Week of Jan 3rd)

  • Additional collateral pools

Note: Timeline provided for Phase II & III is tentative and may be subject to change as the rollout progresses

🙋How You Can participate

There are multiple ways you can participate and benefit from AUSD.

Liquidity Provider:

We will incentivize AUSD holders as liquidity providers for the AUSD-BUSD pool with ALPACA rewards, targetting a double-digit APY. So you’ll be able to easily earn extra yields by providing liquidity in this stablecoin-stablecoin pool on the Stake page.

AUSD Position Owner:

You’ll be able to easily deposit your ibTokens (or underlying tokens such as BUSD) and borrow AUSD to further your profits by levering up your lending positions.

For example, you could execute the following steps:

  1. Deposit BUSD into Alpaca Finance Lending and receive ibBUSD tokens.
  2. On the AUSD page, borrow AUSD using your ibBUSD as collateral. A standard LTV with relative safety would be around 85%, meaning you could borrow 85 AUSD for every 100 BUSD collateral (max LTV aka debt ratio is 90% for BUSD)
  3. Sell AUSD into BUSD
  4. Deposit BUSD back into Alpaca Finance Lending and receive ibBUSD tokens
  5. Repeat step 2

You can get up to ~6x leverage on single-asset BUSD by cycling through the steps above, earning up to 60% APR on your BUSD in aggregate, based on the current rate(10%).

Arbitrageur:

If the price of AUSD temporarily moved below/above $1, you could participate in arbitrage to profit from the price movements. We have modules in place to support and facilitate this arbitrage. More details in our Docs.

📃Benefits to ALPACA Holders and Key Parameters

AUSD will introduce multiple new revenue streams for ALPACA holders. These include:

  • Stability Fee: 2% APR (for most collateral assets) will be the Stability Fee on each AUSD debt position. 50% of these fees will go towards buyback & burn of ALPACA (and Protocol APR for ALPACA depositors once the governance vault is deployed) while the remainder will go towards the development fund.
  • Liquidation Bounty: 5% (4% (out of 5%) of the liquidation value will go to additional weekly buyback & burn of ALPACA. 1% will go to the liquidator as a reward for closing positions when their Safety Buffers reach 0.)
  • Auto-Farming Performance Fee: 9% of the rewards earned from farming AUSD positions’ collateralized assets in Alpaca Staking (and external protocol deployment in the future). 5% will go towards the weekly buyback & burn of ALPACA (and Protocol APR for ALPACA depositors once the governance vault is deployed) while the remaining 4% will go towards the development fund.
  • Close Factor: 25% (Max percent of the Debt Value of an AUSD position that could be liquidated in a single transaction when the position is subject to liquidation. This reduces the associated costs and liquidation risk for AUSD borrowers, while still preventing the risk of bad debt.)
  • Debt Floor: 500 AUSD (This is the minimum amount of AUSD that can be borrowed when opening a position.)

ibBUSD collateral Pool

  • Collateral Factor: 90% (max LTV)
  • Stability Fee: 2.0%

These parameters might be changed from time to time in the future to maintain the health of AUSD’s ecosystem. Please refer to our Docs for the latest values.

AUSD-BUSD LP pool rewards

We will initially allocate 0.35 ALPACA/block (~70,500 ALPACA /week) as rewards to PCS AUSD-BUSD liquidity providers. You’ll be able to stake your LP tokens on the Stake Page as usual. We will periodically review and adjust the rewards allocation as appropriate.

🔐The Safest Transportation Vehicle: An Alpaca

As always, security of all funds within Alpaca Finance is our highest priority. That’s why we’ve made sure all the AUSD smart contracts have passed three audits from professional security firms. As a result, you can rest assured, your assets will be safe in AUSD.

PeckShield Audit Report: here

Inspex Audit Report: here

SlowMist Audit Report: here

We know you’re all excited about this new product that can allow you to safely increase your profits. Yet, don’t forget that the initial hard cap on AUSD will be limited to 30Mn, which will be first come first served. So don’t blink and don’t go into a food coma from too eating too much grass, young alpacas.

Just remember this winning game plan:

  1. Stay furry
  2. Stay conscious
  3. Stay profitable

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