How the Current Rewards Adjustment Benefits ALPACA holders
Some of you Alpacas staking in the LP Vault have expressed your concerns about the Vault’s reward allocation being lower than that of the single-asset Vaults. Here, I will explain why your APY will actually be much higher than you think, and how in the long run, this allocation will benefit not only the protocol, but also raise the ALPACA price for you token holders. So please young Alpaca, have a seat.🙂
While it’s true that the bonus rewards period is ending and the rewards multiplier will be decreasing from 7x to 1.5x, what you may have not considered is that something else is ending that affects your APYs — the 70% lockup on your rewards! What this means is that all future rewards you receive from the staking Vaults, will be 100% claimable, and more important than that — 100% compoundable!
What is compounding?
I think most of you smart Alpacas should have a good idea of what APY means; it’s the yield you gain in a year from your principal deposit. In Alpaca, you can claim that yield whenever you want. So what would happen if you then deposited that yield on top of your principal?
Well, you would gain yield on your yield! And that — is compounding. You can gain more yield by reinvesting, and you can do this over and over to maximize your APY!
*Snort* Why are you bringing up compounding now?
Well, although the multiplier will decrease, since there will no longer be a lockup on 70% of your rewards, you’ll be able to compound all of them! And the effect on APY from that will be a substantial increase!
Here are some numbers:
Current APYs of Alpaca’s three Vaults:
- ALPACA/wBNB: 4421%
- ibBNB: 90%
- ibBUSD: 118%
Here are next week’s APYs with the current rewards allocation if compounding wasn’t possible:
- ALPACA/wBNB: 287%
- ibBNB: 39%
- ibBUSD: 48%
Now, here are next week’s APYs with daily compounding:
- ALPACA/wBNB: 1644%
- ibBNB: 48%
- ibBUSD: 62%
(*Calculated using https://financial-calculators.com/compound-interest-calculator)
Don’t have time to compound daily? The APYs for weekly compounding aren’t much different:
- ALPACA/wBNB: 1547%
- ibBNB: 48%
- ibBUSD: 61%
So here you have it, LP stakers. A drop in the APYs was inevitable at the end of the bonus rewards period, but 1644% is still fantastic, is it not?
Where else could you find that on BNB Chain within a protocol with a Timelock that pays attention to security as much as we do? Let us know and we’ll invest! 😆
In addition, I’ll also point out that the APYs are only this low because price has decreased significantly. That is a big factor in the APY. When the price recovers, these APYs will be much higher!
Ok, over 1000%? We Alpacas will accept your offer…but still, why give a higher rewards allocation to the single-asset Vaults?
Well, take another look at the difference between the numbers for no-compounding and daily-compounding for the single-asset Vaults… Not nearly as much of a difference as the LP Vault, right? That’s because compounding is much more powerful as the base percentage increases. So the single-asset Vaults will get a higher allocation in order to keep their APYs attractive.
Ok, that’s fine, but still, we want money…
Yes, you do, I know you do…and for the long-term health of Alpaca Finance and your tokens, taking care of the single-asset Vaults a bit is also the best move. You have to consider the big picture. At the moment, 90%+ of Alpaca’s TVL is in those Vaults, and TVL is powerful! It’s like ammo for our future product to come out guns blazing onto the market!
By offering high APYs to the single-asset Vaults, we’ll have more liquidity in them to loan money for leveraged yield farming. As a result, the interest rate for borrowing will be lower, making leveraged yield farming more profitable for everyone!
In addition, TVL is also an important support for price. For an early-stage project such as ours, TVL is one of the key metrics people look at when trying to determine the price. (*In fact, take a look at the current ratio of Alpaca’s market cap to its TVL, and then compare it to other projects. What do you think about that?)
Why do people look at TVL when determining price? A high TVL means significant potential growth for the future, because all of that money can be used as liquidity to fuel product endeavors. So if we dropped the APY on the single-asset vaults and too much TVL left as a result, although you ALPACA holders would get a bit more in rewards, the price might not be as high! It wouldn’t be worth the loss!
The current rewards allocation takes into account both the short-term and long-term best interests of the protocol and the ALPACA holders. In this way, after the product launches, we’ll have the fuel we need to reach even greater heights!
I see, patient Alpaca is good Alpaca…
That’s right. I know some of you feel uneasy due to the price volatility, but I want to remind you of a few key facts.
- We haven’t started doing any outreach marketing yet; $0 dollars spent, because we’ve been focusing on product and community development. The majority of our initial success is from word of mouth. So what’s going to happen once we spend significant funds on paid marketing as other projects do?
- We haven’t launched our product yet but reached as high as 1.5 billion TVL. That’s a lot of money and a lot of trust. So what’s going to happen when we have genuine utility in our protocol?
- We haven’t listed on any CEXes yet, but we’re in talks with some of the biggest ones. The internal consensus at the moment is to wait until audits finish. So what’s going to happen to ALPACA’s price when we list and become available to untapped buyers?
- With the total rewards going down, even if you believed that people were selling their yields instead of compounding, there will be 2-2.5x less of those rewards now even taking into account that 70% of rewards will no longer be locked. So if the buying pressure in the market stays the same, with 2x less selling pressure from rewards, what would the higher-buying pressure to selling-pressure ratio mean for ALPACA’s current price?
- We’re still growing our team! Since we started from a fair launch with no investors and no presale only two weeks ago, we weren’t able to hire lots of people. Now though, we have funds. So what’s going to happen to our execution as we add more hardworking, intelligent Senior Alpacas onto our side?
- We have a long list of initiatives we plan to build into the protocol, which will add value to not only the project but also ALPACA token holders. Most of that will soon be covered in the Roadmap we will release. So what will happen to the protocol’s popularity and ALPACA’s price once we roll those out one by one?
- We Senior Alpacas hold more ALPACA tokens than most of you. Our personal and professional interests are aligned to make sure the project succeeds and that price climbs as high as possible. So how much thought do you think we put into every move we make?
- When we sat at over 1 billion TVL for a long time, we didn’t rug. We didn’t get lost in the success. We only focused on advancing every day, building product. Just the same, no one on the team is panicking now, no one has dumped or is dumping. So in which direction do you think we believe the price is headed in the long-term?
In summary, there’s a lot to look forward to and we’ve only gotten started. Believe us when we say, this is not the Alpacalypse…
So stay strong young Alpacas. If you spot a fudding llama, point them out! Call over your fellow Alpacas to spit on them!
Because all you have to remember, is that our Alpaca Army is waiting for its chance, combing our beautiful wool-armor as we bide our time, until the moment comes — when we conquer this BNB Chain DeFi world!