RECAP — Clearpool AMA with Alpha Venture DAO

On Thursday, January 19th, Clearpool hosted an AMA with Alpha Venture DAO. The event featured a discussion about established DeFi tools for institutional users and lessons learned from 2022.

Guests:

• Jakob Kronbichler, CCO & Cofounder of Clearpool
• Sirada Lorhpipat, Director of Business Development at Alpha Venture DAO

Topics:

• The emerging importance of DeFi after the 2022 CeFi crisis
• New solutions to DeFi problems
• History of the DeFi credit market & use cases for institutional users
• Importance and challenges of institutional adoption in DeFi
• How the platforms performed and adjusted during the market turbulence of 2022
• Outlook for 2023: DeFi lending trends and forecast

If you missed it, don’t worry, you can listen to the recording here or read the AMA recap below.

AMA RECAP

Jakob Kronbichler

Thanks, everyone, for joining. My name is Jakob, and I’m one of the co-founders at Clearpool. I’m also the CCO and handle business development and partnerships. Most of you are already familiar with Clearpool but to recap quickly, we’re a decentralized lending protocol for institutions. Whitelisted borrowers can open lending pools, which can be funded by anyone in the DeFi ecosystem. In contrast to overcollateralized platforms like AAVE and Compound, borrowers on Clearpool do not need to post collateral. Today, we have a special guest, Sirada from Alpha Venture DAO. They’re based in Thailand, and we’re going to talk about building tools for institutional users in DeFi, and we’re also going to talk about a few lessons we learned from the turbulent year of 2022.

We’re also giving our community rewards for answering questions. Two questions will be about Alpha Venture DAO, two will be about Clearpool, and one will be a general DeFi question. So, always stay tuned for those questions, we’ll be announcing when they’re posted in the general chat, and the first person to type the correct answer will win 50 USDC every time. With that being said, we can start.

Thank you for joining us today, Sirada. We met recently in Thailand and had a good chat about what you guys are building at Alpha Venture DAO. But why don’t you start by introducing yourself and Alpha Venture DAO and quickly explain the ecosystem of products you’re building?

Sirada Lorhpipat

Hi everyone. I’m Sirada, the Director of Business Development and Products at Alpha Venture DAO. We built DeFi products to serve market gaps, and our flagship product is Alpha Homora, which is the world’s first multi-chain leveraged yield farming protocol and lending protocol with peak TVL of about USD 2 billion in DeFi summer. We operate on four chains: Ethereum, Avalanche, Optimism, and Fantom. We build on top of DEXes like Uniswap, Curve, SushiSwap, Trader Joe, and Pangolin, and we serve many institutional users with farming and lending in a permissionless way. If you’re new to leveraged yield farming, it’s a concept where you can borrow external liquidity to increase your yield farming positions without having to own all the capital and gain higher trading rewards than if you farm on DEX directly yourselves.

Jakob Kronbichler

Perfect, thank you for that quick intro. The way we’re going to do this is, I’m going to ask you a few questions, and then after every question, I’ll give a short comment from the perspective of Clearpool. So, let’s dive right into this.

The first question is, what are the main problems in DeFi that you’re solving as a protocol (Alpha Homora)?

Sirada Lorhpipat

Yes, so there are four key problems that Alpha Homora is solving. The first problem in traditional yield farming is that, with limited capital, you get lower yields. But with leveraged yield farming, as I mentioned earlier, you can borrow external liquidity to increase your yield farming positions and earn higher trading fees and farming rewards from the underlying DEXes without having to own all the capital. The second problem we’re solving is that, in traditional yield farming, users require supplying both sides of assets in equal value to open farming positions. With leveraged yield farming on Alpha Homora, you can just supply a single asset, and we offer flexible borrowing of multiple assets in one platform. The third problem we’re solving is allowing users to automate their borrowing and farming on one platform without having to borrow from one platform and then farm on another. That’s a big problem we’re solving. And finally, the fourth problem we’re solving is that we offer higher capital efficiency through under-collateralized borrowing from Iron Bank, compared to an over-collateralized loan from AAVE or Compound, which would give you lower capital efficiency.

Jakob Kronbichler

Perfect, thanks for the overview. That is very much in line with what we’re doing at Clearpool, mainly resolving the problem of capital inefficiency with other larger DeFi lending protocols such as AAVE and Compound. As you just mentioned, they’re based on over-collateralization. So, we are a marketplace where borrowers can raise unsecured liquidity, and lenders benefit from higher risk-adjusted returns. There are a couple of protocols operating in this space. We were the first to introduce dynamic lending pools, where lenders can withdraw at any point, as opposed to fixed-term loans on other protocols where lenders need to lock up their liquidity for several months. The other main innovation we had with Clearpool is single-borrower liquidity pools. Instead of just funding one generic pool and not knowing where liquidity is going, you can choose which borrowers you want to fund and customize your own lending portfolio.

We’re going to continue with the following question for Sirada. So Sirada, we’d be keen to know more about the history of Alpha Homora, in particular, what types of borrowers and lenders you have on your protocol. You mentioned you mainly have institutional participants, so we’d like to hear more about the types of participants and use cases you have.

Sirada Lorhpipat

Sure, so I’ll split it into three sections. First, the history of Alpha Homora, then the types of lenders we currently have, and finally, the use case specifically for institutional users. So, in the first section, back in the DeFi summer of 2020, when Compound started giving out liquidity mining rewards and started the liquidity mining trend, we first launched Alpha Homora on Ethereum. We also gave out liquidity mining rewards back then and had exponential growth during that period, up to US$ 2 billion in TVL. However, we eventually learned that it was not the most sustainable growth strategy for a DeFi product. We had a lot of traction from Degen retail users seeking high yields back then, but we learned in 2022 that what worked in a bull market doesn’t always work in a bear market. In a bear market like last year, with changing market conditions and lower yields, we saw fading retail momentum, but we still see sticky usage and retention among crypto-native institutions. That’s why last year, we gravitated towards a growth strategy to retain existing users in a more sustainable way.

Some of the specific use cases suitable for institutional users are how crypto hedge funds and DeFi funds are using Alpha Homora in a permissionless way to do complex DeFi & hedging strategies. We reached a product market fit for crypto-native institutions looking for ways to deploy assets on-chain without needing heavy KYC or regulatory processes. Some of the popular strategies on the farming side are market-neutral farming strategies, which are more suitable for advanced users who can actively manage complex hedging yield strategies. For example, suppose you supply an asset for a long exposure and borrow from Alpha Homora for a short exposure. In that case, that can nets out the exposure to market-neutral yields if you actively manage the position right.

On the lending side, we offer permissionless lending to institutional users and crypto-native funds looking for liquidity to deploy in the market. For example, popular assets among institutional users are stables for lending on Ethereum. We serve this need with the product market fit because crypto-native institutions are limited in the number of channels that they can borrow through traditional financing methods for high-risk activities like yield farming. So, to tackle this issue, we facilitate alternative financing methods that allow users to conveniently borrow liquidity and farm in an automated and unified way, all on one platform.

Jakob Kronbichler

Thanks a lot for the detailed explanation. Actually, that’s very impressive! To clarify if I understand it right, at the very beginning during the bull market, you had two billion U.S. dollars in TVL on the Homora protocol?

Sirada Lorhpipat

Yes, back when we launched on Ethereum.

Jakob Kronbichler

Wow, that’s what’s called product market fit. Amazing, congrats on that! Yeah, so in terms of institutions, from what I hear, that definitely overlaps with those who are using Clearpool. We currently only work with high-frequency trading firms in terms of borrowers. We work with many leading players, such as Jane Street and Wintermute. These high-frequency trading firms are highly suitable borrowers for our dynamic pools since they are highly liquid. Provided they’re solvent, they can repay at any time within a few hours or the next day. That works with our product, where borrowers need to rebalance quite frequently and there could be a lot of withdrawals at some point. From a risk profile perspective, they’re very interesting as they mainly use market-neutral strategies. Our borrowers are mainly operating on centralized exchanges, but they all do have DeFi strategies as well. I would assume a lot of our borrowers are also users of your protocol, next to mainly executing market-neutral strategies on centralized exchanges, mainly for arbitrage strategies.

We’re actually looking at launching different borrower profiles with our upcoming Clearpool Prime product. This includes more traditional trading firms and non-crypto native trading firms, but also other crypto-native players such as Bitcoin miners and projects. We’re also looking at fintechs that provide lending solutions in the real world, such as loans in emerging markets or buy now, pay later players, etc. So stay tuned for that, and we’ll have a couple of new borrower profiles and verticals that we’re going to launch in the foreseeable future.

So the next question: we’re going to look back at this year and discuss a few lessons learned and implications from DeFi. There were major market downturns after large CeFi players, such as 3AC, FTX, and Celsius collapsed. What do you think about the importance of DeFi, and did anything change?

Sirada Lorhpipat

After the collapse of CeFi players like FTX, BlockFi, Celsius, and 3AC between October and November last year, we saw a spike in DEX volume, from around 65 billion in October to over 100 billion in November, according to DeFi Llama. This is a significant signal that people see the benefits of decentralization, and we expect that to continue going forward. It builds a bullish narrative for DeFi to gain more market share, with benefits such as transparency, censorship resistance, immutability, permissionless on-chain activities instead of centralized platforms, and self-sovereign custody of assets.

Another key driver that will bring more institutional users to DeFi is that the DeFi yields are generally higher than TradFi yields due to the lack of intermediaries and agency fees. For Alpha Homora, we are quite bullish on the DeFi narrative and expect to see higher growth going forward this year. We were fortunate that we were not as affected by the FTX crisis. Activities on Alpha Homora didn’t drop as much after the FTX collapse since many of our active institutional users are crypto-native and mostly engage in on-chain DeFi activities. We still see capital inflow into lending and farming in the millions range.

Jakob Kronbichler

Great, I think I completely agree with all of your points. The collapse of CeFi players like FTX, Celsius, and Genesis highlights the importance of transparency and DeFi. These players offered very high yields, but nobody really knew what they were doing behind closed doors. As a result, they engaged in risky activity and losses were hidden until it was too late to fix. This is not new to the world of finance and it will always happen with centralized entities. We at Clearpool believe that these failures would not have happened with decentralized and transparent protocols. I’m not saying that you cannot lose money on DeFi protocols. Still, at least on DeFi protocols, if done correctly, it is transparent, and the protocol should behave according to strict rules that are hard-coded and visible to everyone. They cannot be bent by any centralized authority or management. This is also a problem for some DeFi protocols where even though they call themselves decentralized, they might change things at their own discretion which is not in the spirit of true decentralization. So, even with DeFi protocols, we all need to do a good job and the industry needs to do a better job in order to truly be decentralized. And then, things like this can actually be prevented.

Let’s continue. Sirada, let’s talk about institutional adoption for crypto and DeFi in general. Can you highlight the challenges of institutional adoption of crypto, the current adoption, the players you see, and what needs to happen for it to advance further?

Sirada Lorhpipat

Sure, so specifically on the challenge for leveraged yield farming. The first challenge is risk management. Products like leveraged yield farming have inevitable risks like impermanent loss, smart contract risk, and general risk that people have to actively manage their positions to prevent liquidations and not be affected by the price movement of assets. So that’s one aspect. The second aspect is applicable to many DeFi protocols and products like Alpha Homora. We’re dealing with mercenary capital chasing high-yield opportunities. So, the product has to offer a strong and unique value proposition instead of just relying on high yields to maintain sticky users. So that’s one part where we see the importance of a good product-market fit to maintain sticky usage. The third challenge is to maintain deep liquidity at all times. To support institutional users that farm and lend in the millions range, we need to ensure we have enough liquidity to maintain needed optimum interest rates for both lenders and borrowers. We also need enough assets for borrowers and farmers to borrow in the millions range to open big farming positions. So, those are the three key challenges we’re always actively managing to help users achieve healthy risk-adjusted returns.

Jakob Kronbichler

Perfect, got it. Just to clarify, I have two questions. First, is the mix of protocol participants mainly retail or mainly institutional in terms of volumes on your platform? Second, when you talk about institutional users, are you only talking about crypto-native institutions, or do you even see interest from more traditional institutions?

Sirada Lorhpipat

For the first question, the proportion from December 2022 stats, the institutional usage contributes to about 40% of the TVL on our platform. About 20% comes from institutional lending, and about another 20% comes from institutional farming activities. And when we say institutional usage, we’re referring to position size above or equal to $1M in general. So, for example, if you go on Alpha Homora and look at the All Positions tab, you can see some farming positions in the millions range. Those would be the usual ticket size of institutional users. And for your next question, we see more product market fit among crypto-native institutions. More traditional institutional users are likely to require more regulatory processes, such as KYC and AML compliance, and are less likely to deploy assets permissionlessly. I think that would be more of a segment that Clearpool is serving.

Jakob Kronbichler

Thanks a lot for clarifying, and I think for us, it is similar. We do have our permissionless product. I think it’s a great product market fit for many crypto-native institutions, but we also see some of the traditional institutions already participating. You said something very accurate. For more traditional institutions to come into DeFi, there is something that prevents them from doing this: a clear regulatory framework and compliance around KYC and AML. This is actually why we are launching Clearpool Prime.

Clearpool Prime is a more institutional platform catered to those more traditional users, and on Clearpool Prime, we have both lenders and borrowers fully KYC’d, and we will also connect e-mail checks. And maybe something that you also touched on, when it comes to assessing risks, we see that sometimes for slightly more traditional players, it can get quickly quite overwhelming to do assessments on protocol risk, assessments on potentially even stablecoin risk, counterparty risks, etc. We definitely see that there are some concerns and it takes them a little bit longer. We see that a couple of players are tackling these markets, and I think there’s a lot of opportunity there as well. But that being said, we do see many large financial institutions at Clearpool, and we’re talking with the largest financial institutions in the world. They’re either already starting to enter crypto and DeFi, a few are already active, and the others are at least considering or planning their DeFi strategy. So, I would say that in the coming year, we will probably see a lot of movement there, and we’re very excited about our upcoming launch of Prime.

We can move on to the next question. So again, looking back at 2022, I think you already touched on it a little bit. You mentioned that you had a very big volume on Alpha Homora, and a lot of the crypto native and degens that were after high yields, they dropped. But I just wanted to understand it a little bit better. Can you go into more detail on how Alpha Homora has performed during the market turbulences in April and October 2022 and what the lessons learned are?

Sirada Lorhpipat

Sure, so I’ll go quarter by quarter, and then I’ll close out with the key takeaways that we learned. In the first quarter, our TVL was in the billions range, and the traction on Avalanche was the strongest. We had traction of around 600 to 700 millions in TVL on Avalanche alone. We were giving out extra liquidity mining programs from the Avalanche Rush program and Alpha tokens as well, which were quite effective in helping bootstrap the liquidity back then. We were going to scale to Terra as well, but we were quite fortunate that we didn’t end up launching, as the Terra ecosystem collapsed first before we launched. So, we quickly adapted and shifted our direction to launch on Fantom instead and gain a bit more TVL back then. So, back in quarter one, things were still fine.

But when we entered quarter two, that’s when the TVL dropped significantly and that was due to several factors. One was the Avalanche Rush rewards ran out, which is expected, and on Fantom, there was fading momentum due to news about Andre as well. And then there were also crypto funds affected by the Terra crisis so that all added up, and we saw a significant drop in TVL back then.

However, we learned to be quite agile, and we shifted our strategy quite fast to be less reliant on liquidity mining rewards. Because we did anticipate that after the rewards ran out, we would have to shift our strategy towards a more sustainable growth strategy and focus more on driving sticky usage from active institutional users. We also grew our integration hub to increase the use case of the protocol, and we grew a pipeline of partners that built yield strategies on top of Alpha Homora.

In quarter three, there were more CeFi collapses happening. Again, we focused more on the strategy to build good products with a strong value proposition to maintain the TVL and survive that period. So, we were the first protocol to launch leveraged liquidity providing on Uniswap V3 on Optimism. That roadmap helped us gain excellent organic traction with a first-mover advantage and a strong value proposition without relying on giving out liquidity mining rewards and also to withstand the turbulent markets. And finally, in quarter four, that’s when the FTX crisis happened. But fortunately, we were not affected by the FTX crisis since we didn’t have treasury exposure on FTX. Also, most of our users were crypto native and deployed assets on-chain. So we still saw high capital inflow in the millions range, and we also built stronger relationships with existing institutional users who loved our products and have been using our products since launch to help maintain the traction attraction.

Some key takeaways from all that are: one, we survived a turbulent market by building good products that users love and delivering strong and unique value propositions to drive organic traction without relying on liquidity mining rewards. Two, we maintain high adaptability and speed to adjust to any situation. The key to driving traction within a startup environment is just to be lean and agile. And three, we adopted a user-centric growth strategy to maintain sticky traction and retention rate with existing users that we see as quite active. We’re actively building relationships with them to help improve the retention rate.

Jakob Kronbichler

OK, thanks for the detailed explanation. Once again, I agree with your points that this year clearly showed us that liquidity mining is not the solution. It only works in a bull market. In order to make a difference in the longer term, you actually need to have a good product that users want to use. I always say that the best way to look at any DeFi protocol is to take the token out of the equation and just look at the product. If that product is good by itself, then it’s a good product. Otherwise, it’s something that, sooner or later, is probably not going to survive. I absolutely agree with you.

Just to add on our side, we launched in March 2022, so we had a very short period where everything was calm, and then very soon after, we had the Luna, 3AC, and Celsius incidents, one after the other. That had a negative impact on our TVL, so our TVL dropped significantly after those incidents. However, what we saw is that we had very strong growth throughout the year, up until November, when the FTX incident happened. We had very strong month-to-month growth, and the main reason is that when we built our product, we focused on making a very good product with a very good value proposition for our lenders. The main one was that we were the only unsecured lending protocol where lenders had the possibility to withdraw their funds at any point in time. We realized that before this year, before anything happened, there were no defaults, and lenders might not have minded locking themselves up for several months because everything was OK. But as soon as problems arose, liquidity was valued a lot more. By being the most liquid platform, we managed to grow significantly while the rest of DeFi has been decreasing and declining steadily.

This was up until November when the FTX/Alameda incident happened. That was a huge stress test for our protocol. The lenders were afraid, and everyone tried to withdraw their funds from the protocol. We see this as a positive, not a negative, in the sense that it was a very strong stress test for the protocol. The protocol worked as intended and allowed lenders to derisk over 150 million. So, at that point, we had 165M+ USD in total liquidity provided, and very quickly, that went down to 15 million. So 150 million in liquidity were withdrawn within a matter of days, and the protocol managed to do that without any issues. That has given a lot of confidence to lenders, and many of them are still on the side, waiting for the market to rebound. We are confident that once the market rebalances, there will be the appetite to borrow, the opportunity for trading firms, and the appetite to lend to the right players. The lessons here are that transparency is key. There’s really no one too big to fail, and there is no excuse for anyone not to be held accountable to the highest standards in terms of risk assessment and transparency.

Alright, then, move on to the next question. I would like to know your outlook for DeFi this year, 2023. How can DeFi further provide value, and how can DeFi grow further?

Sirada Lorhpipat

Sure, so I’ll split my response into two sections. One is on DeFi in general, and the other is on key drivers for institutional DeFi specifically.

In terms of DeFi in general, there are a few big narratives happening that could be key drivers for DeFi lending this year. One is the shift towards real yields, where users are becoming more focused on risk management and risk-adjusted returns. Another is the growing usage of L2s, as well as the narrative of Ethereum growing significantly this year. This could lead to higher traction among the Ethereum ecosystem and alternative DeFi lending assets. Additionally, the narrative of liquid staking derivatives (LSDs) is also growing this year, which could help accelerate the adoption of liquid staking and lead to more DeFi activities, such as lending.

For the next section, focusing on institutional DeFi, key driving factors include security. After the recent events with CeFi players, users are more concerned about where they place their money, especially for institutions deploying amounts in the millions range. For example, on our platform, we have strict security measures for our token listing framework to supporting blue-chip assets only and audits by top firms. We have an active bug bounty program, insurance options by InsurAce and Nexus Mutual, contracts whitelisting for integration partners, and definitely not an anonymous team to help gain more confidence from the community. We also have restricted the usage of borrowed funds to only leveraged yield farming to reduce default risk.

Another key driving factor is transparent real yields. We ensure that through transparent calculations, users get what they deserve. Finally, institutional support is also a driving factor. With growing trends in institutional adoption of DeFi lending, we anticipate that these activities will grow. We have BD and product teams to facilitate new listings of assets, farming pools for new yield strategies that match institutional requirements, and instant support and technical assistance. These institutional users can contact us whenever they need us, which helps them feel more comfortable in parking their money with us in the millions range.

Jakob Kronbichler

Great, thanks, Sirada. I think you’ve covered a lot of points that I was also thinking about. To add from Clearpool’s perspective, we believe that more regulation will come, and to drive institutional adoption, we need to have a compliant solution that they can work with. This is why we have developed Clearpool Prime and think that institutional permissioned DeFi will be a trend this year and in the years to come. In terms of lending, another category that we are very actively looking at and following is real-world asset lending. Fintechs that do not operate in the crypto space but provide lending solutions to SMEs or individuals in emerging or developed markets; we see this asset class as currently very hot. This also has to do with the fact that there were a lot of crypto crashes and there’s a lot of risk and uncertainty in the market, so having non-crypto related exposure but still benefiting from the increased transparency, efficiency gains, and composability of DeFi can be a major value proposition. We also believe that real-world asset lending will find wider adoption this year and in the coming years.

Finally, as I mentioned before, I hope that FTX, Celsius, etc., will be a lesson for everyone. When it comes to anyone participating in any DeFi protocol, especially for unsecured lending, we think the bar needs to be raised to provide more transparency. There will be more focus on real-time data and audited financials. It is just important that we, as an industry, do not assume that certain players are playing in a different league and do not have to be held accountable for what they do or provide transparent information.

Alright, final question for Sirada, could you comment on the future roadmap for both Alpha Venture DAO and Alpha Homora?

Sirada Lorhpipat

For Alpha Homora, we’re quite bullish on DeFi products and the usage we see going forward this year. We still see sticky usage for Alpha Homora even after the market turbulence, especially on ETH mainnet and L2s on Optimism. We’re doubling down our efforts on developing the platform and anticipating more institutional capital to flow into the DeFi space. We’re cooking up new narratives for Alpha Venture DAO and Alpha Homora as a whole. We will have some big product updates coming up soon towards the end of Q1 and big narratives coming out soon as well. So stay tuned and subscribe to our social media channels, and we’ll leak more info to the public shortly.

Jakob Kronbichler

Awesome, thanks. On the Clearpool side, the next big launch is our Clearpool Prime product, which we’re currently in the final stages of getting ready. We already have the first borrowers that are being onboarded. Clearpool Prime is a more institutional-focused platform, with everyone going through KYC, both lenders and borrowers. It will also be slightly different from our current permissionless product because we will have fixed-term loans. Borrowers can request or send out a loan proposal, and whitelisted institutions can fill these proposals within Clearpool Prime.

We are also looking at several new products for our permissionless product, where we see what we’ve done so far as just the first building block that has found product market fit. But now we’re looking to build more products and add more value on top of what we have now, so exciting products are coming up. I’m personally very excited about our ETF product, which is a product where as a lender, you can buy an ETF that will allow you to get diversified exposure across different borrower types. Once we have different borrower verticals, you could have one for high-frequency trading firms and one for fintechs and whatnot.

We also have a fixed-term loan product on our roadmap, which will also allow us to do secondary trading of LP tokens. There are also a couple of other products that follow, but I can’t tell too much. We’re planning to build a fully decentralized capital market and ecosystem, and what we have so far is just the first building block of what’s about to come. We are currently onboarding new borrower profiles, launching new bar verticals, and getting ready to launch different currencies, such as Ethereum and Bitcoin.

Great, so I think we’re at the end of this AMA. Thank you so much, Sirada, for joining us and telling us about Alpha Venture DAO. It’s been a great pleasure, and I think it was very informative for me personally and our whole community.

Sirada Lorhpipat

Thank you, Jacob and Clearpool, for hosting the AMA. It’s great to learn more about Clearpool and institutional DeFi and get to know the Clearpool community as well.

Jakob Kronbichler

Great, thank you a lot. I hope we continue to work together, and I’m excited to see what’s next and what new products you guys will launch at Alpha Homora. With that being said, thank you, Sirada, and thank you to everyone who tuned in, wherever you are in the world. Have a good day/evening/night. Here in Hong Kong, I’m finishing my day. Thank you very much. Bye bye.

Sirada Lorhpipat

Thank you. Bye.