AIP-6.2 Limiting Access to Automated Vault
Due to strong demand for Automated Vaults and potentially limited capacity, some community members have requested that the core team put up some sort of limitation on who can invest in the Automated Vaults.
Based on the current pool’s APR and liquidity, we estimate that an additional ~200 Mn TVL can be accepted by the Automated Vaults at current metrics. While this number is not small, we believe that the demand will be higher, given a good track record so far of the vaults’ performance and the current market conditions.
By limiting access to certain Automated Vaults, we can add value to the Alpaca ecosystem and give privileged access to valued community members. So far, we have launched 3x and 8x Automated Vaults. Their characteristics have several differences (APY, Sharpe Ratio, max drawdown.) Depending on their goals, investors can choose a vault that is more suitable for them. So far though, the 8x vault has been more popular given its higher APY. And because of its higher leverage, the capacity gets filled up quickly, recently within minutes of launch.
Given the facts above, after an internal discussion, we are proposing categorizing Automated Vaults into two groups and limiting their access as follows:
- Low-Leverage Vaults: allow public access to <= 4x Automated Vaults
- High-Leverage Vaults: limit access for > 4x pools Automated Vaults to only xALPACA holders
While we have only offered 3x and 8x automated vaults so far, in the future, we could potentially offer other leverage -e.g, 4x, 5x, etc., vaults on LP pairs with lower underlying yields such that the APY is comparable to the higher yield pool such as BNB-USDT. Our goal is to keep the Vault’s APY roughly the same across different LP pools to minimize decision making / rotation for users to seek higher yield, which would cost gas and swap fees.
Only xALPACA holders will be able to invest in the high-leverage vaults. The max amount a user can invest in all pools will correspond to the xALPACA balance they have. We propose a linear & dynamic allocation quota as described below:
Linear: the more xALPACA you hold, the higher allocation you get:
2 xALPACA = $1 total allocation across all high-leverage vaults.
- Example: Alice has 10,000 xALPACA, she is entitled to invest up to $5,000 USD across all high-leverage vaults.
- For clarity, this means that Alice, for example, can invest $2,000 in on high-leverage vault, $500 in another vault, and $2,500 in another vault etc. But overall when all her investments across all the high-leverage vaults are summed up, they cannot exceed $5,000.
- The allocation is counted against the current value of the investment and not the cost-basis. So as the investment appreciates in value, it takes up additional allocation.
Dynamic: ratio will be adjusted periodically based on ALPACA price.
- Example: current ratio is 2xALPACA = $1 allocation. ALPACA price increases by 100%, the new ration becomes 1xALPACA = $1 allocation, maintaining a constant $ ratio allocation.
Other Implementation Notes:
- The allocation refers to equity value. So $1 allocation means you can supply $1 worth of asset to have $8 TVL in the vault (for 8x vault)
- We will track the amount invested in each vault’s smart contract (and not # of share token in the wallet.) So users cannot game the system by transferring the token out of their wallets to gain additional allocation.
- xALPACA balance will be determined in real-time (or weekly snapshot pending implementaion challenges), on-chain, at the time of the investment
- It would add considerable implementation effort to account for cross-chain xALPACA balance, so the initial implementation will only be for BNB Chain stakers for access to high-leverage vaults on BNB Chain.
- While this topic is in discussion, we will pause opening new high leverage vaults until the implementation of this proposal is completed (if passed.) Lower leverage vaults will continue to be added on a regular basis if the capacity is full in all the active vaults.
- The estimated time for implementation is 2-3 weeks (once we add it to the sprint) If passed, you can expect it to go live towards the end of May.
- We can’t do anything with the existing investors in the current high leverage vaults. However, once they withdraw, they can only invest back again if they meet the criteria.
For absolute clarity and fairness, we will do a series of two votes for this AIP. This is the second vote in the series of two votes.
Second Vote: The first vote passed. We are now having a second vote to determine the parameters for limiting access to the vaults.
Based on the discussion and feedback so far, and in an effort to move this proposal forward in a reasonable time, I would like to propose that we lock in some of the mechanisms below:
- Allocation will be across all high-leverage vaults
- Linear Allocation
- Dynamics ratio, adjusted on a monthly basis at the beginning of each month
- To prevent manipulation, we will use TWAP of ALPACA for the 1 week prior to the ratio adjustment
- Voting will be on setting the xALPACA allocation ratio only
Option1: $1.0 worth of ALPACA locked for $1 allocation
Option2: $1.5 worth of ALPACA locked for $1 allocation
Option3: $2.0 worth of ALPACA locked for $1 allocation
Option4: $2.5 worth of ALPACA locked for $1 allocation
Option5: $3.0 worth of ALPACA locked for $1 allocation
For example, with ALPACA current price of $0.66, option#1 would require $1 / $0.66 = 1.5 xALPACA for $1 allocation. option#2 would require $1.5 / 0.66 = 2.30 xALPACA for $1 allocation.
- Community voted for Option#1 ($1.0 worth of ALPACA locked for $1 allocation)