We senior alpacas do our best to never stop innovating. With the success of our Market-Neutral Automated Vaults, we’ve continued working hard to find more ways to allow the Herd to earn high yields at low risk. Now, after much input from the community and discussions in the barn, we’re excited to announce a new type of Automated Vault —the Savings Vault!
Each Savings Vault will provide 1x Long exposure on a top crypto asset (e.g. BTC, ETH, BNB) while earning you sustainable, high yields!
In other words, if you want exposure to top crypto tokens, investing in a BNB Savings Vault will be similar to staking in a BNB lending vault or holding BNB, except you’ll be earning much higher APYs!
The invested capital will generate passive income through automated yield farming(DEX market-making), at high leverage that only Alpaca can provide(3x-8x), and most importantly — with no risk of liquidation!
Sounds too good to be true? Well, nothing is impossible at our magical alpaca farm. Read on below for more details.
👷🏻♂️How it works
Similar to the Market-Neutral Strategy, the Savings Strategy opens two leveraged yield farming positions, one long and one short. However, where the two strategies differ is that the Savings Strategy balances the relative sizes of the long and short positions such that your aggregate exposure on the crypto asset remains at 1x long instead of market-neutral. Thus, you can deposit assets like BNB, ETH or BTC into a corresponding Savings Vault, keep the 1x long exposure on the asset, and earn much higher yields on those tokens than is otherwise typically available through single-asset lending or staking in DeFi or CeFi.
Like all Automated Vaults, if market prices move, the Savings Vaults rebalance their positions to maintain the desired exposure on the Savings asset, which is 1x long here. Meanwhile, Savings Vaults are always generating passive income for you by deploying the capital into automated market making on top DEXes, at high leverage, but with 0 possibility of liquidation due to how the Vaults automate risk management. This makes investing in a Savings Vault effectively similar in risk to investing in single-asset lending or staking of crypto tokens, but with much higher APYs and no lockup.
Furthermore, Savings Vaults also auto-compound your yields, making it a product you can deposit into and not have to actively manage it. In fact, you won’t need to do anything except watch as the number of crypto tokens in your portfolio grows.
💡 Market-Neutral Vaults are in fact, USD-denominated vaults. Meanwhile, Savings Vaults are crypto-denominated. For example, a BNB Savings Vaults is BNB-denominated. Here, being denominated in a certain asset means the underlying capital has exposure to that asset and earns its yield in that asset.
So another way to think of the Savings Strategy is as a coin accumulation strategy, where it continually earns more of the corresponding coin(crypto asset) for you.
Example: 3x BTC Savings Strategy on the BTC-BUSD LP pool
- Alice invests 4 BTC into a BTC Savings Vault
- 1 BTC = 45,000 BUSD
Position#1: deposit 1 BTC and borrow 2 BTC
- Assets in LP: 1.5 BTC + 67,500 BUSD
- Exposure: Short 0.5 BTC | Long 67,500 BUSD
Position#2: deposit 3 BTC and borrow 270,000 BUSD
- Assets in LP: 4.5 BTC + 202,500 BUSD
- Exposure: Long 4.5 BTC | Short 67,500 BUSD
Net exposure of the two positions: Long 4 BTC (i.e.,1x Long)
As seen from the example above, Alice ends up with 4BTC long exposure, the same as what she originally had, but she is now earning 3x the yields of farming with no liquidation risk.
Investing in the Savings Vaults will be very simple just like Market-Neutral Vaults. The backend contracts will do all the hard work of monitoring the positions and maintaining the 1x Long exposure by performing re-balancing when required.
We have performed extensive backtests for the Savings Strategy and the backtests have proven the strategy profitable. Please see below example results from our backtests.
BTC Savings Vault (3x Biswap ETH-BTC pool)
- APY: 28.7%
- Max Drawdown: 0.15%
- Sharpe Ratio: 20.3
- Raw Data
ETH Savings Vault (3x Biswap BTC-ETH pool)
- APY: 30.6%
- Max Drawdown: 0.1%
- Sharpe Ratio: 22
- Raw Data
📈Benefits for xALPACA holders
- Private Allocation: Since the recent vote has passed to privatize allocation of high leverage Automated Vaults to xALPACA holders, we will also do so with Savings Vaults should we plan to launch higher leverage.
- Additional AV Capacity: We’ll be able to get additional capacity in Automated Vaults from these new Savings Vaults because they can deploy into crypto-crypto pairs like BNB-ETH, which Market-Neutral Vaults cannot. This means Savings Vaults will bring in additional platform revenues.
- Higher Utilization on Unused Capital: Savings Vaults will increase the utilization on unused capital of lending assets like ETH and BTCB, providing higher revenues for ALPACA holders and higher APYs to the lenders.
- New Investors: When it comes to the DeFi products that exist on the market for single-assets like ETH and BTC lending, the APYs are much lower than even market-neutral stablecoin products. Soon, however, Savings Vaults will provide a similar product to single-asset lending & staking but with much higher APYs — in the double digits. This should attract a number of BTC and ETH investors that are currently earning much lower yields elsewhere(typically below 4% APY).
The first batch of Savings Vaults will go up on 12th May around 10:00 AM UTC. The specific pools will be announced by early next week.
We believe this new product line will bring in a lot of new “Maxipaca” investors who want to hodl their BTC, ETH and BNB but would prefer higher yields while doing so. So everyone in the Herd should look forward to making new friends.
Furthermore, the benefits of Savings Vaults to the protocol and xALPACA holders are numerous, so no one would criticize you for expecting your portfolio’s tokens to soon include new token friends as well 😄
Introducing Savings Vaults— a New Automated Vault Strategy was originally published in Alpaca Finance on Medium.