What is required to make it in crypto?
Hipun founder of Alpha Homora (1.9b peak tvl) shares his insight
Welcome the 46 newly lambro substack frens who have joined me since June!
If u haven’t, join the 10.8k 2lambro Twitter frens & 923 substack frens now
We are still early, learning, growing with u guys since january 2023
What is required to make it in crypto?
@n1punp co-founder of Alpha Homora (1.9b Peak TVL) sharing his experience as a building and his new product @stellaxyz_ !
Short intro
I am Nipun, co-founder & Tech Lead of Stella, focusing on smart contract development, blockchain research and protocol risk analysis.
In the past, I’ve competed & won 3 gold medals & 1 silver medal frm International Math Olympiads (IMO) & ranked 3rd in math globally.
My interest in the crypto space started during my college years at MIT where I started to learn more about Bitcoin, Ethereum, and smart contract concepts. And yes, here I am now in this space.
📍How did Nipiun fall into the crypto rabbit hole
I was exposed to crypto early on at MIT when I was studying my undergraduate and was interested in its core tech, innovation, and people in the community ever since.
Developers in crypto are definitely one of the smartest people, and it’s fun and exciting to be learning, contributing, and just being in this community with them. So since then,
I’ve stuck around and fallen deeper into the crypto rabbit hole until I met Tascha and co-founded Stella (previously Alpha Finance Lab) together.
📍 Nipun's interesting alpha homora building experience
Prior to Alpha Homora, one of the key developments and products built under Alpha Finance, we were actually building and planning to launch another product.
However, the craze of yield farming & the rise of many DeFi protocols with various incentives created big shifts in DeFi.
Instead of sticking through the planned product, we decided to fold that & build a new product, Alpha Homora, in 2 weeks to capture the opportunity in time.
The journey was fruitful. The important lesson here is that you can only plan as much.
At the end of the day, your product will go live in the market, and it is key to listen, understand, and react according to the market demand. Of course, you cannot react to every opportunity, and it is fine to miss some, as there will always be the next one.
📍TLDR of what is Stella
Stella is a leveraged yield strategy protocol that works on the PAYE (pay-as-you-earn) model.
Stella enables users to take leveraged positions at 0% cost to borrow.
Users can access high APR strategies as Stella is one of the first protocols to enable leveraged liquidity providing on Uniswap V3 concentrated liquidity.
There are more strategies in the pipeline, e.g. Liquidity Book (Trader Joe) and GLP (GMX), to ensure the maximum capital efficiency on user assets.
📍How the team was founded and now Stella finance
I got connected with Tascha through a mutual friend. We both have been in crypto for a while and really hit it off when we talked about our views in DeFi and different ideas we have if we were to build a protocol.
And that was the beginning of Alpha Finance Lab that we started in 2020 as a DeFi lab to experiment and build multiple innovative ideas around leveraged DeFi to push DeFi forward.
Some of the key developments were coming up with leveraged yield farming concept and building Alpha Homora, the first leveraged yield farming protocol, that has a peak TVL of $1.9B
Under the new name (Stella) and the same token (ALPHA), the same core development team aims to double down on expertise in building an on-chain leveraged product.
With Stella protocol that enables leveragoors to take leverage on various DeFi strategies with 0% cost to borrow and lenders to earn real yields without a maximum cap on lending APY
Stella aims to unlock highest yield potentials for DeFi users in this moderately low yield DeFi market.
📍PAYE is an interesting model can u share more on how the idea came into life and what were the thinking process of setting the different rates?
DeFi needs a good leverage system in order to drive more usages on DEXes and money markets, the fundamental building blocks of DeFi. With growing usages on these fundamentals, more protocols and new innovations can arise and tap into the deep liquidity and robust foundation.
But with low DeFi yields now, and we don’t expect as crazy yields in DeFi as in the last DeFi summer, on-chain leverage products need to fundamentally change
Currently, leveragoors end up paying high double digit borrowing cost to chase single digit yield on leverage, resulting in negative APY, unhappy users, and ultimately even lower liquidity in DeFi
This leads us and Stella team to solve this big issue by redesigning how users can take leverage on-chain through Stella’s 0% cost to borrow and Pay-As-You-Earn (PAYE) model
The thinking process behind the PAYE model is to incentivize leveragoors to make more yields. Hence, the % of yield cut shown on PAYE graph starts from 100% (or leveragoors get 100% cut) if yield generated is 0%. The % of yield cut decreases as leveragoors’ yields increase.
This continues until the annualized yield generated is more than 50%, in which the yield cut will be close to 30%, and finally converge to 25% as yield gets larger.
We believe 25% yield cut is the minimum % cut that will still make leveragoors happy while making sure lenders get a fare share of yields generated for lending the capital (100% * 25% = 25% upon lending). However, the parameter can be changed based on usage and user behaviors
This PAYE model then does not only incentivize for more yields for everyone (leveragoors and lenders), but also pushes for higher capital efficiency on the lent assets as more yield is generated from every token borrowed.
📍Leverage v3 LP brings great yield but as well as more impermanent loss, as it is bounded by range, users typically needs active management,
what is the thinking model/process in providing the range/ strategy parameter?
- Optimal price range for users
Stella shows on the frontend the recommended and optimal price ranges that aim to provide the maximum value to users.
These recommended and optimal price ranges have been back tested with historical data under different scenarios to arrive at price ranges that generate the highest yield most consistently (high mean with low variance yields).
These scenarios take into account different times to open a position and multiple duration the position remains open to simulate Stella users’ behaviors.
- Collateral Credit and Borrow Credit to achieve max capital efficiency
Additionally, to ensure that users can achieve maximum capital efficiency while remaining safe from price volatility,
Stella treats each asset differently + treats the same asset differently
When it is used as a collateral vs. as a borrowed asset using Collateral Credit and Borrow Credit.
The Collateral Credit and Borrow Credit for each asset also differ based on the paired asset to make sure the more correlated tokens can achieve higher capital efficiency.
For instance, $1 of USDC as collateral would get 0.88 Collateral Credit if it were used to borrow ARB vs. 0.97 Collateral Credit if it were used to borrow USDT.
- Additional safety measures
Stella has also added additional safety measures with multiple types of caps.
Since Stella revolves around integration with multiple strategies and each strategy may have different risk appetite.
The multiple types of caps ensure the protocol doesn’t have too much exposure on certain tokens, strategy, underlying liquidity pools, or externally integrated protocol.
📍 Can u share more about ur future strategies like LSD and roadmap?
At launch (June - July), Stella is aiming to integrate with leading protocols on Arbitrum, e.g., Trader Joe, GMX, Radiant, to enhance liquidity infrastructure through leveraged strategies.
After building foundation on Arbitrum, we expect utilities and infrastructure in LSDfi will become more mature, making it possible to leverage LSD strategies, e.g., LSD-backed stablecoins, LST-ETH LPs, yield tokens (Pendle).
Launching on the Ethereum mainnet is the main milestone in Q3, while we also closely monitor the growth of TVL and innovative protocols on zkSync and Mantle to build leveraging tools on top.
📍 Any special alpha to share with the community?
Stella is looking to revamp the tokenomics later this year. No specific details on tokenomics yet, but we definitely value early users and community contributors!
📍What do think is required to make it in crypto
Spotting the right opportunity at the right time requires experience, and the more you continue to buidl the more that experience compounds.
Building is not just executing but really understanding the trends, what users will eventually want, why are users behaving this way, etc., and you can tailor the product to capture the right demand at the right time based on these views.
Thank you for Nipun’s time!
Do check out my pervious post on what is Stella, their product is defo interesting to use!
