Today we continue to talk about a more interesting project, which is also in the field of defi and leveraged liquidity mining. However, it has made some innovations based on AAVE. It is Stella, originally named Alpha Venture DAO. A leverage strategy protocol with zero borrowing costs. The current market value is 60 million US dollars, ranking 300+, and then let’s take a look at its innovations.
Introduction
ALPHA token is the native functional token within the platform. Alpha Finance Lab is a cross-chain decentralized financial platform that aims to establish a product ecosystem on Binance Smart Chain and Ethereum that brings the best benefits to users. The first product launched by Alpha is Alpha Lending, which is a decentralized lending platform based on algorithmic adjustment of interest rates. Alpha Lending is issued on the Binance Smart Chain (BSC) testnet and will become an important part of DeFi applications on BSC. On March 31, 2022, Alpha Finance Lab announced that it would be renamed "Alpha Venture DAO". On June 9, 2023, Alpha Venture DAO was renamed Stella. It has been deployed on the ARB chain in June 2023.
Stella’s mission is to redefine how “leveraged DeFi” works. DeFi needs a good leverage system to drive usage of DEXs and money markets, which are fundamental building blocks of DeFi. As usage of these fundamentals increases, more protocols and new innovations are likely to emerge, leveraging deep liquidity and strong fundamentals. Stella’s 0% borrowing costs and pay-as-you-go (PAYE) model aligns the incentives between borrowers (or “leveragers”) and lenders for the first time, proposing a new and better way to leverage in DeFi - one party does not lose when the other gains. Designed to help leveragers and lenders achieve the highest earning potential in DeFi.
Mode of operation
The Pay As You Earn (PAYE) model allows leveraged traders to access a variety of leveraged strategy options based on various defined protocols. Margined traders do not need to pay borrowing interest quoted by lenders to increase their positions, they only need to share the profits obtained when closing the positions, which means no profit = no payment.
The existing utilization-based IRM is replaced with a Pay As You Earn (PAYE) model, aligning the incentives of leveragers and lenders and enabling all parties to earn fair and high real DeFi yields. Ultimately, a new fundamental standard is set for the next level of DeFi innovation through new ways to leverage and lend.
PAYE Model
To incentivize borrowers to use the liquidity in our ecosystem to generate the highest possible yield, Stella adopts a model where the higher the annualized yield, the lower the amount shared with the lender, and only the yield on the leveraged portion is used to calculate the cut.
for example
Alice provides 1000 USDC and opens a position with 4x leverage on the Uniswap V3 ETH/USDC 0.3% strategy by borrowing 2 ETH and 1000 USDC (ETH@1000).
Exactly 30 days have passed, Alice's position has incurred transaction fees, and her current position value is now $4,200
Alice closes her position and gets $200/30 days profit
So, Alice's location has the following information
Profit = $200
Annualized rate of return = 60.83%
Yield deduction = 31.36%.
After closing the position, the system distributes the generated profits between the leveraged trader and the lender as follows:
The total profit of $1,150 will be divided into 2 parts:
With a base yield of $50, the position will earn 1x (without any leverage)
$150 leveraged profit
A leveraged yield of $2,150 will apply to lenders, resulting in a 31.36% drop in yield
$102.96 to Leveragoor
Credit $47.04
3. The total benefits of both parties are as follows
$50 + $102.96 = $152.96 to Leveragoor (LP)
Before deducting the agreement fee, the lender receives $47.04
Stella deducts 25% of the amount allocated to lenders as a protocol fee. The net portion dedicated to lenders will be split again in proportion to the borrowed value of each token.
Assume that Alice's current position consists of 2.05 ETH + 2,150 USDC, and the ETH price is still @1000. After repaying the debt, Alice's position will have 0.05 ETH + 1,150 USDC remaining.
We can calculate the amount of tokens that need to be shared with the lender as follows
1. Calculate the loan ratio
Alice borrowed 2 ETH and 1000 USDC, so the ratio will be 2:1, ETH:USDC, where ETH@1000
Total loan value = $1,000 + $2,000 = $3,000
2. Calculate the number of tokens required for each part
Usdc = 47.04/1 * 1/3 = 15.68 Usdc
Eth = 47.04/ 1000 * 2/3 = 0.03136 Eth
3. Share the profits with the lenders, and then keep the following number of tokens, which will be returned to the leverage institution
Usdc = 1150 - 15.68 = 1134.32 Usdc
Eth = 0.05 - 0.03136 = 0.01864 Eth
To summarize, the leverager provides 1,000 USDC, borrows 1,000 USDC + 2 ETH to open a position, and obtains a yield of $152.96, which is equivalent to 134.32 USDC (134.32 USD) and 0.01864 ETH (18.64 USD).
Token Economy
The first issuance time is 2020-10-10, the maximum supply is 1,000,000,000 ALPHA, the circulation volume is 798,000,000 ALPHA, the circulation rate is 79.8%, and the current price is 0.076 US dollars. The peak was 2.9 US dollars (21 years), and it has basically fallen. In terms of token distribution, the team only took 15%, which is still relatively low, and the TVL on the chain is only 10 million US dollars, which is not very high. This size of DEFI project should not be enough, although it was only deployed on the ARB chain in June.
Finally, let's summarize. This project is still innovative to a certain extent. At least, compared with the ordinary lending platforms we see on the market, such as Compound and AAVE, Stella adopts a leverage strategy to allow LP providers to get greater returns. However, there is a problem that its own token has no connection with the project itself. This is also a common problem of many projects in the DeFi field, including UNI. Another question is whether this demand is a real demand. I think there is some, but not much, because if you want to earn more returns, others should also be able to make more money. Your money making is proportional to the risk. If others can make money through leverage, then why should they borrow your money? Share the profits with you? This mechanism seems to benefit LP providers more, but it is not the case, because it also says that if others can't make money, you can't get any returns, so this is reasonable. From this point of view, it seems that this demand is not so reliable.
