(Strategy / Vault) Alpha Homora ETH Leveraged ETH/YFI

Summary:

This is a proposal to build an ETH strategy, either as a stand-alone vault, or as a V2 strategy in another ETH vault. It proposes the use of Alpha Homora’s (AH) leveraged and lending contracts.

Abstract:

This vaults an idea to grow ETH while simultaneously benefiting on the market trading of YFI on uniswap. The protocol of choice for this would be Alpha Homora (https://homora.alphafinance.io/)

Motivation:

I have been watching this protocol for quite some time and they have been chugging alone nicely. Their community is responsive and they are continually adding new products to their suite. They support the promotion of $YFI, and I would like to support this product.

Specification:

The yearn vault will accept ETH deposits. The ETH is the vault will be divided up in a 20/60/10/10 proportions as to be described below.

The first 20 percent will be put into AH as lent ETH to obtain ibETH from there. Currently the ROI on lent ETH is 8.8% but I have seen is around 15% and as low 4%

The 60 percent will be used to open a fully leveraged position in ETH/YFI.
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This position will need to be monitored and I am not sure if this is even possible in the coding, but I assume it is. This position will work hand-in-hand with our yYFI vault and capitalize on trading fees that are produced.

The 1st 10percent will be used in the event that our leveraged position moves into the danger of liquidations, perhaps below 5% of the kill buffer.
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The exact risk level acceptable will need to be considered carefully and mathematically, which is beyond my abilities.

The final 10% should be left in the vault for withdraws.

In the event that the 10% held to cover liquidations is fully utilized, the ibETH, mentioned above, can be redeemed to further refill the position, and avoid liquidations.

Here is a simple flow

There is also currently ALPHA rewards paid to leveraged positions for a month, but this is not sustainable. Just a bonus

For/Against AH Vaults
  • Start to work on the balance to find the ideal numbers.
  • Forget this and the risks of ImpLoss

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I also see this as a viable strategy for use with the ETH/DPI pair, especially if a DPI vault is produced.

This looks interesting but have there been any audits performed on the AH platform?

How does the ibETH monitor the position of leveraged YFI/ETH?

When you say leverage of YFI/ETH what does that mean exactly? Are you selling 60% of the ETH that goes into the vault in order to make it a 50/50 split between YFI and ETH and then taking on a leveraged long position?

What impact does v2 vaults have on this strategy versus current v1 vaults?

The ibETh monitoring will most likely require a keeper.

AH protocol has already built out the leveraging mechanic. I have not looked under the hood, and wouldn’t be able to see what Inwould be looking at. But in the case of this proposal. .75 ETH would be borrowed then the entire split 50/50 (I assume. Again this function is already in place at AH)

I assume in V2 this could be one of the strategies in a way vault.

I found out the deposit ibETH vault strategy is already written and in testing.

Audit is here

but I have asked if they are tucked away anywhere

It’s just a loose idea that I wanted to get out for someone more technically capable to look at.

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@Ceazor I would recommend talking with @banteg or whichever strategist developed the current Alpha Homora strategy that’s in place for both the test DAI and ETH vaults, I’m not sure what it does but I know it exists.

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So Sam. Do you feel this is viable? Seems a bit more to consider than just harvests, swaps, and deposits.

After talking with Macarse, it is suggested that the 10% ETH reserved and perhaps even the 10 % ETH withdraw buffer can all be converted to ibETH (interest bearing) entirely. giving a new simple ratio of 40/60, or perhaps 30/70

this makes sense for several reasons

  1. To liquidate ibETH back to ETH for refilling leveraged positions is a simple straight forward function.
  2. the gas cost of 1. is negligible.
  3. ibETH is not actually functioning as collateral, which was never stated but also not explicitly mentioned in the OP, and can therefore be completely redeemed without any threat to the leveraged position.

On another note, but worthy of note, I was able to discern, from being in contact with the AH team and reading the docs, that the protocol was funded by grants and thus is running on funding and there are zero fees being collected at this time. “We are focusing on building out the protocol”. However, there is a 10% spread on the borrow and lend apys that is used to fund a “reserve safety pool”

There is mention of this pool here, but it fails to articulate the potential use cases of the pool.

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