Alpha Homora Now Supports Uniswap WETH/YFI Pool

Alpha Homora Now Supports Uniswap WETH/YFI Pool
TL;DR. Uniswap's WETH/YFI pool is now supported on Alpha Homora (up to 1.75x leverage). The pool's liquidation debt ratio is set at 60% (liquidation takes place when debt is 60% of position value).

Alpha Homora now adds support to WETH/YFI pool. What do yield farmers get from opening leverage yield farming position on Alpha Homora?

  • With 1.75x leverage, yield farmers can earn trading APY up to 67.50% 7-day APY (this does not include interest to be paid for the borrowed ETH).
  • Trading fees according to Uniswap.

WETH/YFI Pool Parameters

The parameters for WETH/YFI pool will be set as follows:

Name Value Function Description
Max Debt Ratio 50% workFactor() Maximum debt ratio when opening/adjusting a position.
Liquidation Debt Ratio 60% killFactor() Debt ratio threshold. If exceeded, anyone can liquidate the position.
Note 1: Oracle price threshold is set to 30% (same value as all other pools). If the pool's spot price deviates by more than the threshold, Alpha Homora reverts any transaction to open/liquidate positions to prevent pump/dump scenario.
Note 2: Alpha Homora will allow up to 1.75x leverage yield farming.

Parameter Analysis

We performed statistical analysis on asset price volatility based on historical price data. Since Alpha Homora essentially half-shorts ETH, the position value is inversely reflected by ETH price (relative to farming token). If ETH price goes up, your position value goes down, and vice versa.

So, the more volatile the ETH price relative to the farming token is, the more volatile the debt ratio can swing. By allowing up to 1.75x leverage and setting killFactor to 60% for the newly added pools, this guarantees a large buffer before the position would be at risk.

WETH/YFI Pool Statistical Analysis

Most recent 3 months price data is taken from Poloniex.

From the price data, we calculate the maximum change within each of the given time period. For example, a 30-min data point would be calculated from maximum price to minimum price within the 30-min window.

Here's a summary table of the ETH/YFI price change in each given time window:

5-min 30-min 1-hr 1-day
Mean 0.61% 2.44% 3.81% 23.38%
Median 0.26% 1.96% 3.15% 19.82%
95th percentile 1.64% 4.73% 6.88% 39.66%
99th percentile 3.88% 10.23% 13.97% 82.21%
99.9th percentile 7.57% 17.22% 26.79% 97.33%
Max 11.4% 47.91% 60.18% 101.71%
Std.Dev. 0.86% 2.07% 2.90% 13.25%
For example, an average value of maximum price change in 30-minute window is 2.44%.

Yield Farmers Liquidation Risk

  • At 1.75x leverage (debt ratio 42.68%), the position is at liquidation risk (debt ratio 60%) when ETH price goes up 97%.
  • At 1.5x leverage, liquidation risk when ETH price goes up 224%.
  • At 1.25x leverage, liquidation risk when ETH price goes up 800%.
  • At 1x leverage, no liquidation risk.

The lower the leverage, the higher the buffer before your position is at liquidation risk.

Underwater Position Risk

ETH lenders may accrue debt in case a position's debt ratio is over 95%. This will be the case when liquidators did not react in time (after the position becomes liquidatable at debt ratio 60%).

However, for the debt ratio change from 60% to 95%, this would require ETH price to go up 2.5x before any liquidators can act. The above table shows that such event is very unlikely (1-day change would change the price by at most 2x).*

*DISCLAIMER: Historical data does not guarantee the future.