Applying Debt Rebalancing Concept to Offload Pressure

Applying Debt Rebalancing Concept to Offload Pressure

As the Alpha Venture DAO team and core contributors continue to double down on key strategies that will not only power Alpha through the bear market but also ensure Alpha comes out stronger than ever in the next bull market, we’d like to share more details and keep our community updated with regards to how the undercollateralized debt portion between Homora V2 (one of Alpha’s products) and Iron Bank will be handled.

Background Context

Alpha and Iron Bank have agreed back in early 2021 on how the debt will be handled. Specifically, Alpha will use 20% of Homora V2 protocol fees, or earned platform revenue, to pay down the debt. With the agreed debt paydown process, this means that:

  • Alpha Venture DAO treasury is not impacted
  • ALPHA token is not being sold to pay down the debt since debt paydown is done through selling actual underlying assets earned from the platform (e.g. WBTC, ETH, USDT, etc.) to assets needed to be paid down

Applying Debt Rebalancing Concept to Offload Pressure

With the recent periods of macroeconomic and crypto market decline, the importance of managing debt well is more apparent than before, especially in the ETH lending pool on Homora V2 that faces significantly high utilization rate. To alleviate the pressure and ensure a smooth user experience in using Homora V2, we will rebalance the undercollateralized debt from WETH to USDT, as the USDT lending pool’s deep liquidity will be able to handle the pressure better than the ETH lending pool. As a result, the utilization rate for ETH lending pool should come down to the usual range and not rise to ~100% utilization rate.

How will this be done?

  • Homora V2 will borrow USDT from Iron Bank
  • Borrowed USDT will be sold to WETH
  • WETH will be used to pay off the debt
  • The above process is repeated until partial amount of WETH debt is rebalanced to USDT

This process will happen gradually and in multiple batches until sufficient debt is rebalanced to the point that all parties return to a functional state.

Looking Forward

The solution outlined is in addition to the ongoing debt paydown process (from 20% of Homora V2’s protocol fees) as explained above. Protocol security and users' experience in using our protocol are our utmost priorities. When coming up with the solution presented above, we made sure to consider all parties, including users, communities, and long-term growth prospects of the project for both Alpha and our partner, Iron Bank, and this will continue to be the framework we use to combat any challenges that may come at us.

Finally, with the current bear market, we are all hands on deck on focusing our energy and resources on initiatives that will move Alpha Venture DAO as a project to the next level, preparing ourselves to capture the next bull run well. For example, growing Homora to be the backbone of multi-chain yield optimizing strategies, building and launching ZAAP, Alpha Venture DAO’s new product, successfully with strong product market fit, and getting our incubator program up to speed to generate long lasting and sustainable value to the Web3 community.

About Alpha Venture DAO (Previously Alpha Finance Lab)

A Builders’ DAO. We explore and innovate at the fringes of Web3 and drive significant value to Web3 users, and ultimately, alpha returns to the Alpha community.

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