Introducing Profit-Sharing Primitive: The Equilibrium to Incentivize Borrowers and Lenders Through Alpha Chambers and Alpha Homora

The existing money market faces scalability issues due to its dependence on the interest rate model (IRM), which leads to misaligned incentives between borrowers and lenders and thus limits profit potential for both parties. While lenders strive for a high utilization rate to increase their profits, borrowers aim for a low utilization rate to secure lower interest. However, by re-inventing the profit-sharing primitive, we completely remove the existing interest rate model (IRM) and align the incentives of both lenders and borrowers to provide a solution that allows all parties to earn fair and profitable yields.

Check out our previous blog post here to learn more about this mechanism and its potential to revolutionize the DeFi ecosystem.

Leveraging our expertise in building Alpha Homora, we are thrilled to introduce our latest product, Alpha Chambers, a profit-sharing lending protocol. Our goal is to establish a system in which the incentives of projects, borrowers, and lenders are fully aligned. We remain steadfast in our pursuit of a more inclusive and collaborative DeFi landscape.

Alpha Chambers provides liquidity to borrowers on Alpha Homora, enabling them to select from a variety of highly profitable strategies. This creates a closed system for our products, ensuring DeFi yield and capital remains within the ecosystem for Alpha users. The below illustrates how our two products complement each other:

In Alpha Chambers

Anyone can deposit and withdraw tokens. Profits shared are in-kind (you get the token you deposited).
Upon deposit, the lender will get a proportional amount of ibToken, representing their shares, which can be burned later on to redeem the principal and the accrued shared profit.
Yields will be distributed from the profits from leveraged users on Alpha Homora.

In Alpha Homora

Anyone can borrow any tokens at 0% borrowing interest, regardless of utilization rate, to open a leveraged strategy position for up to 30 days.
After 30 days, the positions will become liquidable. Profits are only realized when positions are closed.
A portion of earned profits is shared with the lenders, the smaller the profit cut will be as borrowers earn more. This also means that borrowers do not have to bear the burden of the interest rate if the position is not profitable.

However, rest assured, to ensure profitable positions, we are launching an upgraded version of Alpha Homora, featuring a diverse range of highly profitable strategies that favor both lenders and borrowers. Ultimately, all parties' incentives—projects, borrowers, and lenders—become aligned to work together towards achieving the highest possible yield for mutual benefits. Besides, we’ve also implemented rigorous risk parameters to evaluate pools eligibility to guarantee the safety of our users’ funds.

Over the long term, we plan to continue incorporating additional strategies and fine-tuning parameters based on community feedback, ensuring that our platform is always at the forefront of innovation.

We’re dedicated to building an ecosystem that values fairness and transparency, providing our users with the best possible experience. Hence, it is imperative that we ensure a fair and profitable return for all our Alpha users, whether they are lenders or borrowers. Defining the term "profit" in a manner that is fair to all parties is a complex and critical task, given the many ways in which it can be defined and calculated.

At Alpha Chambers, the profit % cut for lenders depends on leveraged yield APY: the higher the leveraged yield APY, the lower the profit cut and vice versa. This is to incentivize capable leverage users to borrow from Alpha Chambers.

For us, fairness means a fair incentive and profit distribution between lenders and borrowers. At the onset, borrowers enjoy a 0% borrowing interest rate while lenders' capital is fully utilized. Therefore, it is only logical to incentivize borrowers to generate the highest possible yield, ensuring efficient and effective utilization of the lender's capital. Borrowers who demonstrate their skills and generate higher yields are rewarded with smaller profit cuts, acknowledging their contribution to the process.

Currently, our team is actively doubling down on its efforts to finalize the features on Alpha Chambers and the upgrade strategies on Alpha Homora to ensure a seamless launch. Stay tuned for more details, including a product roadmap, Gitbook, in-depth explanation of the mechanism, and more.

Exciting developments are on the horizon for our new primitive. Get ready to unleash your DeFi potential with our profit-sharing primitive.

Join our exclusive lounge to be the first to receive exclusive contents and to interact directly with our team.
To get access, claim your role here: https://guild.xyz/alpha-venture-dao

Look forward to seeing you there!

The Alpha Team Introduces Profit-Sharing Primitive Using Alpha Homora as a Kickstart to Build Alpha Chambers, The Profit-Sharing Lending Protocol

The Final Phase to Develop the Profit-Sharing Lending Protocol: Achieving Optimal Fairness for Lenders and Borrowers