Alpha Homora Overview: A Leveraged Yield Farming Protocol

In the world of DeFi, there are certain tactics that enable users to put their cryptocurrencies at work and generate income. One such strategy is yield farming, which is the process of lending or borrowing crypto on a DeFi platform in exchange for cryptocurrencies.

While yield farming alone can be quite lucrative, users can earn even more by leveraging their yield farming positions. This is where Alpha Homora comes in handy. By making it possible to leverage yield farming positions up to 3.1x, Alpha Homora allows users to substantially increase liquidity mining earnings.

However, it is worth noting that with great rewards often come great risks. This is usually the case with using leverage, which can act as a double-edged sword — amplifying risks while also increasing the earnings potential. 

What is Alpha Homora?

In a nutshell, Alpha Homora is a DeFi protocol that allows those participating in DeFi yield farming to “amplify” their positions. Developed by Alpha Finance Lab and built on the Ethereum blockchain, Alpha Homora is the first DeFi project to bring leverage into the picture for DeFi yield farmers.

Aside from yield farming, Alpha Homora is also a leveraged liquidity providing protocol. The project supports lending and allows users to earn high interest on their crypto loans. It also allows users to become liquidators and bounty hunters.

Overall, Alpha Homora aims to capture two market gaps. First, many crypto holders are lending their assets at low rates. And second, many yield farmers are searching for higher yield farming APY. 

Alpha Homora v2

The initial version of Alpha Homora, called Alpha Homora v1, launched in October 2021. Following the success of the first version, the team started the development of Alpha Homora v2. Characterized by strong partnerships, the second version of the protocol allows yield farmers to take advantage of significantly more leverage than its predecessor. 

Moreover, Alpha Homora v2 uses CREAM V2’s liquidity to take on leverage for its users. This allows Alpha Homora v2 to take out loans with fewer collateral requirements, resulting in more leverage for the protocol’s yield farmers and higher interest rates for CREAM V2 users.

The second version of the protocol also allows leveraged yield farmers to take leverage on a basket of assets including ETH, AAVE, CRV, LINK, MKR, WBTC, stablecoins, and other assets. Users can open up to 9x positions when leveraging on stablecoins. There is also a flexible leveraged yield farming option, which enables users to borrow multiple assets, re-leverage, and deleverage their positions easily.

Alpha Homora Yield farming

Alpha Homora is best known for its leveraged yield farming option. To start farming, all users need to do is connect their wallet, deposit funds, and determine their leverage. 

It is worth noting that users have the option to choose between Alpha Homora v1 and v2. In the first version, there are currently 42 pools in total. ETH/USDT (Sushi), ETH/USDC (Sushi), ETH/DAI (Sushi), ETH/WBTC (Sushi), and ETH/SUSD (Sushi) pools currently offer the highest leverage in the v1, allowing users to leverage yield farming positions up to 2.5x. 

On the other hand, Alpha Homora v2 enables leveraged yield farming of liquidity pools on several prominent DEXes, including Curve, Balancer, SushiSwap, and Uniswap. Currently, DAI/ETH (Uniswap V2), USDC/ETH (Sushiswap), and DAI/ETH (Sushiswap) pools offer the highest leverage in the v2, allowing users to leverage yield farming positions up to 3.1x. 

One distinct difference between yield farming in Alpha Homora v1 and v2 is that the first version automatically reinvests farmed ALPHA tokens to yield higher profit while the second version does not do this. 

What is ALPHA Token?

ALPHA is a utility and governance token for Alpha Homora and a suite of DeFi applications built within the Alpha Finance ecosystem. The token can be used to provide liquidity and unlock interoperability features among Alpha products. Holders can also stake their ALPHA tokens to receive a share of protocol fees. Not to mention that the token holders can participate in governance and vote on proposals.

Risks of Leveraged Yield Farming

Leverage can act as a double-edged sword. While it offers great returns, it also amplifies risks. In Alpha Homora, yield farmers take the risk of being liquidated. The solvency threshold is different for various pools, thus users need to make sure they understand the risks of liquidation.

In general, a leveraged position can be liquidated on Uniswap when the debt is worth more than 80% of the position value. Since crypto is highly volatile, users need to regularly monitor their position and top up collateral if the need arises to avoid being liquidated.

Earn High Interest Rates by Lending Crypto Assets

Alpha Homora enables users to earn interest on crypto loans. In Alpha Homora v1, there is an interest-bearing Ethereum vault, which allows users to deposit ETH to the Alpha Homora Bank and receive ibETH tokens in return. IbETH tokens are tradable and continually earn interest for the users.

Through Alpha Homora v2, users have the option to lend a total of 12 crypto assets, which include ETH, DAI, USDT, USDC, YFI, SNX, and more. The lending interest rate comes from the borrowing interest rate that leveraged yield farmers pay for borrowing the assets.

Midas. Investments Uses Alpha Homora in CeDeFi Strategies

Midas.Investments, a custodial “CeDeFi” investment platform, uses strategies that combine working with digital assets and various protocols to create profitable intuitive investment tools. One such protocol is Alpha Homora, which plays a key role in a number of investment products developed by Midas.Investments.

For instance, Midas.Investments has recently unveiled three new “CeDeFi” strategies aimed to create new opportunities for Midas users. Two of these strategies, namely “Soft Long on ETH” and “Soft Short on ETH,” use Alpha Homora to create 2x and 1x leveraged positions on a basket of ETH-Stable liquidity pools. 

The “Soft Long on ETH” strategy aims to generate yield (target 45% ROI) through ETH-USDC liquidity pool and price appreciation of ETH as borrowed USDC is converted to ETH. The “Soft Short on ETH” strategy seeks to generate yield (target 25% ROI) through ETH-USDC liquidity pool and price depreciation of ETH due to ETH being borrowed while half of the position is converted to USDC. 

Midas.Investments is the first CeDeFi platform trying to bridge the gap between centralized and decentralized finance (DeFi), combining the former’s reliability with the latter’s high profitability. The company aims to enhance security and transparency standards while reducing the possibility of fraud by employing a strict risk management policy and mandatory audits of all products.

How Secure is Alpha Homora?

In February 2021, Alpha Homora fell victim to an exploit that drained over $37 million from the project by leveraging Cream’s Iron Bank protocol-to-protocol lending platform. In a post-mortem, Alpha Homora claimed that the exploit was complicated and the attacker had knowledge of a pool on HomoraBankv2 that was yet to be announced. 

All in all, the attacker exploited three main security issues, which include rounding error in borrow code, allowance for use of custom spells, and public access to resolve the Reserve function. The Alpha Finance team released patches and resolved those issues shortly after the hack.

The corrections are also designed to prevent a similar attack from occurring in the future. Prior to the hack, blockchain security firms Quantstamp and PeckShield had audited Alpha Homora. 

In order to prevent such incidents from happening in the future, Alpha Homora said it would not only work with more audit firms but also ask more trusted builders in the DeFi space to audit and review its contracts.

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