SushiSwap's WETH/SUSHI pool is now supported on Alpha Homora (up to 2x leverage). The pool's liquidation debt ratio is set at 70% (liquidation takes place when debt is 70% of position value).
Alpha Homora's SushiSwap WETH/SUSHI smart contract is unaudited, but is reasonably similar to the code used for the other pools (which was reviewed by PeckShield) that are farming on Uniswap.

What do yield farmers get from opening 2x leverage yield farming position on Alpha Homora?

  • Up to 177% 7-day APY* (including two-thirds that are locked for 6 months according to SushiSwap)
  • Up to 65% 7-day APY* (excluding rewards that are locked)
  • Trading fees according to SushiSwap.
  • Note: If you yield farm with leverage on Alpha Homora, you are effectively 'half' shorting ETH, so your position value can increase when ETH price decreases and vice versa when ETH price increases. This effect is in addition to all the trading fee APY and farming APY that yield farmers would get.
*Note: The APY shown above does not include borrow interest rate to be paid. According to Sushiswap, one-third of the rewards is available now and two-thirds will be unlocked in 6 months.

WETH/SUSHI Pool Parameters

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

Name Value Function Description
Max Debt Ratio 55% workFactor() Maximum debt ratio when opening/adjusting a position.
Liquidation Debt Ratio 70% 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 2x 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 2x leverage and setting killFactor to 70% for the newly added pools, this guarantees a large buffer before the position would be at risk.

WETH/SUSHI Pool Statistical Analysis

Most recent 3 months price data is taken from Poloniex (trimming the first 1 week for price stability).

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/SUSHI price change in each given time window:

5-min 30-min 1-hr 1-day
Mean 0.35% 1.49% 2.42% 14.93%
Median 0.11% 0.90% 1.84% 11.64%
95th percentile 1.66% 4.82% 6.70% 37.72%
99th percentile 3.34% 7.56% 9.87% 42.40%
99.9th percentile 6.58% 11.91% 15.88% 52.67%
Max 11.5% 17.35% 24.54% 57.15%
Std.Dev. 0.69% 1.62% 2.20% 9.95%
For example, an average value of maximum price change in 30-minute window is 1.49%.

Yield Farmers Liquidation Risk

  • At 2x leverage (debt ratio 50%), the position is at liquidation risk (debt ratio 70%) when ETH price goes up 96%.
  • At 1.5x leverage, liquidation risk when ETH price goes up 341%.
  • 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 70%).

However, for the debt ratio change from 70% to 95%, this would require ETH price to go up 1.84x 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 1.57x).*

*DISCLAIMER: Historical data does not guarantee the future.

About Alpha Finance Lab

Alpha Finance Lab is an ecosystem of cross-chain DeFi products that will interoperate to bring optimal alpha returns to users. Alpha products focus on capturing unaddressed demand in DeFi in an innovative and user friendly way.

Alpha Homora, Alpha’s first product which is on Ethereum, is a protocol for leveraging your position in yield farming pools. ETH lenders can earn high interest on ETH, and yield farmers can get even higher farming APY from taking on leveraged positions.