tl;dr: Alpaca is a new AMM protocol that consolidates all popular assets in a single pool , with aim to create the single largest liquidity pool in DeFi. This benefits users by offering significantly less slippage regardless of which assets they want to trade while simultaneously earning more fees for LPs. This is a massive improvement over all other DEXs, which fragment liquidity between many pairs and pools. It is community-governed with a fair distribution, a sustainable incentive structure, and no premine for founders or investors.
Welcome to AlpacaSwap, the new paradigm for DeFi liquidity!
While AMM projects like Uniswap have done amazing work making DEXs a viable option, they all still suffer from very high slippage, high fees, capital inefficiency, no privacy, and limited trading options. Curve improved on some of these issues through the use of customized liquidity curves but only works for pools of 1:1 assets. Many other AMM projects have since debuted, but they either fail to innovate (SushiSwap) or they focus on the wrong issues that only create minor improvements. As a result, the simplest AMM — Uniswap — continues to dominate the liquidity market, even though it is the least efficient.
It is clear that a new DEX protocol is needed that solves these core issues while preserving simplicity and usability.
Alpaca — the Mother Of All Pools — does just that. This is not an evolution, it’s a revolution.
The Problems: Why Alpaca Is Needed
The Liquidity Fragmentation Problem
The core problem is liquidity fragmentation . On Uniswap — as well as on order book exchanges — liquidity is split between many different pairs. While there may be a lot of particular asset across all pairs, popular assets like ETH are distributed across many pairs, resulting in high slippage in any one pair. Curve and Balancer both introduced multi-asset pools, but Curve only works for 1:1 assets, and Balancer focuses on custom portfolios. In both cases, they have fragmented liquidity and limited options for trading the most popular assets, like ETH for WBTC, without high slippage.
As a result, there is no good option for DApps and users for programmatic liquidity access that minimizes slippage for the assets they actually want to trade. This is doubly the case when you want to trade a pair that does not include WETH, like USDC for WBTC — either you need to do two expensive trades from the starting token to ETH and from ETH to the ending token, or you need to use a custom pair that has very low liquidity and high cost.
This is a big problem even today, where there are only a limited number of assets with serious liquidity that people actually want to trade. As more and more of the most traded assets from centralized exchanges are wrapped on Ethereum, this fragmentation problem will only get worse.
Liquidity providers suffer too! People making markets over fragmented pools need to bet on which pool will have the most trades, and LPs do not benefit when someone trades in another pool even though they are contributing to overall liquidity. We’re all on the same team , so all LPs should benefit from every trade .
The Pre-Mine and Whale Problem
The second problem is that none of these projects are truly owned by the community. DApps are not built by code but rather by the community that supports and participates in them, so we believe that they should be owned by the community rather than by whales and VCs .
Unfortunately, the most popular DEXs had large premines that gave [30%], [40%], or even [50%] of shares to insiders, usually with even more [voting power]. This unfair distribution means that the community that makes these DApps successful do not get their fair share in either governance or economics.
While protocols like [TornadoCash] have made privacy more accessible, current DEXs do not have built-in privacy preserving features. As a result, user’s private transactions are exposed to the entire world, posing a security risk.
Alpaca Protocol Overview
Enter Alpaca and the fully community-owned [Mother Of All Pools (MOAP).
The Mother Of All Pools
Alpaca is a new AMM protocol that consolidates all liquidity in a single pool , ensuring that users face minimal slippage regardless of which assets they want to trade.
Here on the Alpaca Ranch , we cultivate the finest quality liquidity. We start with Balancer as our base and add in the best of Uniswap, SushiSwap, Compound, and others, finished with quite a bit of our own special sauce . Tasty!
The centerpiece of the Ranch is the MOAP, a single super pool following a [constant geometric mean AMM algorithm]. The MOAP includes all popular tokens (as determined by the community) so that liquidity is concentrated in a single place.
Initially, the MOAP pool with consist of WETH, WBTC, DAI, USDC, USDT, and PACA. Starting weights will be determined by according to user staking preferences, but will ultimately be set by the community.
Benefits for LPs: Since MOAP is a single consolidated pool, LPs will earn fees across ANY asset that is traded within the pool, and don’t have to play guessing games on which pairs will have the most volume.
Example: Currently, an LP supplies 100% of his liquidity to ETH/DAI Uniswap pools. One day, there is significant volume trading on the ETH/USDC pool but little to no volume on ETH/DAI. Even though the LP is supplying a common asset (ETH), he does not earn fees from the other high volume pool.
In contrast, an LP in the MOAP will earn fees on any trades, regardless of what pair is traded.
By comparison, the current pair based system is extremely capital intensive and highly inefficient.
The MOAP Deep Dive article and the Technical Overview article will be released shortly or check us out on [GitHub]
Alpaca will be owned and governed by the community via the PACA token. The devs will not control the protocol, and it is ultimately entirely up to the community to create any value with Alpaca.
In keeping with the [spirit] of [DeFi], there will be no premine, no founder shares, and no VC interests. Instead, the PACA is distributed fairly to attract a broad, vision-aligned community that will steward the future of the protocol and token.
The initial distribution be a through a ~2 week liquidity mining period for bootstrapping the protocol liquidity. Users will be able to deposit Uniswap LP tokens into the MasterRancher contract to earn PACA (plus UNI tokens) ahead of the migration, when the MOAP will be established and trading begins. Liquidity mining begins at 12:00am UTC on November 13.
Subsequent PACA will be continually distributed to the Alpaca liquidity providers (ALPs) at a rate determined by governance, This continual inflation ensures that over time Alpaca will continue to be owned by the liquidity providers contributing to the community, rather than whales just getting richer.
We will be releasing the Liquidity Mining and Migration article shortly.
Alpaca has a 0.2% trading fee, of which 25% will go to the ALP holders and the remaining 75% will be distributed to PACA holders. Since PACA are distributed to ALP holders, they will ultimately be the ones that receive all the fees. Giving a large share of fees to PACA tokens ensures people are incentivized to keep the long-term interests of the ranch in mind and that the community isn’t taken over by whales.
8.3% of PACA tokens minted will be reserved for the devs. We trust you won’t mind us shearing off a little wool to make a nice warm sweater ! There is also a small exit fee of 0.5%. We want friends that stay with us at the ranch rather than a revolving door — Alpacas are calmer around people they know well.
Of course, the feenomics are ultimately up to the PACA holders. They’re incentivized to keep everyone’s interests aligned, so we can have a big happy ranch!
[More information on both the PACA tokenomics and fees can be found on Medium posts.
Alpaca is community owned and run from the start. It is not controlled by VCs, whales, or even the devs. The devs have drawn up the plans for the ranch, but it’s up to the community to build it into something great. Alpaca and the PACA token has no value at deployment. After deployment, it is entirely dependent on PACA holders to determine its value and future course. What Alpaca is and what it will be is entirely up to the holders of PACA.
[Governance Overview can be found on Medium.
Alpaca has a robust feature roadmap planned, subject, of course, to the decentralized governance process.
Plans include improving performance and reducing gas costs, adding in a privacy layer, enabling more sophisticated invariant curves and fee models, and composing Alpaca with other DApps. Oh, and we’re going to [cure COVID-19].
More information will be released with the Feature Roadmap article.
See you on the Ranch!
By consolidating all liquidity into a single pool, Alpaca is the best option for DApps and Ethereum users to swap assets in a fully decentralized way. Come by the ranch to join in on liquidity mining, LP staking and trading and earn your role in determining its future!
Bienveniedos, rancheros. Happy ranchin’!
- [Introduction to AlpacaSwap, Mother of All Pools]
- [Governance Overview]
- [Alpaca Technical Overview]
- [Liquidity Mining and Migration]
- [MOAP Deep Dive]
- [How Alpaca Minimizes DeFi Trading Fees]