What is Alpaca Finance (ALPACA)?

Deep Dive

1. Core Functionality

Alpaca Finance specialized in leveraged yield farming, letting users borrow assets to increase their positions in liquidity pools. Lenders earned interest, while borrowers could take undercollateralized loans (up to 3x leverage) to maximize farming yields (Gate.io). This aimed to boost capital efficiency in DeFi, though reliance on Binance Smart Chain limited cross-chain reach.

2. Tokenomics & Governance

The ALPACA token served dual roles:
- Governance: Holders voted on protocol upgrades and parameter changes.
- Staking Rewards: Users earned fees and newly minted tokens via the “Grazing Range” staking program.
A weekly buyback-and-burn mechanism destroyed 18.6% of the total supply by April 2025, creating deflationary pressure (Gate.io).

3. Competitive Challenges

Alpaca faced stiff competition from newer protocols offering concentrated liquidity models and multi-chain support. Despite early success (peak TVL: $900M in 2022), declining user activity and Binance’s May 2025 delisting led to a 94% TVL drop, forcing a shutdown (CoinGape).

Conclusion

Alpaca Finance exemplified DeFi’s high-risk, high-reward dynamics—pioneering leveraged farming but succumbing to revenue declines and centralized exchange dependencies. How might evolving DeFi models balance innovation with sustainable tokenomics post-Alpaca’s closure?