If DeFi is a Darwinian race with no finish line, then this week, another runner just dropped out.
On Monday, Alpaca Finance, once a major DeFi yield farm, announced that it was shutting down in a post on Medium.
The four-year-old protocol, which has suffered a 94% plunge in investor funds, to $55 million, in the last four years, isn’t making its exit because of a hack or malicious exploit.
Rather, it was something simpler, slower, and far more lethal that spelled its end: the cold arithmetic of obsolescence.
Revenue problems
Alpaca’s team said declining revenues and waning user interest, coupled with mounting operational costs, were insurmountable.
Despite making cost-cutting measures and introducing new product ideas, revenue stayed moribund, and the team said it had been operating at a loss for over two years.
“There’s no more business,” said an Alpaca admin who goes by Bibendus on the project’s Discord server.
Alpaca’s demise is not without a sense of irony. Most DeFi experiments fail because they are unable to find product-market fit.
But not Alpaca.
It found its audience early and amassed investor funds. Alpaca’s popularity in 2021 coincided with the degen craving for yield amplification through borrowing and farming.
It was simple and effective in a risk-averse market hungry for outsized returns.
But DeFi isn’t static. The rules change.
Concentrated liquidity
In Alpaca’s case, the change came in the form of concentrated liquidity automated market makers, or AMMs. Think Uniswap’s third iteration, called v3, and its many copycats.
These new, buzzier protocols rewarded users for precision liquidity provision, supplying capital at tight price bands, thereby reducing risk exposure.
They also delivered built-in leverage in their design, which made Alpaca’s external leverage model redundant.
As part of the shutdown process, Alpaca will disable the option to create new positions in June. The team also asked users to exit their active positions or be automatically closed by the end of next month
Users will still be able to withdraw their funds until the end of the year, after which the front-end website will go offline.
Crypto market movers
Bitcoin has traded flat over the past 24 hours and is at $109,697.
Ethereum is 2.9% over the same period and is at $2,638.
What we’re reading
How Trump’s memecoin dinner just reshaped Satoshi Nakamoto’s breakthrough ― DL News
Solana is the app revenue king — Milk Road
Judge Overturns Fraud Convictions of Mango Markets Exploiter ― Unchained
Is Solana DeFi undervalued? — Milk Road
Most XRP investors bought the top. Here’s how long they’ll need to wait until the next surge ― DL News
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. Got a tip? Please contact him at [email protected].
