Stella is a leveraged strategies protocol that has a 0% borrowing cost. ^[1]

At Stella, borrowers, known as "leveragoors," can utilize supported DeFi strategies without incurring any borrowing costs. Lenders have the chance to earn a real yield from borrowers through a lending APY. Stella's 'Pay-As-You-Earn' (PAYE) model is designed to facilitate a fair arrangement where the success of borrowers directly correlates with higher earnings for lenders, maximizing yield potential for both parties. ^[1]

Overview

Stella operates based on the Pay-As-You-Earn Model (PAYE), focusing on the sharing of yields between lenders and borrowers. The protocol is encompassed by two parts: Stella Strategy and Stella Lend. ^[2]

Pay-As-You-Earn (PAYE) Model

Borrowers on Stella, referred to as "leveragoors," do not incur any borrowing costs regardless of the asset's utilization rate. Costs are only borne when borrowers generate yields, following Stella's PAYE Graph, which allocates a portion of the generated yields as a share. This shared yield from borrowers is distributed to lenders, improving capital efficiency without imposing a maximum cap on lending APY. The arrangement reflects a collective incentive alignment between borrowers and lenders. ^[3]

Stella Strategy

Borrowers have the option to utilize various leveraged strategies integrated with different DeFi protocols. Instead of paying borrowing interest from the lending side to amplify their position, borrowers simply share the yield they earn upon closing the position. This implies that if there is no gain, there is no payment required. ^[2]

Hypernova, the most recent upgrade of Stella, introduces 2 types of strategies: Hyper and Standard. ^[2]

Hyper-Strategy

The Hyper-Strategy allows users to borrow assets from the Hyper-Lending Pool. Users can access innovative strategies with high-yield potential, such as the Leveraged Pendle LP Strategy on Liquid Staking Tokens (LSTs), where Leveragoors can potentially earn up to 30% on the leveraged LST Pendle strategy using single-sided ETH. Key Features include: ^[4]

• Higher Yields: Users have the potential to earn more yield compared to standard strategies.
• Access to Trending Assets: The strategy provides access to new and trending assets, enabling users to diversify their portfolios.

Standard Strategy

The Standard Strategy is a conservative approach that prioritizes well-established decentralized exchanges (DEXes) like UniV3, Trader Joe, and others. It also involves major assets in the market, such as ETH, BTC, USDT, USDC, and more. ^[4]

Asset Type

The Stella Strategy categorizes its underlying assets into three types based on market factors: ^[5]

• Stable Assets: These have minimal price fluctuations, appealing to conservative investors seeking steady returns due to their low-risk nature.
• Major Assets: Well-established with a significant market presence, major assets are generally less volatile than newer or less established counterparts.
• Volatile Assets: Characterized by substantial price swings in short periods, volatile assets offer the potential for high returns but come with increased risks.

Strategy Exposure

Long Strategy

If borrowers anticipate that the price of Asset X will rise against Asset Y, they can employ a Long Exposure Strategy on X. This strategy allows them to gain as the value of their position increases with the rising price of X, along with potential trading fees. ^[6]

Short Strategy

If borrowers expect the price of Asset X to decrease compared to Asset Y, they can use a Short Exposure Strategy on X, which allows them to gain as the value of their position increases with the drop in the price of X, along with potential trading fees. ^[6]

Neutral Strategy

If a leverager expects that the prices of all assets in a strategy will remain stable relative to each other, they can utilize the Neutral Strategy. This strategy seeks to minimize net exposure by maintaining an equal level of LONG and SHORT exposure on both assets simultaneously. ^[6]

Collateral Factor

Stella utilizes the LP (Liquidity Provider) concept as collateral for undercollateralized loans. The protocol calculates the credit obtained from collateralizing an asset by assigning a collateral factor to each LP. Collateral factors are determined based on factors like volatility, trustworthiness, and data backtesting of relevant assets. ^[7]

Stella enables users to add additional collateral to improve a position's Debt Ratio. Any token within an asset pair/LP can serve as the extra collateral. However, these newly added collaterals are not considered when calculating the position's yield. ^[7]

Borrow Factor

The Borrow Factor is a metric that represents the risks associated with the borrowed asset. The value of each asset is determined by Stella's research team, considering factors such as volatility, trustworthiness, and data backtesting. ^[8]

Price Range

In its integration with Uniswap V3 and Trader Joe V2, Stella Strategy simplifies liquidity provision by defining three instant price ranges: Wide, Medium, and Narrow. Each range has specific minimum and maximum asset prices, resulting in different risk and return levels within the same strategy. The narrower range is more likely to yield higher trading fees but may also be exposed to increased 'Impermanent loss' when asset prices fluctuate. ^[9]

Liquidity Shape

Trader Joe's Liquidity Book allows users to provide liquidity with flexibility and customization. Users can deploy liquidity in either Spot or Curve shape, each serving different purposes in various market conditions and presenting different risk levels. ^[9]

Liquidation

Liquidation occurs when a leveraged position meets one of the following conditions: the position is underwater or it expires. Liquidators can close a liquidatable position by fully repaying the position's debt and acquiring the remaining assets at a discounted rate, denominated in USDC units and based on the Oracle Price. ^[10]

The position is underwater

The Debt Ratio is a parameter designed to indicate the health of a position and its proximity to the liquidation point. Stella uses a concept of collateral and borrower credit to calculate debt ratios. ^[10]

If a position in Stella Strategy has a Debt Ratio exceeding 100%, it signifies that the collateral value may not be sufficient to cover the debt (i.e., the borrowed amount) value, indicating an inability to repay the debt. Consequently, such a position becomes eligible for liquidation. ^[10]

The position expires

Lenders are rewarded for providing liquidity within a specified timeframe. All positions on Stella Strategy expire after 30 days from the opening date. Regardless of the current debt ratio, expired positions will become liquidatable. Positive yields are distributed to lenders following the PAYE model. ^[10]

Price Impact

Price impact is the consequence of a trade on the price of an asset within a pool. Execution of a substantial order can result in an increase or decrease in the asset's price, determined by the algorithms used by Automated Market Makers (AMMs). Stella provides users the price impact on supplied assets and on total position. Users can adjust their slippage and transaction deadline. ^[11]

Leverage

Stella Strategy allows users to open leverage positions across various strategies, with the leverage level determined by two factors: ^[12]

1. Collateral Factor (CF): Represents the value assigned to each unit of assets used as collateral.
2. Borrow Factor (BF): Determines the value assigned to each unit of assets borrowed.

These factor values are adjusted by the Stella research team based on the historical volatility and risk profile of each asset to enhance safety for both users and the protocol. ^[12]

Stella Lend

Lenders can contribute assets to Stella's lending pools and earn yields. Yields generated from Stella's Strategy are shared with lenders. The lending APY is based on the yield shared by borrowers, without any maximum cap. ^[2]

There are two types of lending pools: Hyper and Standard. The Hyper Lending Pool is dedicated to users seeking yields from new opportunities in DeFi. It functions as the liquidity pool for the Hyper Strategy, offering exposure to emerging assets. ^[13]

On the other hand, the Standard Lending Pool focuses on major, established assets, providing stability and a reliable yield for users employing the Standard Strategy. ^[13]

Yield Vault

Shared yields collected from borrowers are not immediately distributed to lenders. Instead, they are accumulated in an intermediate vault. Each day, 3% of the remaining rewards are distributed to each lending pool as lending APY. This method aims to ensure a consistent flow of yields to lenders and mitigate the potential for gaming the system by making large deposits to quickly become major contributors and receive substantial shared yield portions when monitoring positions on the Stella Strategy side. ^[14]

ALPHA Token

The ALPHA token is Stella’s official token. A 20% portion of the yields deducted from borrowers is collected as Stella protocol fees. ^[15]

Staking

ALPHA token holders can stake their tokens to support the security of the Stella protocol. In return for staking, ALPHA stakers receive various benefits within the Stella ecosystem: ^[16]

• Protocol Fees: ALPHA stakers receive protocol fees generated by the Stella protocol, regardless of the chains or layer-2 solutions used.
• Yield Sharing: 25% of the yields collected from borrowers is designated as Stella protocol fees. ALPHA stakers receive 50% of these fees, while the remaining 50% is distributed to depositors of Alpha Homora.
• Incubated Project Tokens: Stakers gain access to tokens from past incubated projects when these tokens become publicly available. Past projects include Beta Finance, pSTAKE Finance, GuildFi, TiTi Protocol, Contango, Metaforo, Sharpe, and Daft Analytics.
• Voting Rights: ALPHA stakers have voting rights on the protocol's proposals, allowing them to participate in Stella governance.

Stakers receive sALPHA, representing the user’s share in the total staking pool and their vote count when voting on proposals, in return for staking their ALPHA tokens. ^[16]

Token Distribution

The total token supply is 1,000,000,000 ALPHA tokens, from which 10% was sold through Binance Launchpad, 5% in Binance Launchpool, and 13.33% sold through a private sale. From the remaining amount, 20% is allocated to liquidity mining, 15% to team and advisors, and 36.67% to the ecosystem. ^[17]