Stella (ALPHA): Redefining the zero-cost lending protocol for leveraged DeFi

1. Project Background and Core Mission

Stella (formerly known as Alpha Finance Lab) is a DeFi protocol focused on decentralized leverage strategies, aiming to solve the conflict of interest between borrowers and lenders in the traditional DeFi lending market through 0% borrowing costs and an innovative PAYE (Pay-As-You-Earn) model. Its core mission is to promote the popularization of leverage strategies and create higher actual returns for both borrowers and lenders.

Stella was developed by the original Alpha Venture DAO team, which has been pioneering in the leveraged DeFi field since 2020 and has launched the first leveraged liquidity mining protocol Alpha Homora (with a peak TVL of $1.9 billion). After rebranding as Stella in 2023, the team further focuses on optimizing the capital efficiency and user experience of on-chain leveraged products.

Source:Stella official website

2. Technical principle: PAYE model and leverage strategy

2.1 PAYE Model: Subverting Traditional Interest Rate Mechanism

Traditional DeFi lending relies on the Interest Rate Model (IRM), which adjusts borrowing rates dynamically based on fund utilization. However, IRM has two major drawbacks:

1. Conflict of interest: Lenders’ profits depend on the interest paid by borrowers, who face high interest rate pressure;
2. Profit cap: When the capital utilization rate is too high, IRM raises the interest rate, causing borrowers to have difficulty making profits or even experiencing negative APY.

Stella’s PAYE model completely reimagines this mechanism:

• Borrower 0 Cost Borrowing: Borrowers only share profits with lenders in proportion when the strategy generates income;
• Lenders have no upper limit on earnings: The APY that lenders receive depends entirely on the borrowing strategy yield, not a fixed interest rate.

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Stella’s PAYE model replaces the traditional Interest Rate Model (IRM) based on capital utilization rate, eliminating borrowing interest costs by sharing profits proportionally when the borrower generates income. This makes the interests of both lenders and borrowers more aligned, promoting a fairer and more authentic profit distribution in the Decentralized Finance (DeFi) sector.

Source:Stella Official Documentation

2.2 Leverage Strategy Design

Stella offers two core products:

• Stella Strategy: Allows users to borrow funds at zero cost and execute leveraged liquidity providing (LP) or directional long/short strategies on protocols such as Uniswap V3.
• Stella Lend: Lenders receive a share of borrower revenue by lending assets (e.g., ETH, USDC).

Source:Stella Strategy

Taking the ETH/USDC pool of Uniswap V3 as an example, users can choose from three price ranges: wide, medium, and narrow.

• Narrow Range: high capital efficiency, but high Impermanent Loss (IL) risk;
• Wide range: IL has low risk, but low yield.

3. Token Economic Model and the Application Scenarios of ALPHA

As of February 2025, the total supply of ALPHA tokens is 1 billion, with a circulation of 909 million. Holders can participate in protocol governance, stake for rewards, and use them for ecosystem incentives.

3.1 Token Distribution and Supply

• Total supply: 10 billion ALPHA;
• Circulating supply: 9.09 billion (as of February 2025, CoinMarketCap data);
• Maximum supply: 1 billion (no additional issuance mechanism).

3.2 The core functionality of ALPHA

1. Governance: Holders can participate in protocol upgrades and parameter adjustment voting;
2. Staking yield: Staking ALPHA can earn protocol fee dividends and early project token airdrops;
3. Ecological incentives: used for liquidity mining and community activity rewards.

3.3 Market Data (as of February 8, 2025)

Data Source:CoinMarketCap

4. Hot Trends and Ecosystem Development

4.1 Recent Hot Topics

• Arbitrum ecosystem explosion: Stella, as the first protocol to support 0 cost leverage, has become a core tool for DeFi users on Arbitrum, with TVL growing by 300% compared to 2024.
• Trader Joe integration: Liquidity book strategy will be launched in January 2025, allowing users to amplify market-making profits through leverage.

4.2 Roadmap and Partners

• 2025 Q2: Launch multi-chain expansion, supporting Ethereum mainnet and Optimism;
• 2025 Q3: Introducing AI-driven risk management tools, dynamically adjusting leverage ratios and liquidation thresholds.

Source:Project Twitter X

5. Risk and Challenge

1. Smart contract risk: Despite audits by PeckShield and others, DeFi protocols may still have vulnerabilities;
2. Regulatory Uncertainty: Global tightening of compliance requirements for leveraged DeFi may affect Stella’s operations;
3. Market competition: Old protocols like Aave, Compound are exploring similar 0 interest rate models.

Conclusion

Stella injects innovative power into the DeFi leverage market through the PAYE model and zero-cost borrowing. Although short-term prices are affected by market sentiment, its long-term value still depends on ecosystem expansion and risk management capabilities. For investors with higher risk tolerance, ALPHA may become a key asset to capture the next round of DeFi growth.

Please note that with the dynamic changes in the market, it is recommended that investors continue to pay attention to official channels and market data to obtain the latest information.

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