Wake up, anon. It’s perps season
“But they’re all GMX forks”, you say?
Clearly you’ve been asleep too long.
Introducing @InfPools, a Permissionless, oracle free, liquidation free leverage trading platform
Understanding new DeFi primitives in a bear market will be your best r/r play to capitalize when the bull market inevitably returns.
InfinityPools is one of the more innovative projects launching soon.
Keep this one on your radar.
This thread will cover
1️⃣Leverage and liquidations in DeFi
2️⃣ Uni V3 Recap
3️⃣ InfinityPools Overview
4️⃣ Trade lifecycle
5️⃣ Final thoughts
1️⃣Leverage and liquidations in DeFi
Traditional margin or leverage trading currently requires liquidators to maintain protocol health and prevent bad debt.
To protect the platform, risk management measures need to be introduced, such as:
✅ Liquidation penalties
✅ Limited leverage for illiquid assets
✅ Forced settlement
While these measures help keep exchanges solvent, it comes at a cost of user experience
Additionally, there is a fundamental mismatch between risk profiles of traders and lenders in margin trading:
1️⃣ Traders want to take on leverage and get magnified returns = high risk
2️⃣ Lenders want preserve capital and earn a yield = low risk
While the risk profile of a traditional lender can’t be changed, but what if they can be replaced with an existing demographic within DeFi users?
Uni v3 Concentrated Liquidity Providers.
2️⃣Uni v3 Recap
LPs can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices.
Uniswap combines individual price ranges to create an aggregated price curve AMM function similar to Uni v2.
When a LP range is outside of the current market price, the entire LP token will be composed of the less valuable of the two assets.
See below example -
ETH is currently 1639,providing liquidity in a range below the current price will make deposits all in $USDC
3️⃣InfinityPools Overview
InfinityPools builds on top of Univ3 by allowing concentrated LP tokens to be lent out to facilitate margin trading.
On a high level, Infpools is a two sided marketplace, with traders on one side and liquidity providers on the other.
Liquidity providers can either deposit assets directly to the protocol or can lend out Uni v3 LP tokens.
Leverage traders can borrow directly from supplied LPs, and lent LP tokens are redeemed to purchase more of the trader’s leveraged asset.
Borrowing LP tokens instead of single assets has a subtle yet impactful effect on a trader’s user experience:
Normally, stablecoin loans such as USDC are used to facilitate leveraged trading
Therefore, the loans are expected to be paid back in the same assets borrowed.
When a trade goes south, this will inevitably lead to a margin call and subsequent liquidation, since the leveraged asset must be sold before the trader’s position is lower than the initial debt.
The subtle effect of using LP positions as the loan source is that the payback of the loan can be in either of the LP assets depending on price
E.g. Borrowing a LINK/USDC LP to long $LINK -
when the price of $LINK falls, debt becomes denominated in $LINK rather than $USDC.
4️⃣Trade lifecycle
This is probably better visualized with an example:
Say Chad decides to long 1 ETH when ETH price is at $1000.
He puts down $100 collateral and borrows $1000 worth of ETH/USDC LP at the 900 tick range.
Infinitypools will reserve his borrowed LP in a private pool called a swapper.
It will then be redeemed for USDC and swapped into ETH through any external DEX aggregator.
Chad is now is 10x leverage long on $ETH.
Now there are three possible situations:
1️⃣ ETH Price increases above $1000
2️⃣ ETH Price falls below $1000, but above $900
3️⃣ ETH Price falls below $900
1️⃣ ETH Price increases above $1000
This is the most simple - Chad sells his ETH for above $1000, repays the $1000 debt, and unlock's his collateral.
2️⃣ ETH Price falls below $1000, but above $900
The ETH Chad holds is now worth less than $1000, but above 900.
The lender is expecting an LP token worth $1000 USDC, so Chad has to sell his ETH, and cover the remainder of the debt with his initial $100 collateral to repay debt
3️⃣ ETH Price falls below $900
The lender is now expecting an LP token worth (1000/900) ~1.11 ETH.
Chad already holds 1 ETH, and the remaining 0.11 ETH, at most, 100 USDC, therefore his collateral will always be enough to repay the LP position in full.
5️⃣ Final thoughts
InfinityPools is introducing a brand new primitive to DeFi. Leverage trading without oracles and liquidations removes many external dependancies
Leverage multipliers and asset listings are all limitless, enabling perp markets for long-tail assets.
.@InfPools is still in early development, so not much information about their revenue model or tokenomics have been released yet, though I can already think of many areas they can charge a small fee on.
For a more thorough breakdown, I'd highly recommend checking out their whitepaper and join the discussion on discord.
@MLGavaudan and @n0egen are very responsive to questions 🫡
Borrowing LPs can also create other option payoffs, rather than redeeming it to leverage trade.
Structured products or vanilla options could be possible products in their future pipeline
Composability has always been a big theme in DeFi, and this new wave of protocols leveraging Uni v3 LP tokens is very cool to see. (h/t @GammaSwapLabs @Panoptic_xyz @SmileeFinance)
Though I wonder if Uni v3 LP tokens will become a hot commodity? 🤔