Launching its testnet today, Infinity Exchange is looking to bring what it says is “institutional grade interest rates” to the DeFi sector, as part of its ambitious bid to unlock an additional $100 billion of value creation.
Infinity Exchange has created a complex, hybrid fixed-income DeFi protocol that it says will bring institutional-quality capital efficiency to the industry. The hybrid structure allows it to process computations off-chain with risk management safeguards in place, and settle transactions on the blockchain.
Infinity Exchange founder Kevin Lepsoe claims to have spent years developing the protocol to cater to his ambition of attracting billions of dollars of traditional financial capital to the DeFi markets. Having previously worked on structuring and financial engineering for Morgan Stanley, developing some of its most complex financial products, he’s better qualified than most to build a more robust DeFi protocol that can appeal to institutional investors.
“The crypto fixed income markets should be 100-times what they are today and we’re taking the first two steps in that direction,” Lepsoe said. “We’re introducing an institutional-quality interest rate protocol that aligns with theoretical finance, all while taking a comprehensive approach to risk management.”
Lepsoe points out today’s existing DeFi protocols are riddled with computational limitations, oversights and inefficiencies that mean they’re unable to attract traditional assets that could otherwise be tokenized and brought on chain. To get around this, Infinity Exchange has built a protocol that brings traditional rate market mechanics and risk management capabilities on-chain for the first time, enabling similar levels of efficiency as today’s inter-bank lending markets.
More specifically, Infinity Exchange brings the concepts of floating rates and zero-bid offers to DeFi lending and borrowing for the first time. These concepts are a key staple of traditional finance, and they enable what Infinity Exchange says is DeFi’s first complete yield curve that offers fixed and floating rates. Through this, investors can now hedge their bets more cautiously by speculating across the full length of the maturity curve.
The primary benefit of Infinity Exchange then is that investors have the comprehensive tools they need to reduce volatility by switching seamlessly between risky and riskless assets. Because of this, Infinity Exchange says it can introduce enough stability into DeFi to attract billions of dollars’ worth of capital that has, until now, always steered well clear of the industry.
Another key advantage of Infinity Exchange is that it gives investors a way to generate yield on complex collateral that’s currently unable to do so, via arbitrage opportunities between it and other lending protocols. In this way, it believes it can unlock the potential of more than $20 billion in total value locked sitting on protocols such as Uniswap, Aave and Curve, creating up to $100 billion in new TVL.
According to Lepsoe, institutional investors in TradFi are far more active in fixed income markets than equities, so it makes sense to offer the same opportunities in DeFi. “We need to first nail the fixed-income markets and it starts here at Infinity,” he said.