The decentralized financial system Infinity Exchange has announced the launch of its Testnet, promising remarkable capital efficiency for traders, yield farmers, and real-money investors. Through its hybrid structure on the Ethereum blockchain, which executes computations and risk management off-chain, Infinity Exchange, an Institutional Fixed Income platform, promises to revolutionize the world of DeFi.
Infinity Exchange, created by Kevin Lepsoe, a former head of structuring at Morgan Stanley, aims to establish itself as the baseline rates and risk protocol for the development of the DeFi ecosystem in its litepaper. The introduction is a watershed moment because it ushers in a new era of institutional adoption and total value locked in the industry by introducing the mechanisms and risk management of the TradFi interest rate market to DeFi markets.
The current DeFi protocol (version 1.0) was developed and implemented during a period of tremendous unpredictability in the demand for money market products. Developers of early protocols made short-term trade-offs to stimulate broad adoption in a retail-like lending context. Decentralized, permissionless banking has shown its feasibility and enormous market demand, however, DeFi 1.0 is constructed on shaky ground and has serious faults.
By laying a new groundwork based on proven economic principles, Infinity Exchange paves the road for widespread institutional adoption and the entry of the trillions of dollars’ worth of assets ready to be tokenized into the DeFi 2.0 ecosystem. The computational limits, omissions, and inefficiencies of the current DeFi 1.0 protocols make it impossible for them to achieve these goals, which is a major roadblock on the path to widespread institutional acceptance and revolutionary use. By developing a protocol that mimics the workings of TradFi markets, and in particular the interbank lending market, Infinity Exchange has the potential to radically alter the DeFi ecosystem.
Infinity Exchange has implemented a Floating Rate for lending and borrowing with a zero bid-offer in response to the growing interest of institutional investors in the cryptocurrency market. The inefficiencies of utilization-based protocols have caused DeFi 1.0 to stall out, but Infinity Exchange ushers in a tried-and-true method for the financial markets that combines the “We can do it better” spirit of the blockchain community with the “It’s about time” sentiment.
The first full yield curve in DeFi will be introduced by Infinity Exchange, with both floating and fixed rates, giving traders the ability to hedge basis/rates risk and engage in speculation throughout the whole maturity curve. Infinity intends to reduce overall market volatility and provide stability to the DeFi markets by expanding the range of investable assets throughout the yield curve, therefore providing participants with a convenient means of quickly and easily switching between risky and safe investments.
Finally, Infinity Exchange will make it possible to oversee a diverse range of sophisticated collateral that has nowhere else to earn yield at now. Trading possibilities for arbitraging interest rate differentials between other lending protocols and Infinity are made possible by this. Furthermore, this has the potential to greatly increase the TVL. Investors with over $20 billion in TVL that is now lying dormant on Aave, Compound, Uniswap, and Curve may take advantage of Infinity’s leverage. Due to this unprecedented consolidation opportunity, interest rates across the DeFi have risen to market-determined risk-neutral levels and new TVLs in the range of $100 billion have been created.
In summary, Infinity Exchange is preparing the ground for a $1 trillion institutional crypto-based fixed income market by facilitating the bulk entry of TradFi investors into DeFi.
Infinity Exchange Founder Kevin Lepsoe stated:
“The crypto fixed income markets should be 100-times what they are today and we’re taking the first two steps in that direction. We’re introducing an institutional-quality interest rate protocol that aligns with theoretical finance, all while taking a comprehensive approach to risk management.”
Lepsoe continued:
“In TradFi, institutional investors are more active in the fixed income markets than they are in the equity markets. If we want more institutional adoption in crypto, we need to first nail the fixed income markets and it starts here, at Infinity.”
