Decentralized finance (DeFi) continues to gain momentum with no signs of slowing down, even with the ongoing crypto bear market. Built on the premise of eliminating financial intermediaries by using blockchain smart contracts to run code that regulates the rules between two counterparties, DeFi offers a new way for users to lend, borrow, and save money while traditional gatekeepers of finance such as banks and financial institutions are bypassed.
According to estimates, the global DeFi market size is expected to reach $507.92 billion by 2028. And that’s why crypto fintech startup Infinity Exchange is building the foundation and critical infrastructure for the next generation of DeFi, paving the way for institutional adoption.
Infinity Exchange is a hybrid interest rate protocol on Ethereum that offers institutional capital efficiency to traders, yield farmers and global fixed income investors. Infinity was created by a team of Wall Street financial engineers, traders, quants and technologists, reinventing permissionless funding for institutional use. Infinity blends theoretical finance with enterprise-level distributed ledger technology and risk management to enable widespread adoption by institutional investors.
To further accelerate DeFi’s institutional adoption, Infinity Exchange announced today that it has secured a $4.2 million seed round led by top-tier financial institutions, including market makers and funds such as GSR, SIG, CMS, C-Squared and Flow Traders.
Infinity Exchange will use the fresh capital injection to increase headcount and further develop Infinity’s product offering, including fixed and floating rate markets, futures and spot trading markets, eventually forming the first full financial market protocol in DeFi.
Founded in 2022 by Kevin Lepsoe, ex-Morgan Stanley Head of Structuring, Infinity Exchange is a hybrid interest rate protocol on Ethereum that is the foundation for the next generation of DeFi. The startup offers traders, yield builders and real money investors unparalleled capital efficiency and enables institutional investors to participate in DeFi.
Infinity’s hybrid protocol incorporates proven mechanisms of traditional financial markets and is capable of trading trillions of dollars in assets tokenized in the new, institutionalized world of DeFi (“DeFi 2.0”).
In a statement, Lepsoe said, “Crypto interest rates, or lending protocols, have been isolated and built on economically weak foundations that are inconsistent with the fundamental principles of traditional finance. To achieve institutional acceptance, we must completely rebuild these foundations, change the narrative, and show market participants through our protocol that lending, interest rates, and credit risk management must work together for a resilient crypto-financial system to thrive.”
DeFi 1.0 and its fundamental flaws
As you know, the first generation of DeFi protocols (“DeFi 1.0”) was created based on the ideal of providing widespread permissionless access to financial services that is resistant to censorship.
For some time, DeFi 1.0 managed to prove the viability and huge market demand for decentralized and permissionless finance. However, DeFi 1.0 was also built on an unstable foundation with fundamental flaws, including unsustainable and excessive incentive schemes (e.g. ridiculously high agricultural yields), dangerously high leverage (remember Terra/Luna?), greater fool theory without any Fundamental value analysis. As you can see, the “move fast and destroy things” mantra that tech startups lived by seemed to apply in DeFi.
How Infinity is building critical infrastructure for DeFi 2.0
In order to move to the next generation of DeFi, bugs in DeFi 1.0 must first be fixed. The DeFi industry must also inspire trust and build not for the present but for a sustainable future for billions of new DeFi users. Because of this, Infinity Exchange is the first of many DeFi 2.0 participants to create protocols for long-term institutional use. Rather than just focusing on new tech buzzwords that sound good and appealing, Infinity is building commercially sound, enterprise-grade, permit-free financing.
In addition, Infinity is also introducing market-based variable interest rates, which are used for both lending and borrowing to form the benchmark interest rates of the crypto industry. Coupled with fixed interest rates, Infinity is pioneering the first full crypto yield curve, allowing liquidity to flow evenly across all maturities and giving investors holding complex tokens easy access to funding.
That’s not all. Infinity also enables borrowing and origination, supported by a comprehensive risk management system that performs market-derived risk measurements and log-based analysis including value-at-risk.
In addition to major cryptocurrencies, the startup also offers funding against “complex tokens” including Aave aTokens, Compound cTokens, Uniswap V3 LP tokens, and Curve LP tokens. Infinity Exchange has pioneered the ability for investors to escrow complex tokens, borrow against them, and repeat the process that enables large-scale interest rate arbitrage in DeFi for the first time.
“Building a full yield curve with floating and fixed rates will unlock new use cases and pockets of liquidity for the crypto markets. Infinity’s success should effectively reduce volatility and bring stability to the larger DeFi ecosystem. We believe Infinity has the right team to carry out this mission and look forward to supporting them as they progress,” CMS Holdings said in a statement.