The GMX for Credit Markets: IPOR | TKX Weekly

6 min readNov 20, 2022

by @Guaaronnnn
editor @FriedWagyuu

Part I. IPOR


As we know, the current DeFi ecosystem started from fundamental financial tools like exchanges, stablecoins, and lending, to advanced tools like options, perpetual, and other derivatives. Following the path of TradFi, there is still an unexplored area — interest rate derivatives (IRDs), which is a $450 trillion market in TradFi.

The London Inter-Bank Offered Rate (LIBOR) is extremely crucial in TradFi as it provides a benchmark for different financial products like mortgage rates and corporate loans, and IPOR protocol is trying to create a LIBOR for DeFi. IPOR stands for Inter Protocol Overblock Rate, it is a standardized benchmark based on on-chain DeFi transactions. The protocol offers two products — the IPOR index and AMM for interest rate swaps.

IPOR Index

In TradFi, when financial institutions come up with an interest rate, they use benchmarks like LIBOR to reflect the fair market cost of borrowing and lending capital (also known as the “risk-free” rate). However, in DeFi, the such benchmark was impossible to achieve without a centralized entity. Major lending protocols like AAVE and Compound can be extremely volatile during a black swan event as the rate is calculated algorithmically based on the ratio of assets.

IPOR index offers multiple IPOR indices, representing different assets like USDT, USDC, and DAI. The indices are calculated in real-time on-chain and can be adjusted by DAO governance. Since external protocols’ interest rates can be volatile, the IPOR index can serve as an adequate proxy for the risk-free rate, as the collateral effectively mitigates default risk.

Index Formula

The IPOR index rate is the market cost of money defined by a weighted average from money markets like AAVE and Compound. The data is weighted by liquidity with the following formula:


The Swap

Interest rate swaps allow users to exchange the cash flows of a fixed interest rate for a floating interest rate and vice versa. Two bets can be taken with an interest rate swap:

  • Long — Betting on an increasing interest rate by paying a fixed rate and receiving a floating rate
  • Short — Bet on a decreasing interest rate by paying a floating rate and receiving a fixed rate
Long and Short

The above positions are settled by the losing party to the winner. In IPOR, the counterparty is the liquidity pool. Participants pay the margin, the contract fee, and applicable network fees in exchange for the service.


The AMM price is based on the IPOR index. It offers a 28-day swap that uses a peer-to-pool model between the trader and the liquidity pool (the counterparty) for both pay-fixed and received-fixed contracts. Hence, there are only two parties involved, traders and liquidity providers (LPs).


Traders can go long or short interest rates for USDC, USDT, or DAI to:

  • Hedge their interest rate exposure — use a leveraged swap to lock the cost of borrowing or lending rates
  • Arbitrage between interest rates — take advantage of market inefficiencies between stablecoin pairs and markets.
  • Speculation — take directional bets

For traders, IPOR’s IRS offers the best capital efficiency as it allows up to 1000x leverage. The high leverage does not hurt because of the low volatility market. And, PnL accrues over time, with low risks of sudden liquidations due to market manipulations.

Liquidity Providers (LPs)

LPs act as the counterparty to all traders. Their revenue consists of:

  • Fees paid by traders to open a trade — 1% of the collateral
  • PnL from traders — traders’ gain is LPs’ loss
  • The leveraged yield on assets — idle assets in the LP pools and collateral deposited by traders is lent out on money markets

There is no impairment loss for LPs because the liquidity pool is for one stablecoin only. LPs’ revenue mainly comes from fees from trading. However, the potential risk to LPs is AMM’s ability to automatically correct the price spreads. As IPOR’s request-for-quote AMM is different from general AMMs, it actively sets spreads (difference between floating and fixed rate) based on external conditions like volatility, trend, maturity, etc. To minimize LPs’ exposure. IPOR has spent a large amount of time researching how to quote the fixed rate.

Final Thoughts

  • IPOR can be a good place for both individuals and institutions to hedge interest rate risks
  • It has the potential to be an infrastructure for other complicated protocols and derivatives
  • As IPOR keeps building, longer maturity swaps can be launched, a yield curve may be formed as a strong reference on the interest rate.
  • IPOR’s interface is clean and simple with a hedging calculator for users to calculate how much swap they need and its built-in dashboard offers all the data the traders need
  • As the DeFi market matures, we expect institutional demand for the protocol
  • Nevertheless, a transparent and immutable benchmark of interest rates can also help us reshape the TradFi world as traditional benchmarks have a high chance of being manipulated

Part II. Market Updates

Genesis’ Crypto-Lending Unit Is Halting Customer Withdrawals in Wake of FTX Collapse
The lending arm of crypto investment bank Genesis Global Trading is temporarily suspending redemptions and new loan originations in the wake of FTX’s collapse, Interim CEO Derar Islim told customers on a call Wednesday.

Crypto Exchange Gemini Suffers $485M Rush of Outflows Amid Contagion Fears
Gemini, a crypto exchange and custodian founded by the Winklevoss brothers, has suffered a rush of withdrawals as crypto firms wrestle with the reverberations of the FTX-Alameda bankruptcy and subsequent contagion within the digital asset industry.

Binance to Relaunch Bid for Bankrupt Lender Voyager
Binance.US, the American arm of the world’s largest cryptocurrency exchange, is preparing to bid for bankrupt lending platform Voyager Digital. A previous auction, which was completed around the end of last September, saw the now defunct FTX emerging as the “white knight,” winning out against rivals Wave Financial and Binance.

DeFi Giant MakerDAO Speeds Up DAI Transactions and Withdrawals, Expands to Arbitrum, Osmosis
MakerDAO said it can now handle “near-instant” transactions and faster withdrawals across the Ethereum blockchain and layer 2 networks for its $6 billion stablecoin, DAI. The new infrastructure called Maker Teleport enables users to send and withdraw DAI by circumventing the Ethereum blockchain’s base layer. Maker Teleport is now available on Ethereum scaling networks Arbitrum and Osmosis as part of MakerDAO’s multi-chain strategy to expand DAI to more blockchain networks.

Bahamian FTX Liquidators Cite ‘Serious Fraud and Mismanagement’ in Court Filings
There are signs that “serious fraud and mismanagement” occurred at crypto exchange FTX, according to court filings made by the company’s Bahamian liquidators late Wednesday. The crypto exchange, headquartered in the Bahamas, declared bankruptcy in the U.S. after revelations from CoinDesk regarding a blurring of lines with sister trading firm Alameda Research’s financials led to investor panic and significant outflows.

Part III. Fundraising News

PlayEmber — Web3 gaming monetization platform
Raised $2.3M in a pre-seed round led by Shima Capital. Other investors include Big Brain Holdings, Warburg Serres and Huobi Ventures.

Ultimate Champions — Free-to-play fantasy sports platform
Raised $4M in a strategic investment round from Binance Labs.

Buildspace — World’s largest network of web3 builders
Raised $10M in a seed funding round led by a16z. Other investors include Founders Inc, Weekend Fund, Y-Combinator, Vayner Fund, Protocol Labs, OrangeDAO, DreamerVC, We3, Solana Ventures and other investors.

Matter Labs — zkSync parent company
Raised $200M in a Series C round led by Blockchain Capital and Dragonfly. Other investors include LightSpeed Venture Partners, Variant and a16z.

Yakoa — NFT fraud detection startup
Raised $4.8M in a funding round led by Collab+Currency, Volt Capital and Brevan Howard Digital. Other investors include Data Community Fund, Alliance DAO, Uniswap Labs Ventures, Orange DAO, Time Zero Capital, gmjp, Sunset Ventures and FAST.


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Note: TKX Capital do not offer any financial advice for retail investors and we have no affiliation with projects in this research.




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