Infinity Exchange, a decentralized finance protocol that provides institutional grade capital efficiency for traders, yield farmers and global fixed-income investors, has closed a $4.2 million seed round, paving the way for the institutionalization of DeFi.
The round was led by top-tier financial institutions, including market makers and funds GSR, SIG, CMS, C-Squared, and Flow Traders. Proceeds will be used to grow headcount and further develop Infinity’s product offerings, including fixed and floating rate markets, as well as futures and spot trading markets, eventually forming the first complete financial markets protocol in DeFi.
Founded by ex-Morgan Stanley Head of Structuring, Kevin Lepsoe, Infinity Exchange, with its litepaper, is the foundational interest rates and risk management protocol enabling institutional investor participation in DeFi. Developed on Ethereum, Infinity’s hybrid protocol incorporates well-established mechanics from traditional financial markets and is capable of handling the trading of trillions of dollars of assets that will be tokenized in the new, institutionalized world of DeFi (“DeFi 2.0”).
“Crypto interest rates or Lending Protocols have been built in isolation, and on economically weak foundations that do not align with the core tenets of traditional finance. To gain institutional adoption, we need to completely rebuild these foundations, change the narrative, and show market participants through our protocol that Lending, Interest Rates, and Credit Risk Management must work in concert for a robust crypto financial system to flourish, ” said Lepsoe.
Critical Infrastructure for DeFi 2.0
Infinity Exchange debuts market-driven floating interest rates used for both lending and borrowing, to form the crypto industry’s benchmark interest rates. Coupled with fixed interest rates, Infinity pioneers the first full crypto yield curve where liquidity can flow evenly across all maturities and investors holding Complex Tokens have easy access to financing.
Fixed Income Markets Key for DeFi
Traditional fixed-income markets are substantially larger than their equity counterparts, yet in crypto markets, it’s the reverse with spot or token swapping markets being 100 times greater than lending counterparts. This highlights the nascency and inefficiency of lending protocols in today’s DeFi (“DeFi 1.0”) and market recognition that DeFi 1.0 has failed to fully properly price, deliver, and integrate the time-value of money for investors.
“The majority of lending protocols that exist today are designed to bypass limitations in network architecture and virtual machine constraints, but not true deficits in capital markets. Utilization-based lending is likely going to become antiquated quickly, owing to the disparity between the true on-chain and off-chain cost of capital,” said C-Squared, in a statement.
Pioneering Interest Rate Arbitrage
Infinity Exchange enables borrowing and lending supported by a comprehensive risk management system running market-derived risk measures and protocol-based analytics including value-at-risk. Beyond major cryptocurrencies, Infinity provides financing against “Complex Tokens”, including Aave’s aTokens, Compound’s cTokens, Uniswap V3 LP Tokens, and Curve LP Tokens. Infinity Exchange has pioneered the ability for investors to deposit Complex Tokens, borrow against them, and iterate the process facilitating large-scale interest rate arbitrage in DeFi for the first time.
“Building out a complete yield curve with both floating and fixed rates will unlock new use cases and pockets of liquidity for the crypto markets. Infinity’s success should effectively lower volatility and add stability to the larger DeFi ecosystem. We believe Infinity has the right team to execute on this mission and look forward to supporting them as they progress,” said CMS Holdings in a statement.
Infinity Exchange launched its testnet in September 2022 and is currently in pilot with select institutional investors. They are also looking to provide a smart contract interface to their credit risk management system so that other protocols may offer much greater capital efficiency to their end users – a smart-contract-enabled risk-management as a service feature or Risk Management Protocol.
“A crypto yield curve will allow for a more robust suite of products around stablecoins, ultimately helping lower crypto volatility and helping pave a way for more traditional institutional investors. While most protocols offer either a fixed rate or floating rate product, Infinity Exchange tackles fixed rates, floating rates, and collateral/risk management to build a fully integrated yield curve solution. Utilizing past experiences as both a second time entrepreneur and as an ex-head of Structuring at Morgan Stanley, in Kevin we saw a founder aptly suited to build a DeFi market that institutions can embrace,” said Vir Anand, Investor at SIG DT Investments, in a statement.
About Infinity Exchange
Infinity Exchange is a hybrid interest rate protocol on Ethereum that’s building the foundation for the next generation of DeFi. Developed by veteran traders, quants, and financial engineers, Infinity marries theoretical finance with distributed ledger technology and enterprise-grade risk management to enable broad institutional investor adoption.